What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-10-29 · 546 added, 603 removed, 30 unchanged (97% of the section changed)

Financial Statements

REXAHN PHARMACEUTICALS, INC.

Condensed Balance Sheet

September 30,

December 31, 2019

Ocuphire Pharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts and par value)

Current assets:

Cash and cash equivalents

Marketable securities

Prepaid expenses and other current assets

Prepaids and other assets

Deferred costs

Total current assets

Security Deposits

Operating Lease Right-of-Use Assets

Equipment, Net

LIABILITIES AND STOCKHOLDERS’ EQUITY

Property and equipment, net

Liabilities and stockholders’ deficit

Current liabilities:

Accounts payable and accrued expenses

Deferred revenue

Operating lease liabilities, current

Accounts payable

Accrued expenses

Total current liabilities

Operating Lease Liabilities, non-current

Warrant liabilities

1 unchanged sentence

Commitments and contingencies (Note 4)

Stockholders’ Equity:

Preferred stock, par value $0.0001, 10,000,000 authorized shares, none issued and outstanding

Common stock, par value $0.0001, 75,000,000 authorized shares, 4,483,198 and 4,019,141 issued and outstanding

Stockholders’ equity (deficit)

Preferred stock, par value $0.0001;

10,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

no shares issued and outstanding at March 31, 2021 and December 31, 2020.

Common stock, par value $0.0001;

75,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

10,929,881 and 10,882,495 shares issued and outstanding at March 31, 2021 and

December 31, 2020, respectively.

Additional paid-in-capital

Accumulated other comprehensive income

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.

Condensed Statement of Operations

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

See accompanying notes.

Ocuphire Pharma, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands, except share and per share amounts)

Three Months Ended

Operating expenses:

General and administrative

Research and development

Total Expenses

Acquired in‑process research and development

Total operating expenses

Loss from operations

Interest income

Unrealized gain (loss) on fair value of warrants

Total Other Income (Loss)

Net Loss Before Provision for Income Taxes

Provision for Income Taxes

Net loss per share, basic and diluted

Weighted average number of shares outstanding, basic and diluted

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.

Condensed Statement of Comprehensive Loss

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Unrealized gain (loss) on available-for-sale securities

Interest expense

Fair value change in warrant liabilities and premium conversion derivatives

Loss before income taxes

Benefit (provision) for income taxes

Other comprehensive loss, net of tax

Comprehensive loss

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.

Condensed Statement of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020 and 2019

Comprehensive

Income (Loss)

Stockholders'

Balances at July 1, 2020

Stock-based compensation

Stock issued from warrant exchanges

Balances at September 30, 2020

Balances at July 1, 2019

Stock-based compensation

Other comprehensive income

Balances at September 30, 2019

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.

Condensed Statement of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020 and 2019 (continued)

Comprehensive

Income (Loss)

Stockholders'

Balances at January 1, 2020

Stock-based compensation

Stock issued from warrant exchanges

Other comprehensive loss

Balances at September 30, 2020

Balances at January 1, 2019

Issuance of common stock and units, net of issuance costs

Common stock issued from vested restricted stock units

Stock-based compensation

Other comprehensive income

Balances at September 30, 2019

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.

Condensed Statement of Cash Flows

For the Nine Months Ended

September 30,

Cash Flows from Operating Activities:

Net loss per share:

Basic and diluted (Note 10)

Number of shares used in per share calculations:

Basic and diluted

See accompanying notes.

Ocuphire Pharma, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Equity (Deficit)

Balance at December 31, 2019

Issuance of common stock in exchange for in-process research and development

Share–based compensation

Net and comprehensive loss

Balance at March 31, 2020

Balance at December 31, 2020

Reclassification of Series A warrant liability to equity

Share–based compensation

Exercise of stock options

Net and comprehensive loss

Balance at March 31, 2021

See accompanying notes.

Ocuphire Pharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended

Operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Loss on sale of equipment

Amortization of premiums and discounts on marketable securities, net

Stock-based compensation

Unrealized loss (gain) on fair value of warrants

Changes in assets and liabilities:

Share-based compensation

Non-cash acquired in-process research and development

Non-cash interest on convertible notes

Non-cash interest on convertible notes – related party

Non-cash discount amortization on convertible notes

Non-cash discount amortization on convertible notes – related party

Fair value change in warrant liabilities and premium conversion derivatives

Change in assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued expenses

Deferred revenue

Accounts payable

Accrued and other liabilities

Net cash used in operating activities

Cash Flows from Investing Activities:

