Opus Genetics, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the direction of the Chief Executive Officer and the principal financial officer, we have evaluated our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report. Management’s Annual Report on Internal Control over Financial Reporting This report does not include a report of management’s assessment regarding internal control over financial reporting as allowed by the SEC (Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations) for reverse mergers between an issuer and a private operating company when it is not possible to conduct an assessment of the private operating company’s internal control over financial reporting in the period between the consummation date of the reverse acquisition and the date of management’s assessment of internal control over financial reporting. As discussed elsewhere in this report, on November 5, 2020, Ocuphire and Rexahn completed the Merger. Rexahn was the legal acquirer in the Merger, but Private Ocuphire was the accounting acquirer in the Merger under U.S. GAAP. In accordance with U.S. GAAP, the historical financial statements of Private Ocuphire are considered the financial statements of the combined company. Prior to the Merger, Private Ocuphire was not subject to Section 404 of the Sarbanes-Oxley Act (“SOX”), while Rexahn was a publicly traded company subject to Section 404 of SOX. The design of internal control over financial reporting for the Company post-Merger has required and will continue to require significant time and resources from management and other personnel. Because the Merger occurred immediately prior to year-end, and because Ocuphire was the accounting acquirer and not previously subject to Section 404 of SOX, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of our internal control over financial reporting as of December 31, 2020. If management were to conduct an assessment regarding the Company’s internal control over financial reporting, however, its scope would include the criteria set forth by the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of The Treadway Commission. 124 Table of Contents Changes in Internal Control over Financial Reporting Other than as referenced above regarding the Merger, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d‑15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHE R INFORMATION None. 125 Table of Contents PART II I We will file a definitive Proxy Statement for our 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2021 Proxy Statement that specifically address the items set forth herein are incorporated by reference. ITEM 10. DIRECTORS, EXECUTIVE OF FICERS AND CORPORATE GOVERNANCE The information required by Item 10 is hereby incorporated by reference to the sections of the 2021 Proxy Statement under the captions "Information Regarding the Board of Directors and Corporate Governance," "Proposal 1 – Election of Directors," "Executive Officers" and “Delinquent Section 16(a) Reports”. ITEM 11. EXECUTI VE COMPENSATION The information required by Item 11 is hereby incorporated by reference to the sections of the 2021 Proxy Statement under the captions "Executive Compensation" and "Non-Employee Director Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OW NERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is hereby incorporated by reference to the sections of the 2021 Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance under Equity Compensation Plans." ITEM 13. CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is hereby incorporated by reference to the sections of the 2021 Proxy Statement under the captions "Certain Relationships and Related Transactions" and" Information Regarding the Board of Directors and Corporate Governance – Independence of the Board of Directors." ITEM 14. PRINCIPAL ACCO UNTANT FEES AND SERVICES The information required by Item 14 is hereby incorporated by reference to the sections of the 2021 Proxy Statement under the caption "Proposal 2 – Ratification of Independent Registered Public Accounting Firm." 126 Table of Contents PART IV ITEM 15. EXHIBITS, FINAN CIAL STATEMENT SCHEDULES EXHIBIT NUMBER ​ DESCRIPTION OF DOCUMENT 2.1+ ​ Agreement and Plan of Merger, dated as of June 17, 2020, by and among the Registrant, Razor Merger Sub, Inc. and Ocuphire Pharma, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed on June 19, 2020).. 2.2 ​ First Amendment to Agreement and Plan of Merger and Reorganization, dated as of June 29, 2020, by and among Rexahn, Merger Sub and Ocuphire (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K , filed on July 1, 2020). 3.1 ​ Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Appendix G to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed on April 29, 2005). 3.2 ​ Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 5, 2017). 3.3 ​ Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on August 30, 2018). 3.4 ​ Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on April 12, 2019). 3.5 ​ Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 6, 2020). 3.6 ​ Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on November 6, 2020). 3.7 ​ Second Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K, filed on November 6, 2020). 4.1 ​ Specimen Certificate for the Registrant’s Common Stock, par value $.0001 per share (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8 (File No. 333-129294), filed on October 28, 2005). 4.2 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on November 6, 2015). 4.3 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on February 26, 2016). 4.4 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on September 14, 2016). 4.5 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on June 7, 2017). 4.6 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on October 13, 2017). 4.7 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on October 19, 2018). 127 Table of Contents 4.8 ​ Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on January 25, 2019). 4.9 ​ Stockholders Agreement, dated as of April 10, 2018, among Ocuphire Pharma, Inc. and Stockholders as defined therein (incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 4.10 ​ Form of Series A/B Warrants (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on July 1, 2020). 4.11 ​ Description of Securities. 10.1* ​ Rexahn Pharmaceuticals, Inc. Stock Option Plan, as amended (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 (File No. 333-129294), filed on October 28, 2005). 10.2* ​ Form of Stock Option Grant Agreement for Employees (incorporated by reference to Exhibit 4.5.1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-129294), filed on October 28, 2005). 10.3* ​ Form of Stock Option Grant Agreement for Non-Employee Directors and Consultants (incorporated by reference to Exhibit 4.5.2 to the Registrant’s Registration Statement on Form S-8 (File No. 333-129294), filed on October 28, 2005). 10.4* ​ Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on June 10, 2016) 10.5* ​ First Amendment to the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan, as amended and restated as of June 9, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on April 13, 2017). 10.6* ​ Form of Stock Option Grant Agreement under the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015). 10.7* ​ Form of Restricted Stock Unit Agreement under the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018). 10.8 ​ Lease Agreement, dated June 5, 2009, by and between Rexahn Pharmaceuticals, Inc. and The Realty Associates Fund V, L.P. (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009). 10.9 ​ First Amendment to Lease Agreement, dated as of June 7, 2013, by and between Rexahn Pharmaceuticals, Inc. and SG Plaza Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013). 10.10 ​ Second Amendment to Lease Agreement, dated as of July 26, 2014, by and between Rexahn Pharmaceuticals, Inc. and SG Plaza Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014). 10.11 ​ Third Amendment to Lease Agreement, dated as of May 6, 2015, by and between Rexahn Pharmaceuticals, Inc. and SG Plaza Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015). 10.12 ​ Fourth Amendment to Lease Agreement, dated as of April 4, 2016, by and between Rexahn Pharmaceuticals, Inc. and SG Plaza Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016). 128 Table of Contents 10.13 ​ Fifth Amendment to Lease Agreement, dated as of April 13, 2017, by and between Rexahn Pharmaceuticals, Inc. and SG Plaza Holdings, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017). 10.14 ​ Sixth Amendment to Lease Agreement, dated as of March 19, 2019, by and between Rexahn Pharmaceuticals, Inc. and SG Plaza Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019). 10.15 ​ Form of Securities Purchase Agreement, dated as of November 6, 2015, by and between the Company and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on November 6, 2015). 10.16 ​ Form of Securities Purchase Agreement, dated as of February 26, 2016, by and between the Company and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on February 26, 2016). 10.17 ​ Form of Securities Purchase Agreement, dated as of September 14, 2016, by and between the Company and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on September 14, 2016). 10.18 ​ Form of Securities Purchase Agreement, dated as of June 6, 2017, by and between the Company and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on June 7, 2017). 10.19 ​ Form of Securities Purchase Agreement, dated as of October 13, 2017, by and between the Company and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 13, 2017). 10.20 ​ Form of Securities Purchase Agreement, dated as of October 17, 2018, by and between the Company and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 19, 2018). 10.21++ ​ Collaboration and License Agreement, dated as of February 25, 2019, between BioSense Global, LLC and the Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019). 10.22 ​ Amendment No. 1 to Collaboration and License Agreement, dated as of August 24, 2019, between BioSense Global LLC and the Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 29, 2019). 10.23++ ​ Amendment No. 2 to Collaboration and License Agreement, dated as of March 10, 2020 between BioSense Global LLC and the Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 7, 2020). 10.24*++ ​ Amended and Restated Employment Agreement by and among the Company and Mina Sooch, effective as of November 5, 2020 (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.25* ​ Amended and Restated Employment Agreement by and among the Company and Bernhard Hoffmann, effective as of November 5, 2020 (incorporated by reference to Exhibit 10.29 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.26* ​ Form of Indemnification Agreement (incorporated by reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.27++ ​ Sublicense Agreement, dated as of January 21, 2020, by and between Ocuphire Pharma, Inc. and Apexian Pharmaceuticals, Inc (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 129 Table of Contents 10.28 ​ First Amendment to Sublicense Agreement, dated as of June 4, 2020, by and between Apexian Pharmaceuticals, Inc. and Ocuphire Pharma, Inc (incorporated by reference to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.29 ​ Lease Agreement, dated as of May 19, 2019, by and between Ocuphire Pharma, Inc. and Duke & Duke, LP (incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.30 ​ First Amendment to Lease Agreement, dated as of October 29, 2019, by and between Ocuphire Pharma, Inc. and Duke & Duke, LP (incorporated by reference to Exhibit 10.34 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.31* ​ Ocuphire Pharma, Inc. 2018 Equity Incentive Plan, dated as of April 9, 2019 (incorporated by reference to Exhibit 10.35 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.32* ​ First Amendment to 2018 Equity Incentive Plan, dated as of December 23, 2019 (incorporated by reference to Exhibit 10.36 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.33* ​ Form of Option Agreement issuable under the Ocuphire Pharma, Inc. 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.37 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.34* ​ Ocuphire Pharma, Inc. 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.38 to the Registrant’s Registration Statement on Form S-4 (File No. 333-239702), filed on September 30, 2020). 10.35 ++ ​ Amended and Restated Securities Purchase Agreement, dated as of June 29, 2020, by and among Rexahn, Ocuphire and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on July 1, 2020). 10.36 ​ Form of Waiver Agreement, dated as of February 3, 2021, by and between Ocuphire Pharma, Inc. and the Holder(s) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on February 4, 2021) 10.37 ​ Form of Financing Lock-Up Agreement, by and among the Company, OcuSub, Inc., and the investors party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on July 1, 2020). 10.38 ​ Form of Lock-Up Agreement, by and between the Company, OcuSub, Inc. and certain stockholders 10.39 ​ Form of Leak-Out Agreement, by and between the Company and the investors party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on July 1, 2020). 10.40 ​ Contingent Value Rights Agreement, dated as of November 5, 2020, by and among the Company, Shareholder Representative Services LLC and the Olde Monmouth Stock Transfer Co., Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed on November 6, 2020). 10.41 ​ Ocuphire Pharma, Inc. 2020 Inducement Plan 10.42 ​ Employment Agreement dated November 11, 2020, by and between the Company and Amy Rabourn 10.43 Second Lease Amendment, dated as of November 17, 2020, by and between the Company and Duke & Duke 21.1 ​ Subsidiaries of the Registrant 23.1 ​ Consent of Ernst & Young, LLP. 31.1 ​ Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 ​ Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 ​ Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to section 906 of The Sarbanes-Oxley Act of 2002 130 Table of Contents 101.INS ​ XBRL Instance Document 101.SCH ​ XBRL Taxonomy Extension Schema Document 101.CAL ​ XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF ​ XBRL Taxonomy Extension Definition Linkbase Document 101.LAB ​ XBRL Taxonomy Extension Label Linkbase Document 101.PRE ​ XBRL Taxonomy Extension Presentation Linkbase Document * Indicates management contract or compensatory plan. + Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. ++ Portions of this exhibit have been omitted in compliance with Item 601 of Regulation S-K. ITEM 16. FORM 10-K SUMMARY None 131 Table of Contents ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 133 Consolidated Balance Sheets 135 Consolidated Statements of Comprehensive Loss 136 Consolidated Statements of Changes in Stockholders' Deficit 137 Consolidated Statements of Cash Flows 138 Notes to Consolidated Financial Statements 139 132 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders Ocuphire Pharma, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Ocuphire Pharma, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive loss, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2020, and the related notes. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. The Company's Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has negative cash flow from operations, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. 133 Table of Contents Accounting for Warrants Description of the Matter As discussed in Notes 1 and 9 to the consolidated financial statements, in connection with the merger transaction, the Company issued Series A and Series B warrants (collectively, the Warrants) to purchase additional common stock on November 19, 2020 (the Warrant Closing Date). As of the Warrant Closing Date, the Series A warrants were determined to be liability classified instruments and the Series B warrants were determined to be equity classified instruments. Auditing the accounting conclusions for the issuance of the Warrants was challenging because of the complex provisions affecting valuation and classification and required extensive audit effort. The accounting for the issuance of the Warrants involved an assessment of the particular features of each type of warrant, and the impact of those features on the accounting and classification of the Warrants. How we Addressed the Matter in Our Audit To test the accounting and determine proper classification of the Warrants, our audit procedures included, among others, inspecting the agreements and evaluating the completeness and accuracy of the Company’s technical accounting analyses, application of the relevant accounting guidance and review of legal interpretation from counsel. Our audit procedures also included the involvement of subject matter resources to assist in evaluating management’s conclusion on the interpretation and application of the relevant accounting literature. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. Detroit, Michigan March 10, 2021 134 Table of Contents Ocuphire Pharma, Inc. Consolidated Balance Sheets (in thousands, except share amounts and par value) As of December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 16,399 $ 1,537 Prepaids and other assets 1,269 149 Deferred costs — 76 Total current assets 17,668 1,762 Property and equipment, net 14 22 Total assets $ 17,682 $ 1,784 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $ 1,214 $ 342 Accrued expenses 1,971 621 Convertible notes — 4,977 Convertible notes from related parties — 690 Premium conversion derivatives — 2,714 Total current liabilities 3,185 9,344 Warrant liabilities 27,964 — Total liabilities 31,149 9,344 Commitments and contingencies (Note 3 and Note 9) Stockholders’ deficit Preferred stock, par value $0.0001; 10,000,000 and 625,000 shares authorized as of December 31, 2020 and 2019, respectively; no shares issued and outstanding at December 31, 2020 and 2019. — — Common stock, par value $0.0001; 75,000,000 and 5,000,000 shares authorized as of December 31, 2020 and 2019, respectively; 10,882,495 and 2,852,485 shares issued and outstanding at December 31, 2020 and 2019, respectively. 1 — Additional paid-in capital 19,207 495 Accumulated deficit (32,675 ) (8,055 ) Total stockholders’ deficit (13,467 ) (7,560 ) Total liabilities and stockholders’ deficit $ 17,682 $ 1,784 See accompanying notes. 135 Table of Contents Ocuphire Pharma, Inc. Consolidated Statements of Comprehensive Loss (in thousands, except share and per share amounts) For the Year Ended December 31, 2020 2019 Operating expenses: General and administrative $ 2,818 $ 1,820 Research and development 6,648 2,373 Acquired in-process research and development 10,502 — Total operating expenses 19,968 4,193 Loss from operations (19,968 ) (4,193 ) Interest expense (6,847 ) (1,409 ) Fair value change in derivative and warrant liabilities (1,486 ) (499 ) Gain on note extinguishment 3,672 — Other income (expense), net 9 ( 68 ) Loss before income taxes (24,620 ) (6,169 ) Benefit (provision) for income taxes — — Net loss (24,620 ) (6,169 ) Other comprehensive loss, net of tax — — Comprehensive loss $ (24,620 ) $ (6,169 ) Net loss per share: Basic and diluted (Note 10) $ (5.28 ) $ (2.17 ) Number of shares used in per share calculations: Basic and diluted 4,661,110 2,844,832 See accompanying notes. 136 Table of Contents Ocuphire Pharma, Inc. Consolidated Statements of Changes in Stockholders’ Deficit (in thousands, except share amounts) Common Stock Additional Paid–In Accumulated Total Stockholders’ Shares Amount Capital Deficit Deficit Balance at December 31, 2018 2,852,485 $ — $ 187 $ (1,886 ) $ (1,699 ) Share-based compensation — — 308 — 308 Net and comprehensive loss — — — (6,169 ) (6,169 ) 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 Gain on note extinguishment — — 971 — 971 Conversion of convertible notes into common stock upon close of the merger 977,128 — 6,953 — 6,953 Issuance of common stock and warrants in connection with pre-merger financing 4,999,988 1 (1 ) — — Issuance costs attributed to pre-merger financing — — (1,080 ) — (1,080 ) Issuance of common stock, warrants and options to former Rexahn stockholders and effect of asset acquisition 1,120,800 — 8,115 — 8,115 Share–based compensation — — 1,506 — 1,506 Reclassification of Rexahn warrants from liability to equity — — 64 — 64 Exercise of stock options 40,672 — 58 — 58 Net and comprehensive loss — — — (24,620 ) (24,620 ) Balance at December 31, 2020 10,882,495 $ 1 $ 19,207 $ (32,675 ) $ (13,467 ) See accompanying notes. 137 Table of Contents Ocuphire Pharma, Inc. Consolidated Statements of Cash Flows (in thousands) For the Year Ended December 31, 2020 2019 Operating activities Net loss $ (24,620 ) $ (6,169 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation 1,506 308 Depreciation 8 3 Non-cash acquired in-process research and development 10,502 — Gain on note extinguishment (3,672 ) — Non-cash interest on convertible notes 492 252 Non-cash interest on convertible notes – related party 51 42 Non-cash discount amortization on convertible notes 873 1,014 Non-cash discount amortization on convertible notes – related party 71 101 Fair value change in derivative and warrant liabilities 1,486 499 Non-cash interest attributed to Series A warrant issuance 4,671 — Issuance costs attributed to Series A warrants 689 — Change in assets and liabilities: Prepaid expenses and other assets (906 ) 58 Accounts payable 792 (168 ) Accrued and other liabilities 1,260 467 Net cash used in operating activities (6,797 ) (3,593 ) Investing activities Cash acquired in connection with asset acquisition 2,014 — Transaction costs in connection with asset acquisition (1,475 ) — Purchases of property and equipment — (25 ) Net cash provided by (used in) investing activities 539 (25 ) Financing activities Proceeds from pre-merger financing 21,150 — Proceeds from issuance of convertible notes 2,197 4,383 Proceeds from issuance of convertible notes – related party — 323 Issuance costs attributed to pre-merger financing (1,769 ) — Issuance costs attributed to convertible notes (10 ) (2 ) Settlement of Rexahn warrants (506 ) — Exercise of stock options 58 — Net cash provided by financing activities 21,120 4,704 Net increase in cash and cash equivalents 14,862 1,086 Cash and cash equivalents at beginning of period 1,537 451 Cash and cash equivalents at end of period $ 16,399 $ 1,537 Supplemental disclosure of cash flow information: Cash paid for income taxes $ — $ — Cash paid for interest $ — $ — Supplemental non-cash financing transactions: Non-cash conversion of convertible notes to common stock $ 9,365 $ — Common stock and warrants issued in connection with the asset acquisition $ 8,883 $ — Unpaid transaction costs in connection with asset acquisition $ 100 $ — Net assets assumed in connection with asset acquisition $ 68 $ — Bifurcation and modification of premium conversion derivative related to convertible notes $ 831 $ 1,910 Unpaid deferred offering costs $ — $ 76 Proceeds receivable from convertible note issuance $ — $ 125 See accompanying notes. 138 Table of Contents Notes to 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 additional second-generation product candidates, 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 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”), 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, which continues to spread throughout the United States and around the world. As a result of the COVID-19 pandemic, Ocuphire has experienced a few disruptions in its manufacturing, supply chain, research and development operations, regulatory process, and financial position. These disruptions include the acceleration of shipment of active pharmaceutical ingredient supply from overseas, the convening of an FDA EOP2 meeting via teleconference, 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. 139 Table of Contents Notes to Consolidated Financial Statements, continued Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting standards generally accepted in the United States of America (“GAAP”). The consolidated financial statements of the Company include a subsidiary, OcuSub, Inc., which is fully owned by the Company. All significant intercompany accounts and transactions have been eliminated in the preparation of the financial statements. All of the share and per share amounts presented were adjusted, on a retroactive basis, to reflect the exchange of the shares 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. 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. 