Purchase of equipment

Sale of equipment

Purchase of marketable securities

Redemption of marketable securities

Net Cash Provided by Investing Activities

Cash Flows from Financing Activities:

Issuance of common stock and units, net of issuance costs

Investing activities

Net cash used in investing activities

Financing activities

Proceeds from issuance of convertible notes

Exercise of stock options

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Cash and Cash Equivalents - beginning of period

Cash and Cash Equivalents - end of period

Supplemental Cash Flow Information

Operating cash flows paid for amounts included in the measurement of lease liabilities

Non-cash financing and investing activities:

Warrants issued

Operating lease right-of-use assets obtained in exchange for lease obligations

Warrant liability extinguishment from exchange of warrants

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Operations and Organization

Rexahn Pharmaceuticals, Inc.

(the “Company”), a Delaware corporation, is a biopharmaceutical company whose principal operations have been the development of innovative therapies

to improve patient outcomes in cancers that are difficult to treat.

The Company had an accumulated deficit of $167,824,100 at September 30, 2020 and anticipates incurring losses for the foreseeable future.

On June 17, 2020, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Original Merger Agreement,” and as amended on June 29, 2020, the “Merger

Agreement”) with Razor Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Ocuphire Pharma Inc., a Delaware corporation (“Ocuphire”), pursuant to which, among other things, and subject to the

satisfaction and waiver of certain conditions set forth in the Merger Agreement, Merger Sub will merge with and into Ocuphire, with Ocuphire continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the

See Note 2, Merger Agreement and Pre-Merger Financing, for further information.

The Company believes that its cash and cash equivalents of approximately $8.1 million as of September 30, 2020 will be sufficient to cover its cash flow requirements for its

current activities for at least the next 12 months from the date these financial statements were issued, assuming the Merger does not close.

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Cash paid for interest

Supplemental non-cash financing transactions:

Non-cash reclassification of Series A warrant liability to equity

Bifurcation of premium conversion derivative related to convertible notes

Unpaid deferred offering and issuance costs

Net change in proceeds receivable from convertible note issuance

See accompanying notes.

Notes to Condensed Consolidated Financial Statements

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”), and Razor Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Rexahn (“Merger Sub”), entered into an Agreement and Plan of

Merger and Reorganization, as amended on June 29, 2020 (as amended, the “Merger Agreement”), pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub would

merge with and into Ocuphire, with Ocuphire continuing as a wholly-owned subsidiary of Rexahn and the surviving corporation of the merger (the “Merger”).

The Merger closed on November 5, 2020.

Upon completion of the Merger, Rexahn changed its name

to Ocuphire Pharma, Inc.

and changed its ticker symbol on the Nasdaq Capital Market to "OCUP".

The Company’s headquarters is located in Farmington Hills, Michigan.

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, increased costs of supply ingredients, 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.

Notes to Condensed Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission

(“SEC”) for interim financial information.

Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S.

GAAP”) for complete financial statements.

opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of September 30, 2020 and December 31, 2019 and of the results of

operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the cash flows for the nine months ended September 30, 2020 and 2019 have been included.

Operating results for the three and

nine months ended September 30, 2020 are not necessarily indicative of results that may be expected for any other interim period or the full fiscal year ending December 31, 2020.

The accompanying unaudited condensed financial statements should be

read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

Information included in the condensed balance sheet as of

December 31, 2019 has been derived from the Company’s audited financial statements for the year ended December 31, 2019 included in the 2019 Form 10-K.

The unaudited condensed financial statements have been prepared on a basis that assumes the

Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

The accompanying condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

Certain information and

footnote disclosures normally included in financial statements prepared in accordance with U.S.

generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations.

The December 31, 2020 condensed balance sheet was derived from audited financial statements, and may not include all disclosures required by GAAP;

however, the Company believes that the disclosures are adequate to

make the information presented not misleading.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2020.

In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim

periods, have been made.

The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.

The condensed consolidated financial statements of the Company include a subsidiary, OcuSub, Inc., which is 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 condensed 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.

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

These estimates are based on management’s best knowledge of

current events and actions the Company may undertake in the future.

Actual results may ultimately differ from these estimates.

These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the

period in which they become available.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

COVID-19 Pandemic

The outbreak of the COVID-19 disease, which the World Health Organization declared a pandemic in March 2020, has led to disruption in the global economy and the biopharmaceutical

The extent of the COVID-19 pandemic’s impact on the Company’s business, financial condition and results of operations, as well as the Company’s ability to consummate the Merger, is highly uncertain and will depend on various factors,

including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, other actions taken to contain the impact of the pandemic, and the Company’s

access to additional capital.