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 consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Common Stock Valuation Prior to the close of the Merger, due to the absence of an active market for the 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. For the valuation of equity awards granted in October 2020 and September 2020, the Company used a contemporaneous third-party valuation of $8.76 and $7.89 per share, respectively. For the valuation of equity awards granted in April 2020 and June 2020, the Company applied a straight-line calculation using the contemporaneous third-party valuations of $1.74 per share as of March 31, 2020 and $9.54 per share as of June 18, 2020 to determine the fair value of Private Ocuphire common stock. Using the benefit of hindsight, the Company determined that the straight-line calculation would provide the most reasonable conclusion for the valuation of the Company’s common stock on these interim dates between valuations because the Company did not identify any single event or series of events that occurred during this interim period that would have caused a material change in fair value. Based on this calculation, the Company assessed the fair value of its common stock for awards granted in April 2020 and June 2020 at $2.33 and $8.65 per share, respectively. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 140 Table of Contents Notes to Consolidated Financial Statements, continued 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. 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 that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash is held by one large, long-standing financial institution in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. As of December 31, 2020, the Company had deposits that exceeded federally insured amounts by $16.1 million. General and Administrative Expenses General and administrative expenses (“G&A”) consist primarily of personnel-related costs, including salaries and stock-based compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and tax services, and other services provided by business consultants. Research and Development Research and development expenses (“R&D”) consist of costs incurred in performing research and development activities, including compensation for research and development employees and consultants, costs associated with preclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, nonlegal patent costs, fees paid to external service providers that conduct certain research and development, and an allocation of R&D related overhead expenses. Acquired In‑Process Research and Development Expenses The Company includes costs to acquire or in‑license product candidates as acquired in‑process research and development expenses (“IPR&D”). These costs are immediately expensed provided that the payments do not also represent processes or activities that would constitute a “business” as defined under GAAP or provided that the product candidate has not achieved regulatory approval for marketing, and absent obtaining such approval, has no alternative future use. Royalties owed on future sales of any licensed product will be expensed in the period the related revenues are recognized. See Note 8 – Apexian Sublicense Agreement. Other Income (Expense), net Other income represents interest income related to cash and cash equivalent investments and reimbursements from grants and other sources. Other expense includes non-operating transaction costs, including legal and advisory fees, related principally to potential asset acquisitions when incurred. The non-operating transaction costs, interest income and other reimbursements are included in the other income (expense), net line item in the accompanying consolidated statements of comprehensive loss. 141 Table of Contents Notes to Consolidated Financial Statements, continued Share‑Based Compensation The Company accounts for share‑based compensation in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 718”), Compensation — Stock Compensation . Accordingly, compensation costs related to equity instruments granted are recognized at the grant‑date fair value. The Company records forfeitures when they occur. Share‑based compensation arrangements to non‑employees are accounted for in accordance with the applicable provisions of ASC 718. Warrant Liabilities The Company issued Series A Warrants in connection with the Pre-Merger Financing (see Note 9 – Pre-Merger Financing) and assumed Rexahn warrants issued prior to the Merger. The Company accounts for these warrants as a liability at fair value as certain provisions precluded equity accounting treatment for these instruments. Additionally, issuance costs associated with the warrants classified as liabilities are expensed as incurred and reflected as interest expense in the accompanying consolidated statements of comprehensive loss. The Company will continue to adjust the liabilities for changes in fair value until the earlier of the exercise, expiration, or until such time that certain indexation or cash settlement provisions are no longer in effect for the warrants. The change in fair value of the warrant liabilities are recognized as a component of the fair value change in derivative and warrant liabilities line item in the consolidated statements of comprehensive loss. Premium Conversion Derivatives The Company evaluates all conversion and redemption features contained in a debt instrument to determine if there are any embedded derivatives that require separation from the host debt instrument. An embedded derivative that requires separation is bifurcated from its host debt instrument and a corresponding discount to the host debt instrument is recorded. The discount is amortized and recorded to interest expense over the term of the host debt instrument using the straight-line method which approximates the effective interest method. The embedded derivative is accounted for separately on a fair market value basis. The Company records the fair value changes of a separated embedded derivative at each reporting period in the fair value change in derivative and warrant liabilities line item in the accompanying consolidated statements of comprehensive loss. The Company determined that the redemption features under the convertible notes qualified as embedded derivatives and were separated from their debt hosts. 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 December 31, 2020 and 2019, the fair values of cash and cash equivalents, prepaid and other assets, deferred costs, 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 were based on amortized cost which was deemed to approximate fair value. 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 years ended December 31, 2020 and 2019. 142 Table of Contents Notes to Consolidated Financial Statements, continued The fair value of financial instruments measured on a recurring basis is as follows (in thousands): 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 As of December 31, 2019 Description Total Level 1 Level 2 Level 3 Liabilities: Premium conversion derivatives $ 2,714 $ — $ — $ 2,714 Total liabilities at fair value $ 2,714 $ — $ — $ 2,714 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 years ended December 31, 2020 and 2019 (in thousands): 2020 Warrant liabilities Balance as of beginning of period $ — Value assigned to warrants upon in connection with pre-merger financing 25,821 Issuance of warrants to former Rexahn stockholders classified as a liability 768 Cash settlement of warrant liabilities (506 ) Reclassification of Rexahn warrants from liability to equity (64 ) Change in fair value of warrant liability 1,945 Balance as of end of period $ 27,964 2020 2019 Premium conversion derivatives Balance as of beginning of period $ 2,714 $ 305 Value assigned to the underlying derivatives in connection with convertible notes 831 1,910 Revaluation due to convertible note extinguishment (3,086 ) — Change in fair value of premium conversion derivatives (459 ) 499 Balance as of end of period $ — $ 2,714 There were no financial instruments measured on a non-recurring basis for any of the periods presented. Income Taxes The Company utilizes the liability method of accounting for income taxes as required by ASC 740, Income Taxes . Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Currently, there is no provision for income taxes, as the Company has incurred operating losses to date, and a full valuation allowance has been provided on the net deferred tax assets. 143 Table of Contents Notes to Consolidated Financial Statements, continued Property and Equipment Property and equipment, net is recorded at cost and reduced by accumulated depreciation. Depreciation expense is recognized over the estimated useful lives of the assets using the straight-line method. Equipment and furniture are depreciated over a five year estimated useful life. Tangible assets acquired for research and development activities which have alternative use are capitalized and depreciated over the useful life of the acquired asset. Estimated useful lives are periodically reviewed, and when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts. Maintenance and repairs are charged directly to expense as incurred. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014‑09, Revenue from Contracts with Customers (Topic 606) , which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Company adopted this standard on January 1, 2019 and selected the modified retrospective transition method. The Company modified its accounting policies to reflect the requirements of this standard; however, the adoption did not affect the Company’s consolidated financial statements and related disclosures for the periods presented as the Company has yet to generate any revenues. In January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities . The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The Company adopted this standard on January 1, 2019 and the standard did not have a material impact on the Company’s consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . The objective of this ASU is to eliminate the diversity in practice related to the classification of restricted cash or restricted cash equivalents in the statement of cash flows. The amendments in this update should be applied retrospectively to all periods presented. The Company adopted this standard on January 1, 2019 and the standard did not have a material impact on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) : Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should generally apply the requirements of Topic 718 to nonemployee awards except in circumstances where there is specific guidance on inputs to an option pricing model and the attribution of cost. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company early adopted ASU 2018-07 effective January 1, 2019. The guidance did not have an impact to the Company’s consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13) . This new guidance modifies the disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be applied prospectively while others retrospectively depending on requirement. The Company adopted the new guidance on January 1, 2020 and the adoption did not have an impact on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842 ) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017, July 2018 and March 2019. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted the new guidance on January 1, 2019 and the adoption did not have an impact on its consolidated financial statements. 144 Table of Contents Notes to Consolidated Financial Statements, continued In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging , which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU should be applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented. The Company adopted the new guidance on January 1, 2020 and the adoption did not have an impact on its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes . The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted the guidance effective April 1, 2020. The adoption of the guidance did not have a material impact on the Company's 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. 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 holds 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. 145 Table of Contents Notes to Consolidated Financial Statements, continued 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 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 the November 5, 2020, the Merger closing date, and December 31, 2020, no milestones had been accrued as there were no potential milestones yet considered probable. The total purchase price paid in the Merger has been allocated to the net assets acquired and liabilities assumed based on their fair values as of the completion of the Merger. The following summarizes the purchase price paid in the Merger (in thousands, except share and per share amounts): Number of shares of the combined organization owned by the Company’s Pre-Merger stockholders 1,120,800 Multiplied by the fair value per share of REXN’s common stock (1) $ 7.24 Fair value of common stock issued to affect the Merger 8,115 Fair value of warrants and options issued to affect the Merger 768 Transaction costs 1,575 Purchase price $ 10,458 (1) Based on the last reported sale price of the Rexahn’s common stock on the Nasdaq Capital Market on November 5, 2020, the closing date of the Merger, and gives effect to the Reverse Stock Split. 146 Table of Contents Notes to Consolidated Financial Statements, continued The allocation of the purchase price is as follows: Cash acquired $ 2,014 Net assets assumed 68 IPR&D (2) 8,376 Purchase price $ 10,458 (2) Represents the pre-Merger research and development projects of Rexahn which were in-process, but not yet completed, and which the Company may advance post-Merger. This includes the development of RX-3117, RX-0301 and RX-0047. Current accounting standards require that the fair value of IPR&D projects acquired in an asset acquisition with no alternative future use be allocated a portion of the consideration transferred and charged to expense on the acquisition date. The acquired assets did not have outputs or employees. Former Rexahn Warrants and Stock Options Following the closing of the Merger, 231,433 outstanding, unexercised Rexahn warrants to purchase Common Stock remained outstanding upon close of the Merger, the majority of which were subsequently repurchased according to the terms of the original warrant agreements. As of December 31, 2020, 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 2.9 years. In addition, there were 993 outstanding, unexercised Rexahn stock options to purchase Common Stock upon close of the Merger (see Note 7 – Share-based Compensation). 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 and royalty payments on future sales (See Note 8 — Apexian Sublicense Agreement). As of December 31, 2020, there was sufficient uncertainty with regard to both the outcome of the clinical trials and the ability to obtain sufficient funding to support any of the cash milestone payments under the sublicense agreement, and as such, 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. In October 2019 and November 2020, the Lease was amended to ultimately extend the term to December 31, 2021. Additionally, Ocuphire is leasing office space in Rockville, Maryland 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 is approximately $3,000 and $13,000 for the Lease and Rexahn Lease, respectively. The rent expense associated with the Lease and Rexahn Lease in the aggregate amounted to $54,000 and $20,000 during the year ended December 31, 2020 and 2019, respectively. Total expected rental payments under the Lease and Rexahn Lease for the year ended December 31, 2021 is approximately $36,000 and $78,000, respectively. 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): December 31, 2020 2019 Prepaids $ 1,243 $ 19 Proceeds receivable from convertible note financing — 75 Proceeds receivable from convertible note financing – related party — 50 Other 26 5 Total prepaids and other assets $ 1,269 $ 149 147 Table of Contents Notes to Consolidated Financial Statements, continued Property and Equipment, net Property and equipment held for use by category are presented in the following table (in thousands): December 31, 2020 2019 Equipment $ 20 $ 20 Furniture 5 5 Total property and equipment 25 25 Less accumulated depreciation (11 ) (3 ) Property and equipment, net $ 14 $ 22 Depreciation expense was $8,000 and $3,000 for the years ended December 31, 2020 and 2019, respectively. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2020 2019 R&D services and supplies $ 1,440 $ — Payroll 320 350 Professional services 186 262 Other 25 9 Total $ 1,971 $ 621 5. 