Merger Agreement and Pre-Merger Financing

Merger Agreement

On June 17, 2020, the Company, Merger Sub and Ocuphire entered into the Original Merger Agreement, which was subsequently amended on June 29, 2020, pursuant to

which Merger Sub will merge with and into Ocuphire, with Ocuphire continuing as a wholly owned subsidiary of the Company in an all-stock transaction.

For accounting purposes, Ocuphire is considered to be acquiring the Company even though the Company will be the issuer of the common stock in the Merger due to various considerations, including the

expected ownership positions of former Company and Ocuphire stockholders post-Merger, as well as the expected composition of the Company’s Board of Directors and management team post-Merger.

The Merger is expected to be accounted for as an asset

acquisition by Ocuphire.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”):

(a) each share of Ocuphire common stock outstanding immediately prior to the

Effective Time (excluding shares held as treasury stock, shares held by Ocuphire and dissenting shares) will be converted into the right to receive shares of Company common stock equal to the Exchange Ratio described below;

and (b) each outstanding

Ocuphire stock option that has not previously been exercised prior to the Effective Time will be assumed by the Company.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Under the exchange ratio formula in the Merger Agreement (the “Exchange Ratio”), immediately following the consummation of the Merger (the “Closing”), the Company’s then-current stockholders would

own approximately 14.3% of the combined company’s common stock, and the former Ocuphire securityholders would own approximately 85.7% of the combined company’s common stock, in each case calculated on a fully-diluted basis, assuming the Company’s net

cash balance calculated on the date that is ten days prior to the anticipated Closing date (the “determination date”) is between $3.2 million and $6.0 million.

The Exchange Ratio formula in the Merger Agreement is subject to adjustment for every

$100,000 that the Company’s actual net cash balance calculated on the determination date is less than $3.2 million or more than $6.0 million.

Based on the Company’s current estimates, the Company anticipates delivering net cash between $1.9 million

and $2.4 million assuming the Closing occurs by November 14, 2020, which is the end date set forth in the Merger Agreement;

however, the final net cash amount will not be calculated until the determination date, and may vary significantly depending

on, among other things, the Company’s ability to control and correctly estimate its operating expenses, expenses relating to the Company’s ongoing litigation and the trading price of the Company’s common stock (and its impact on the estimated warrant

liability, which reduces net cash).

If the Company’s actual net cash balance as calculated on the determination date is $1.9 million, then immediately following the Closing, the Company’s then-current stockholders would own approximately 13.1% of the

combined company’s common stock, and the former Ocuphire securityholders would own approximately 86.9% of the combined company’s common stock, in each case calculated on a fully-diluted basis.

Under the terms of the Merger Agreement, the Company’s

stockholders’ ownership percentage in the combined company is subject to a floor of 9.1% regardless of the Company’s actual net cash balance as calculated on the determination date, assuming Ocuphire waives the minimum net cash requirement at

These ownership percentages give effect to the shares of Ocuphire common stock that will be issued to Investors (as defined below) in the Pre-Merger Financing (as defined below) prior to the Closing, but do not account for any additional

shares of Company common stock that may be issued following the Closing or the warrants issuable to Investors after Closing.

As a result, holders of Company common stock could own significantly less of the combined

company than currently contemplated.

For example, if the average of the five lowest volume-weighted average trading prices of Company common stock on Nasdaq Capital Market (“Nasdaq”) during the first ten trading days

immediately following the closing of the Pre-Merger Financing reaches a certain floor price specified in the Securities Purchase Agreement (as defined below), then the pre-Merger holders of Company common stock could own a low single-digit percentage

of the fully-diluted combined company equity securities, depending on the Company’s actual net cash amount as calculated on the determination date.

Consummation of the Merger is subject to certain Closing conditions, including, among other things:

(i) approval by the stockholders of the Company and Ocuphire;

(ii) the continued listing of the

Company’s common stock on the Nasdaq and the listing of the additional shares of Company common stock issued in connection with the Merger on Nasdaq;

(iii) the accuracy of the representations and warranties, subject to certain materiality

qualifications;

(iv) satisfaction by the Company of a minimum net cash requirement of $0;

and (v) completion of the Pre-Merger Financing.

The Merger Agreement contains certain termination rights for both the Company and Ocuphire, and further provides that, upon termination of the Merger Agreement under specified circumstances, either

party may be required to pay the other party a termination fee of $750,000 or, in some circumstances, Ocuphire may be required to reimburse the Company’s expenses up to a maximum of $750,000.

Immediately after the Effective Time, the Board of Directors of the Company is expected to be comprised of seven members, one of whom is expected to be Richard J.

Rodgers, a current member of the

Company’s Board of Directors, and the remaining six directors are expected to include existing Ocuphire board members and an additional director designated by Ocuphire.

Following the Closing, Mina Sooch is expected to serve as the Company’s President

and Chief Executive Officer.

Also at the Effective Time, the Company expects to effect a name change to “Ocuphire Pharma, Inc.” and it is anticipated that the Company’s securities will be listed for trading on Nasdaq under the symbol “OCUP.”

In accordance with the Merger Agreement, on June 17, 2020, the Board of Directors approved the termination of Douglas J.

Swirsky’s employment with the Company, effective as of immediately following

the Effective Time, as a result of which Mr.

Swirsky will be entitled to the severance amounts and other benefits afforded Mr.

Swirsky in connection with a termination of Mr.

Swirsky’s employment by the Company without cause within the two-year

period immediately following a change of control pursuant to Section 8(c) of Mr.

Swirsky’s employment agreement, subject to Mr.

Swirsky’s execution of a general release in favor of the Company.

The termination of Mr.

Swirsky’s employment is subject

to and conditioned upon the closing of the Merger at the Effective Time, and therefore Mr.

Swirsky shall not be terminated if the Merger is not consummated or the Merger Agreement is terminated prior to the Effective Time.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The Merger is expected to close, at the earliest, on or about November 5, 2020, subject to approval by the Company’s stockholders at a special meeting to be held on November 2, 2020 and other closing

Contingent Value Rights Agreement

Pursuant to the Merger Agreement and a Contingent Value Rights Agreement (the “CVR Agreement”) to be entered into immediately prior to Closing, Company stockholders as of immediately prior to the

Effective Time will receive one contingent value right (“CVR”) for each share of Company common stock held of record as of immediately prior to the Effective Time.

Each CVR will represent the right to receive cash payments upon the occurrence of

certain triggering events.

In particular, for each calendar quarter (each, a “CVR Payment Period”) during the 15-year period after the Closing (the “CVR Term”), CVR holders will be entitled to (i) 90% of all payments received by the Company from

BioSense Global LLC (“BioSense”) pursuant to that certain License and Assignment Agreement, dated as of February 25, 2019, by and between BioSense and the Company, as amended (the “License and Assignment Agreement”), less certain permitted

deductions, (ii) 90% of all payments received by the Company from Zhejiang HaiChang Biotechnology Co., Ltd.

(“HaiChang”) pursuant to that certain Exclusive License Agreement, dated as of February 8, 2020, by and between HaiChang and the Company (the

“HaiChang License Agreement”), less certain permitted deductions, and (iii) 75% of (a) all cash consideration paid by a third party to the Company during the applicable CVR Payment Period in connection with the grant, sale or transfer of rights to

certain of the Company’s pre-Closing intellectual property (“Parent IP”) under an agreement that is entered into during the 10-year period after the Closing (“Parent IP Deal”);

plus (b) with respect to any non-cash consideration received by the

Company from a third party during the applicable CVR Payment Period in connection with any Parent IP Deal, all amounts received by the Company at the time such non-cash consideration is monetized, less (c) certain permitted deductions.

Securities Purchase Agreement

On June 29, 2020, Ocuphire, the Company and certain institutional healthcare investors, accredited investors and certain directors and officers of Ocuphire (the “Investors”) entered into a Securities

Purchase Agreement, which amended and restated in its entirety the prior securities purchase agreement among the same parties dated June 17, 2020 (the “Securities Purchase Agreement”).

Pursuant to the Securities Purchase Agreement, the Investors

agreed to invest a total of $21.15 million in cash (the “Purchase Price”) to fund the combined company following the Merger (the “Pre-Merger Financing”).

In return, based on an agreed upon pre-money valuation of the combined company of $120 million,

Ocuphire will issue shares of Ocuphire common stock to the Investors, which shares will be exchangeable in the Merger for approximately 15% of the combined company on a fully diluted basis (the “Initial Shares”).

In addition, (i) Ocuphire will

deposit three times the number of Initial Shares into escrow with an escrow agent for the benefit of the Investors, to be exchanged for Company common stock in the Merger, and to be delivered, in whole or in part, based on the formula set forth in

the Securities Purchase Agreement, out of escrow to the Investors if 85% of the average of the five lowest volume-weighted average trading prices of a share of Company common stock on Nasdaq during the first ten trading days (or earlier, at the

election of any Investor) immediately following the closing date of the Pre-Merger Financing (which closing date will be the same date as the Closing) is lower than the effective price per share paid by the Investors for the shares of Company common

stock issued at Closing in exchange for the Initial Shares, and (ii) on the tenth trading day following the closing date of the Pre-Merger Financing (the “warrant closing date”), the Company will issue to the Investors (x) Series A warrants to

purchase shares of Company common stock and (y) Series B warrants to purchase shares of Company common stock.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Marketable Securities

Marketable securities are considered “available-for-sale” in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 320, “Debt and Equity Securities,” and thus

are reported at fair value in the Company’s accompanying balance sheet, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity.