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 6 – 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. The conversion was accounted for as a debt extinguishment given the bifurcation of the embedded premium conversion derivatives. The fair value of the newly issued common shares associated with the Convertible Notes conversion relative to the carrying value of the debt and fair value of premium conversion derivatives on the conversion date was $2.7 million lower and was recorded largely as a gain on note extinguishment in the amount of $2.4 million in the accompanying consolidated statements of comprehensive loss with the remaining portion of $0.3 million differential being recorded as additional paid-in capital for the portion attributed to related parties. Prior to the conversion of the Convertible Notes, the Company amended the Convertible Notes (the “Conversion Agreement”) on June 8, 2020. 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 would automatically and without any action required by any purchaser or the Company be cancelled and, simultaneously with such cancellation, would convert into that number of fully paid and non-assessable shares of the Company’s common stock that was 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 had 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 had 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. 148 Table of Contents Notes to Consolidated Financial Statements, continued 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 $1.3 million 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 consolidated statements of comprehensive loss for the year ended December 31, 2020. Lastly, an increase to additional paid-in capital in the amount of $1.0 million 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. Previous to the Conversion Agreement, the Convertible Notes were amended on January 22, 2019 and again on November 20, 2019. The November 2019 amendment was accounted for as a note modification for financial accounting purposes. The modification resulted in an additional discount to the Convertible Notes in the amount of $0.4 million with a corresponding increase to the premium conversion derivative liability. The January 2019 amendment was also accounted for as a note modification for financial accounting purposes. The modification resulted in an additional discount to the Convertible Notes in the amount of $59,000 with a corresponding increase to the premium conversion derivative liability. 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 years ended December 31, 2020 and 2019 was $0.5 million and $0.3 million, 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. • 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). 149 Table of Contents Notes to Consolidated Financial Statements, continued • 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 $0.8 million and $1.5 million during the year ended December 31, 2020 and 2019, respectively. The embedded derivatives were accounted for separately on a fair market value basis. The fair value of the derivatives was $2.7 million at December 31, 2019 and was included in the premium conversion derivatives line item on the accompanying consolidated balance sheets. There were no outstanding premium conversion derivatives as of 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 fair value change in derivative and warrant liabilities in the accompanying consolidated statements of comprehensive loss which amounted to a benefit of $0.5 million and an expense of $0.5 million during the year ended December 31, 2020 and 2019, respectively, The Company recorded a discount to the Convertible Notes, attributed to both third party costs in connection with the note extinguishments and note issuance costs, of $8,000 and $2,000 during the year ended December 31, 2020 and 2019, respectively. The note discounts were amortized to interest expense over the term of the Convertible Notes using the straight-line method which approximates the effective interest method and amounted to $0.9 million and $1.1 million during the year ended December 31, 2020 and 2019, respectively. 6. Related Party Transactions The Company incurred consulting expenses from one officer who is also a board member in the amount of $34,000 during the year ended December 31, 2019 of which zero remained unpaid as of December 31, 2019. No consulting services were provided by the officer during the year ended December 31, 2020. 150 Table of Contents Notes to Consolidated Financial Statements, continued Convertible Notes with Related Parties The Company entered into Convertible Notes with certain investors beginning on May 25, 2018. Through December 31, 2020, Convertible Notes in the principal aggregate amount equal to $0.7 million were issued to four board members and to two officers, one of which was also a board member of the Company. See Note 5 – Convertible Notes. Apexian Sublicense Agreement On January 21, 2020, as amended on June 4, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc. (“Apexian”) and issued a total of 843,751 shares of common stock to Apexian and to certain affiliates of Apexian. See Note 8 – Apexian Sublicense Agreement. Pre-Merger Financing Five directors of Private Ocuphire and one director of Rexahn participated in the Pre-Merger Financing, investing an aggregate of $300,000. Following the closing of the Merger, these directors received 17,729 Converted Initial Shares, 53,189 Converted Additional Shares, 80,366 Series A Warrants and 9,444 Series B Warrants. See Note 9 – Pre-Merger Financing. Waiver Agreements Six directors of the Company signed Waiver Agreements, waiving certain reset provisions financing restrictions. See Note 12 – Subsequent Events. 7. Share-based Compensation Share-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying statements of comprehensive loss for the periods indicated below (in thousands): December 31, 2020 2019 General and administrative $ 675 $ 186 Research and development 831 122 Total share-based compensation $ 1,506 $ 308 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. The 2020 Plan became effective on November 5, 2020. Under the 2020 Plan, (i) 1,000,000 new shares of common stock are 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 1,175,000 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. 151 Table of Contents Notes to Consolidated Financial Statements, continued Both the 2020 Plan and the 2018 Plan permit the grant of incentive and non‑statutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other share‑based awards. During the years ended December 31, 2020 and 2019, 830,167 and 579,486 stock options were granted to newly-hired officers, directors, employees and consultants (as adjusted for the Exchange Ratio), respectively, generally vesting over an immediate to forty-eight (48) month period. The Company recognized $1.4 million and $0.3 million in share-based compensation expense related to stock options during the years ended December 31, 2020 and 2019, respectively. The following table summarizes the Company’s stock option plan activity: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value(1) (in thousands) Outstanding at December 31, 2018 458,219 $ 0.90 9.28 $ 26 Granted 579,486 $ 1.19 — — Exercised — $ — — — Forfeited/Cancelled — $ — — — Outstanding at December 31, 2019 1,037,705 $ 1.06 9.20 $ 1,374 Granted 830,167 $ 3.50 — — Exercised (40,672 ) $ — — — Forfeited/Cancelled (43,002 ) $ — — — Outstanding at December 31, 2020 1,784,198 $ 2.17 8.87 $ 7,744 Vested and expected to vest at December 31, 2020 895,066 $ 1.23 8.14 $ 4,712 (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of our common stock as of December 31, 2020 and 2019 of $6.49 and $2.39 per share (as adjusted for the Exchange Ratio), respectively. The weighted average fair value per share of options granted during the years ended December 31, 2020 and 2019 was $3.92 and $0.87, 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 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 mid‑point 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 years ended December 31, 2020 and 2019: 2020 2019 Expected stock price volatility 86.8 % 92.1 % Expected life of options (years) 7.2 5.5 Expected dividend yield 0 % 0 % Risk free interest rate 0.6 % 1.7 % 152 Table of Contents Notes to Consolidated Financial Statements, continued During the years ended December 31, 2020 and 2019, 379,576 and 423,747 stock options vested (as adjusted for the Exchange Ratio), respectively. The weighted average fair value per share of options vesting during the years ended December 