Amounts reclassified out of accumulated other comprehensive

income (loss) into realized gains and losses are accounted for on the basis of specific identification and are included in other income or expense in the statement of operations.

The Company classifies such investments as current on the balance

sheet as the investments are readily marketable and available for use in current operations.

The Company had no marketable securities as of September 30, 2020.

The following table shows the Company’s marketable securities’ adjusted cost, gross unrealized gains and losses, and fair value by

significant investment category as of December 31, 2019:

December 31, 2019

Commercial Paper

Corporate Bonds

Total Marketable Securities

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Equipment, Net

September 30,

Furniture and fixtures

Office and computer equipment

Leasehold improvements

Total equipment

Accumulated depreciation and amortization

Net carrying amount

Accounts Payable and Accrued Expenses

September 30,

Trade payables

Accrued expenses

Accrued research and development contract costs

Payroll liabilities

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

License Agreements

BioSense Global LLC

On March 10, 2020, the Company entered into an amendment to its collaboration and license agreement, (as amended, the “License and Assignment Agreement”) with BioSense to advance

the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “Territory”).

Under the terms of the License and Assignment Agreement, upon payment in full of an upfront

payment, the Company will (i) grant BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the Territory and (ii) assign and transfer all of the Company’s patents

and patent applications related to RX-3117 in the Territory.

The upfront payment consists of an aggregate of $1,650,000, of which $1,550,000 has been received to date.

Under the License and Assignment Agreement, the Company is eligible to receive

milestone payments in an aggregate of up to $84,500,000 upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties in the mid-single digits to low tens on annual net sales in the

The Company has evaluated the License and Assignment Agreement under ASC 606, “Revenue from Contracts with Customers,” to determine the appropriate amount of revenue to be

recognized as the Company fulfills its obligations under the License and Assignment Agreement.

The Company identified the exclusive license to develop RX-3117 and the supply of RX-3117 drug product, drug substance and intermediate materials

(collectively, the “Transferred Materials”) as the distinct performance obligations in the contract.

The Company has determined that it will recognize revenue related to the exclusive license to develop RX-3117 and the supply of the Transferred

Materials transfers to BioSense at a point in time when the exclusive license is conveyed and the Transferred Materials are made available for delivery to BioSense, respectively.

The Company has determined the transaction price contains both fixed and variable consideration.

The fixed consideration is equal to the upfront payment of $1,650,000.

variable consideration relates to the milestone payments and future sales-based royalty payments.

The Company estimates the variable consideration in the contract using the most likely amount method.

The Company determined at the contract outset

and as of September 30, 2020 that all milestone payments should be fully constrained, as it is not probable that a significant reversal of revenue will not occur in a future period, given the significance of the milestone payments and that the

payments are earned based upon the achievement of events that are highly susceptible to factors outside of the Company’s control.

Future sales-based royalties related to the exclusive license to develop RX-3117 will be recognized in the period the

underlying sales transaction occurs.

The $1,650,000 upfront payment has been allocated to the performance obligations on the basis of the relative standalone selling price estimated for each performance obligation.

Company has determined the standalone selling price of the exclusive license to develop RX-3117 using the adjusted market approach, which represents the price the market will bear based on the license rights granted and the state of the intellectual

property, and has determined the standalone selling price of the supply of the Transferred Materials using a cost approach.

Accordingly, the Company has allocated $750,000 of the upfront transaction price to the exclusive license to develop RX-3117

and $900,000 to the supply of the Transferred Materials.

Additional transaction price recognized in future periods related to milestone payments and royalties will be allocated solely to the exclusive license to develop RX-3117, as these amounts

relate to efforts associated with the development and commercialization of products related to the exclusive license to develop RX-3117.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

As of September 30, 2020, $1,550,000 of the upfront payment had been paid, and the remaining $100,000 remained unpaid.

As of September 30, 2020, the exclusive license had not been

transferred and no revenue was recognized related to that performance obligation, however, the Company had satisfied the performance obligation related to the Transferred Materials during the three months ended March 31, 2020.

Therefore, the Company

recognized no revenue and $900,000 in revenue for the three and nine months ended September 30, 2020, respectively.

Therefore, the Company has recorded the additional $650,000 of transaction consideration received as of September 30, 2020 as

deferred revenue on the Company’s balance sheet.

Zhejiang HaiChang Biotechnology Co., Ltd.

On February 8, 2020, the Company entered into the HaiChang License Agreement with HaiChang pursuant to which the Company granted HaiChang an exclusive (even

as to the Company), royalty-bearing, sublicensable worldwide license to research, develop and commercialize pharmaceutical products comprising RX-0201 (subject to and limited by the exclusive rights of NEXT BT Co.

Ltd (“Next BT”) with respect to

RX-0201 in Asia), the nano-liposomal formulation of RX-0201 known as RX-0301, and RX-0047, a proprietary compound currently in preclinical development.

HaiChang has agreed to use commercially reasonable efforts to develop, seek regulatory approval

for, and commercialize one product comprising RX-0301 and one product comprising RX-0047.

HaiChang paid a one-time upfront payment of $250,000 to the Company for certain materials to be transferred by the Company to HaiChang.

HaiChang will pay the Company development milestone

payments in an aggregate of up to $63,000,000 with respect to RX-0201 and RX-0301 and up to $33,000,000 with respect to RX-0047, and royalties based on percentages of net sales in the low tens with respect to RX-0201 and RX-0301 and the mid-single

digits with respect to RX-0047.

However, if HaiChang exclusively sublicenses its rights to a third party with respect to RX-0201 and RX-0301 or RX-0047 in a particular jurisdiction, instead of the foregoing milestones and royalties to the extent

relating to such compound(s) and jurisdiction, HaiChang will pay the Company a percentage of any sublicensing revenue received by HaiChang, provided that in any event HaiChang will pay a milestone payment on initiation of a Phase 3 clinical trial

that is subject to reduction by the amount of any sublicensing revenue paid with respect to the applicable compound(s) as of the time of initiation of the trial.

The Company accounts for the HaiChang License Agreement under ASC 606.

The Company has determined the performance obligations under the contract relate to the transfer of materials and the

license of intellectual property.

Revenue associated with the materials and license is recognized at a point in time.

The Company has determined the transaction price contains both fixed and variable consideration.

The fixed consideration is equal to the upfront payment of $250,000.

At the outset of the contract, the Company determined the value of the license to be de minimis given the early stage of clinical development of the intellectual

property, and allocated the entire fixed consideration to the materials.

The Company transferred the materials during the three months ended March 31, 2020 and therefore recognized $0 and $250,000 in revenue during the three and nine months ended

September 30, 2020, respectively.

The variable consideration relates to the milestone payments, sublicense fees and future sales-based royalty payments .

The Company estimates variable consideration under the

contract using the expected value method.

Given the early stage and the uncertain success of the development work to be performed by HaiChang, the Company has determined that the variable consideration in the contract should be fully constrained at

the contract outset and as of September 30, 2020.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The Company leases 5,466 square feet of office space in Rockville, Maryland, with a lease term ending June 30, 2024.

Under the lease agreement, the Company pays its allocable portion of real

estate taxes and common area operating charges, which are recorded as variable lease costs.

The lease has escalating rent payments for which the Company records lease expense on a straight-line basis over the lease term, and an option to terminate

the leased premises, without penalty, on June 30, 2021.

The Company is reasonably certain that it will not remain in these leased premises after the optional termination date, and therefore, is using the optional termination date in assessing the

The components of lease expense were as follows:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Operating lease cost

Variable lease cost

Total Lease Cost

The right-of-use asset and lease liability were calculated using an estimated incremental borrowing rate of 11%.

At September 30, 2020, the weighted average lease term was 0.8 years.

The table below summarizes the Company’s scheduled future minimum lease payments recorded on the balance sheet, as of September 30, 2020:

Year Ending December 31:

2020 (excluding the nine months ended September 30, 2020)

Minimum lease payments

Imputed interest

Present value of minimum lease payments

Net Loss per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period.

Diluted loss per common share is

computed by dividing net loss by the weighted average number of shares of common stock outstanding, plus the number of common share equivalents that would be dilutive.

As of September 30, 2020 and December 31, 2019, there were stock options and

warrants to acquire, in the aggregate, 1,071,790 and 2,126,063 shares of the Company’s common stock, respectively, that are potentially dilutive.

However, diluted loss per share is the same as basic loss per share for all periods presented because

the inclusion of common share equivalents would be anti-dilutive.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Stock-Based Compensation

As of September 30, 2020, the Company had 146,058 options to purchase common stock outstanding.