31, 2020 and 2019 was $2.77 and $0.66, respectively. During the years ended December 31, 2020 and 2019, 43,002 and no stock options were forfeited. As of December 31, 2020, 446,843 shares were available for future issuance under the 2020 Plan and 2018 Plan. Unrecognized share‑based compensation cost was $2.5 million as of December 31, 2020. The unrecognized share‑based expense is expected to be recognized over a weighted average period of 1.5 years. Ocuphire Restricted Stock Awards On November 11, 2020, the Company granted 40,000 restricted stock awards (“RSAs”) that vest on January 8, 2021. There were no RSAs granted during the years ended December 31, 2019. The RSAs granted in previous years were subject to various vesting schedules. During the year ended December 31, 2020 and 2019, zero and 64,552 RSAs vested, respectively, and no RSAs were forfeited during the periods presented. The share-based compensation expense attributed to the RSAs during the years ended December 31, 2020 and 2019 was $0.1 million and $24,000, respectively. A summary of RSA activity is as follows for the years ended December 31, 2020 and 2019: Number of Shares Non-vested at December 31, 2018 64,552 Granted — Vested (64,552 ) Non-vested at December 31, 2019 — Granted 40,000 Vested — Non-vested at December 31, 2020 40,000 Former Rexahn Options Following the closing of the Merger, 123 outstanding, unexercised and vested options to purchase Common Stock granted under the Rexahn Pharmaceuticals Stock Option Plan, as amended (the “Rexahn 2003 Plan”, and together with the Rexahn 2013 Plan, the “Prior Plans”), remained outstanding as of December 31, 2020. The exercise prices related to the outstanding options granted under the Prior Plans ranged from $182.40 to $600.00 per share with an average remaining contractual life of 1.1 years. 8. Apexian Sublicense Agreement On January 21, 2020, as amended on June 4, 2020, the Company entered into a sublicense agreement (the “Sublicense Agreement”) with Apexian, a related party, pursuant to which it obtained exclusive worldwide patent and other intellectual property rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which the Company intends to develop as an oral pill therapeutic to treat diabetic retinopathy and diabetic macular edema initially, and potentially later to treat wet age-related macular degeneration. In connection with the Sublicense Agreement, the Company issued a total of 843,751 shares of its common stock to Apexian and to certain affiliates of Apexian. The share issuance transaction was recorded in the amount of $2.1 million as IPR&D expense for the year ended December 31, 2020 based on the fair market value of the common shares issued since no processes or activities that would constitute a “business” were acquired and none of the rights and underlying assets acquired had alternative future uses or reached a stage of technological feasibility. Additionally, in accordance with the Sublicense Agreement, the Company shall pay any balance remaining of $0.4 million of Ref-1 Inhibitor program costs to Apexian following the Company’s listing on a major stock exchange. In December 2020, the Company paid the remaining Ref-1 Inhibitor program cost balance to Apexian in the amount of $0.3 million following the close of the Merger. The Ref-1 Inhibitor program costs were recorded as research and development expenses in the accompanying statements of comprehensive loss. 153 Table of Contents Notes to Consolidated Financial Statements, continued The Company also agreed to make one-time milestone payments under the Sublicense Agreement for each of the first ophthalmic indication and the first diabetes mellitus indication for the Development and Regulatory milestones, and once for each of the Sales milestones. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial and the first Phase 3 pivotal trial in the United States, and filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11 million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, which net sales milestone payments are payable once, upon the first achievement of such milestone. Lastly, the Company also agreed to make a royalty payment equal to a single-digit percentage of its net sales of products associated with the covered patents under the Sublicense Agreement. If it is not terminated pursuant to its terms, the Sublicense Agreement shall remain in effect until expiration of the last to expire of the covered patents. None of the milestone or royalty payments, outside of the Ref-1 Inhibitor program cost reimbursement, were triggered as of December 31, 2020. 9. Pre-Merger Financing 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). The Series A Warrants provide that, until the second anniversary of the date on which all shares of common stock issued and issuable to the investors may be sold without restriction or limitation pursuant to Rule 144, if Ocuphire publicly announces, issues or sells, enters into a definitive, binding agreement pursuant to which Ocuphire is required to issue or sell or is deemed, pursuant to the provisions of the Series A Warrants, to have issued or sold, any shares of common stock for a price per share lower than the exercise price then in effect, subject to certain limited exceptions, then the exercise price of the Series A Warrants will be reduced to such lower price per share. Further, on each Reset Date (as defined below under Series B Warrants ) the Series A Warrants will be adjusted downward (but not increased) such that the exercise price thereof becomes 120% of the Reset Price (as defined below), and the number of shares underlying the Series A Warrants will be increased (but not decreased) to the quotient of (a) (i) the exercise price in effect prior to such Reset (as defined below under Series B Warrants) multiplied by (ii) the number of shares underlying the Series A Warrants prior to the Reset divided by (b) the resulting exercise price. In addition, the exercise price and the number of shares of Common Stock issuable upon exercise of the Series A Warrants will also be subject to adjustment in the event of any stock splits, dividends or distributions or other similar transactions. 154 Table of Contents Notes to Consolidated Financial Statements, continued The Series A Warrants were accounted for and classified as liabilities on the accompanying 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. A Monte Carlo simulation model was used to estimate the aggregate fair value of the Series A Warrants. Input assumptions used were as follows: risk-free interest rate 0.4%; expected volatility of 83.6%; expected life of 5 years; and expected dividend yield zero percent. The underlying stock price used was the market price as quoted on Nasdaq as of November 19, 2020. The aggregate fair value of the Series A Warrants of $25.8 million upon issuance was recorded as a long-term liability on the accompanying consolidated balance sheets. The amount by which the aggregate fair value of the Series A Warrants exceeded the $21.15 million gross proceeds from the Pre-Merger Financing, or $4.7 million, was recorded as day-one interest on the accompanying consolidated statements of comprehensive loss. The Company recorded the fair value change of the Series A Warrants in the amount of $2.1 million to the fair value change in derivative and warrant liabilities line item on the accompanying consolidated statements of comprehensive loss for the year ended December 31, 2020. 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 initially exercisable for 665,836 shares of Common Stock in the aggregate (without giving effect to any limitation on exercise contained therein). The Series B Warrants were accounted for and classified as equity on the accompanying consolidated balance sheets. Additionally, every ninth trading day up to and including the 45th trading day (each, a “Reset Date”) following (i) six months following the issuance date (the “Six Month Reset Date”) and (ii) if a Public Information Failure has occurred at any time following the Six Month Reset Date, the earlier to occur of (x) the date that such Public Information Failure is cured and no longer prevents the holder from selling all underlying securities pursuant to Rule 144 without restriction or limitation and (y) the earlier to occur of (I) the date all of the underlying securities may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) and (II) one year after the issuance date (each such date provided in the foregoing clauses (i), (ii) and (iii), an “End Reset Measuring Date”) (such 45 trading day period, the Reset Period and each such 45th trading day after an End Reset Measuring Date, an “End Reset Date”), the number of shares issuable upon exercise of each Investor’s Series B Warrants shall be increased (a “Reset”) to the number (if positive) obtained by subtracting (i) the sum of (a) the number of Converted Initial Shares issued to the investor and (b) the number of Converted Additional Shares delivered or deliverable to the investor as of the Warrant Closing Date, from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor, by (b) the greater of (x) the arithmetic average of the five lowest dollar volume-weighted average prices of a share of Common Stock on Nasdaq during the applicable Reset Period immediately preceding the applicable Reset Date to date and (y) a floor price per share calculated based on a pre-money valuation (of the Combined Company, assuming for this purpose the pre-money issuance of the Converted Initial Shares and Converted Additional Shares) of $10 million. In connection with the Pre-Merger Financing, the Company incurred issuance costs in the amount of $1.8 million which included (i) a placement agent cash fee of $1.6 million and (ii) legal and other fees of $0.2 million. Issuance costs in the amount of $0.7 million attributed to the Series A Warrants were recorded as interest expense on the accompanying consolidated statements of comprehensive loss for the year ended December 31, 2020 and $1.1 million was recorded as an offset to additional paid-in capital. In February 2021, each of the Investors entered into Waiver Agreements regarding certain terms of the Securities Purchase Agreement, Series A Warrants and Series B Warrants. See Note 12 – Subsequent Events. 155 Table of Contents Notes to Consolidated Financial Statements, continued 10. Net loss per share Basic loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share of common stock is computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, if dilutive. The Company’s warrants, convertible notes, restricted stock awards and stock options while outstanding are considered common stock equivalents for this purpose. Diluted earnings is computed utilizing the treasury method for the warrants, restricted stock awards and stock options. Diluted earnings with respect to the convertible notes utilizing the if-converted method was not applicable during the periods presented as no conditions required for conversion had occurred. No incremental common stock equivalents were included in calculating diluted loss per share because such inclusion would be anti-dilutive given the net loss reported for the periods presented. The historical share and per share data for periods on or prior to the November 5, 2020 close of the Merger have been adjusted to give effect to the Exchange Ratio. The following potential common shares were not considered in the computation of diluted net loss per share as their effect would have been anti-dilutive for the year end periods presented below: 2020 2019 Series A and B warrants 6,331,674 — Stock options 1,784,198 1,037,705 Restricted stock awards 40,000 — Former Rexahn warrants 66,538 — Former Rexahn options 123 — 11. Income Taxes The effective tax rate for the years ended December 31, 2020 and 2019 was zero percent. A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying statements of comprehensive loss is as follows for the years ended December 31, 2020 and 2019: 2020 2019 Income tax (benefit) provision at federal statutory rate (21.0 )% (21.0 )% Valuation allowance 13.8 24.2 State income tax, net of federal benefit (4.7 ) (4.7 ) Acquired in-process research and development expense 8.8 — Warrants 7.6 — Convertible notes (3.3 ) 1.2 Stock options (0.1 ) 0.2 Research and development (1.1 ) — Pass through entity and other — 0.1 Effective tax rate — % — % Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of December 31, 2020 and 2019: 2020 2019 Deferred tax assets: Federal and state operating loss carryforwards $ 3,351 $ 1,228 Acquired intangibles 547 — Accruals — 87 Convertible notes — 454 Organizational costs 8 9 Share-based compensation 466 81 Research and development 275 — Subtotal 4,647 1,859 Valuation allowance (4,647 ) (1,859 ) Total deferred tax assets, net of valuation allowance — — Deferred tax liabilities: Total deferred tax liabilities — — Net deferred tax assets $ — $ — 156 Table of Contents Notes to Consolidated Financial Statements, continued As of December 31, 2020 and 2019, the Company had gross deferred tax assets of approximately $4.6 million and $1.9 million, respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has had significant pre‑tax losses since its inception. The Company has not yet generated revenues and faces significant challenges to becoming profitable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of $4.6 million and $1.9 million as of December 31, 2020 and 2019, respectively. U.S. net deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income. As of December 31, 2020 and 2019, the tax effect of the Company’s federal net operating loss carryforwards was approximately $2.7 million and $1.0 million, respectively. The Company had federal research credit carryforwards as of December 31, 2020 and 2019 of approximately $0.3 million and zero, respectively. The federal net operating loss carryforwards will not expire and the tax credit carryforwards will begin to expire in 2040 if not utilized. As of December 31, 2020 and 2019, the Company had state net operating loss carryforwards with a tax effect of approximately $0.6 million and $0.2 million, respectively. The Company did not have any state research credit carryforwards as of December 31, 2020 and 2019. The state net operating loss carryforwards will begin to expire in 2028. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36‑month time period testing period, or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company is currently reviewing Rexahn’s deferred tax inventory as of the close of the Merger to determine the extent of tax carryforwards and credits available, if any, to the Company post-Merger; the review has not been completed to date. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2020 and 2019, and as such, no interest or penalties were recorded to income tax expense. The Company’s corporate returns are subject to examination for the 2018 and 2019 tax years for both federal income tax purposes and for state income tax purposes in one state jurisdiction. 12. Subsequent Events Waiver Agreements Effective February 3, 2021, each investor that invested in the Pre-Merger Financing (each, a “Holder”) entered into a Waiver Agreement with the Company (collectively, the “Waiver Agreements”). Pursuant to the Waiver Agreements, the Holders 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 Holders, grant certain registration rights for the shares underlying the warrants. The Waiver Agreements provide for the permanent waiver 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 will be 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 Holders. 157 Table of Contents Notes to Consolidated Financial Statements, continued Inducement Plan On February 22, 2021, the Company adopted the Ocuphire Pharma, Inc. Inducement Plan (the “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. 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. 158 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OCUPHIRE PHARMA, INC. Dated: March 10, 2021 By: /s/ Mina Sooch Mina Sooch President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Mina Sooch Date: March 10, 2021 Mina Sooch President, Chief Executive Officer and Director By /s/ Amy Rabourn Date: March 10, 2021 Amy Rabourn Vice President of Finance By /s/ Sean Ainsworth Date: March 10, 2021 Sean Ainsworth Director By /s/ James S. Manuso Date: March 10, 2021 James S. Manuso Director By /s/ Cam Gallagher Date: March 10, 2021 Cam Gallagher Director By /s/ Alan R. Meyer Date: March 10, 2021 Alan R. Meyer Director By /s/ Richard J. Rodgers Date: March 10, 2021 Richard J. Rodgers Director By /s/ Susan K. Benton Date: March 10, 2021 Susan K. Benton Director