In June 2013, the Company’s shareholders voted to approve the Rexahn Pharmaceuticals, Inc.

2013 Stock Option Plan (the “2013 Plan”).

Under the 2013 Plan, the Company grants equity

awards to key employees, directors and consultants of the Company.

The Company has reserved 283,333 shares of common stock for issuance pursuant to the 2013 Plan.

As of September 30, 2020, there were 142,066 options outstanding under the 2013 Plan,

and 139,236 shares were available for issuance.

In addition, as of September 30, 2020, there were 3,992 options outstanding under a previously established stock option plan under which no new stock options may be granted.

Accounting for Awards

Stock-based compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite vesting service period for the entire portion

of the award.

Total stock-based compensation recognized by the Company for the three and nine months ended September 30, 2020 and 2019 is as follows:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Statement of operations line item:

General and administrative

Research and development

No income tax benefit has been recognized in the statement of operations for stock-based compensation arrangements as the Company has provided for a 100% valuation allowance on its

deferred tax assets.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Summary of Stock Option Transactions

A summary of stock option activity for the nine months ended September 30, 2020 is as follows:

Weighted Average

Contractual Term

Outstanding, January 1, 2020

Outstanding, September 30, 2020

Exercisable, September 30, 2020

A summary of the Company’s unvested options as of September 30, 2020 and changes during the nine months ended September 30, 2020 is presented below:

Weighted Average Fair

Value at Grant Date

Unvested at January 1, 2020

Unvested at September 30, 2020

As of September 30, 2020, there was $368,685 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average

vesting period of 1.7 years.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The following table summarizes the Company’s outstanding warrants to purchase common stock as of September 30, 2020 and December 31, 2019:

Number of Warrants:

Warrant Issuance

September 30,

Exercise Price

Liability-classified Warrants

November 2015 Investors

November 2015 Placement Agent

March 2016 Investors

September 2016 Investors

June 2017 Investors

June 2017 Placement Agent

October 2017 Investors

October 2017 Placement Agent

Total liability classified warrants

Equity-classified Warrants

October 2018 Investors

October 2018 Placement Agent

January 2019 Investors

Total equity-classified warrants

Total outstanding warrants

The following table summarizes the Company’s warrant activity for the nine months ended September 30, 2020:

Number of Warrants

exercise price

Balance, January 1, 2020

Exchanged during the period

Balances, September 30, 2020

At September 30, 2020, the weighted average remaining contractual life of the outstanding warrants was 3.0 years.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The following table summarizes the fair value of the liability-classified warrants as of the respective balance sheet dates:

Fair Value as of:

Warrant Issuance:

September 30, 2020

December 31, 2019

November 2015 Investors

November 2015 Placement Agent

March 2016 Investor

September 2016 Investors

June 2017 Investors

June 2017 Placement Agent

October 2017 Investors

October 2017 Placement Agent

The assumptions used in calculating the fair values of the liability-classified warrants are as follows:

September 30, 2020

December 31, 2019

Trading market prices

Fundamental transaction volatility

Fundamental transaction risk-free rate

Equivalent volatility

Equivalent risk-free rate

Fundamental transaction likelihood

Fundamental transaction timing

November 2020

As discussed in Note 2, on June 17, 2020, the Company entered into the Original Merger Agreement, which meets the definition of a fundamental transaction as defined by the warrant agreements.

Therefore, the Company adjusted the likelihood and timing of its fundamental transaction assumptions when calculating the fair values of the liability-classified warrants as of September 30, 2020.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Changes in the fair value of the warrant liabilities, carried at fair value, reported as “unrealized gain (loss) on fair value of warrants” in the statement of operations:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

November 2015 Investors

November 2015 Placement Agent

March 2016 Investors

September 2016 Investors

June 2017 Investors

June 2017 Placement Agent

October 2017 Investors

October 2017 Placement Agent

No provision for federal and state income taxes was required for the three and nine months ended September 30, 2020 and 2019 due to the Company’s operating losses and

increased deferred tax asset valuation allowance.

At September 30, 2020 and December 31, 2019, the Company had unused net operating loss carry-forwards of approximately $161,859,000 and $ 156,586 ,000

respectively, portions of which expire at various dates beginning in 2021.

Some of the Company’s unused net operating loss carryforwards may be subject to annual limitations under certain provisions of the Internal Revenue Code related to “changes

in ownership.”

As of September 30, 2020 and December 31, 2019, the deferred tax assets related to the aforementioned carry-forwards have been fully offset by valuation allowances, because

significant utilization of such amounts is not presently expected in the foreseeable future.

Deferred tax assets and valuation allowances consist of:

September 30,

Net Operating Loss Carryforwards

Stock Compensation Expense

Book Tax Differences on Assets and Liabilities

Valuation Allowance

Net Deferred Tax Assets

The Company files income tax returns in the U.S.

federal and Maryland state jurisdictions.

Tax years for fiscal 2017 through 2019 are open and potentially subject to examination by the federal and Maryland state

taxing authorities.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

Commitments and Contingencies

The Company has contracted with various vendors for services, with terms that require payments over the terms of the agreements, usually ranging from two to 36 months.

The costs to be incurred are estimated and are

subject to revision.

As of September 30, 2020, the total estimated cost to complete these agreements was approximately $160,000.

All of these agreements may be terminated by either party upon appropriate notice as stipulated in the

respective agreements.

On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology (“KRICT”) to acquire the rights to all intellectual property related to quinoxaline-piperazine

derivatives that were synthesized under a Joint Research Agreement.

The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of the first commercial

product arising out of or in connection with the use of KRICT’s intellectual property.

As of September 30, 2020, the milestone has not occurred.

The Company has established a 401(k) plan for its employees.

The Company has elected to match 100% of the first 3% of an employee’s compensation plus 50% of an additional 2% of the employee’s deferral.

Expense related to this matching contribution aggregated to $7,840 and $16,355 for the three months ended September 30, 2020 and 2019, respectively, and $28,854 and $62,740 for the nine months ended

September 30, 2020 and 2019, respectively.

On February 5, 2018, the Company and Next BT terminated a research collaboration agreement between the Company and Rexgene Biotech Co., Ltd, a predecessor in interest to Next BT.

The Company agreed to pay Next BT a

royalty in the low single digits of any net sales of RX-0201 the Company makes in Asia and 50% of the Company’s licensing revenue related to licensing of RX-0201 in Asia, up to an aggregate of $5,000,000.

On June 18, 2018, the Company

reinstated the exclusive license to RX-0201 in Asia, which had no effect on the potential royalty payments granted to Next BT in February 2018.

As of September 30, 2020, the Company has not made any royalty payments to Next BT.

Legal Proceedings

On July 31, 2020, a putative stockholder class action was filed in the Court of Chancery of the State of Delaware (the “Chancery Court”) styled Stahlman v.

Rexahn Pharmaceuticals, Inc., et al., Case No.

Additionally, on August 3, 2020, a putative stockholder class action was filed in the United States District Court for the District of Delaware

styled Thompson v.

Rexahn Pharmaceuticals, Inc., et al.

1:20-cv-01036-UNA (D.

On August 7, 2020 and August 17, 2020, putative stockholder class actions were filed in the United States District

Court for the Southern District of New York styled, respectively, Manes v.

Rexahn Pharmaceuticals, Inc., et al., Case No.

1:20-cv-06227 (S.D.N.Y.) and Talsma v.

Pharmaceuticals, Inc., et al., Case No.

1-20-cv-06541 (S.D.N.Y.).

Finally, on August 18, 2020, a putative stockholder class action was filed in the United States District Court for the Eastern District of New York styled Juilfs v.

Rexahn Pharmaceuticals, Inc., et al.

, Case No 1:20-cv-03780 (F.D.N.Y.) (together with the Stahlman , Thompson , Manes and Talsma actions, the “Stockholder Actions”).

The Stockholder Actions assert claims against the Company and members of its board of directors (the “Individual

Defendants”).

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The Stahlman and Manes complaints allege that the Individual Defendants breached their fiduciary

duties owed to the Company’s stockholders.

The Thompson , Manes , Juilfs and Talsma complaints

allege that the Company and the Individual Defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by failing to disclose in the initial Registration Statement on Form S-4 that the Company filed with the SEC on

July 6, 2020 (File No.

333-239702) (the “Initial Registration Statement”) certain information regarding, among other things, financial projections for the Company and Ocuphire, the valuation analyses performed by the Company’s financial advisor,

Oppenheimer & Co., Inc., in support of its fairness opinion and the process leading to the execution of the Merger Agreement.

The Thompson , Manes , Juilfs and Talsma complaints also allege that the Individual Defendants violated Section 20(a) of the Exchange Act as control persons who had the ability to prevent the

Proxy Statement from being false and misleading.

The Stockholder Actions seek, among other things, an injunction preventing consummation of the Merger, an award of damages, and an award of costs and expenses, including attorneys’ fees.

8, 2020, plaintiff Thompson made a filing in the United States District Court for the District of Delaware voluntarily dismissing the Thompson complaint.

On September 22, 2020, the plaintiff filed a notice of

voluntary dismissal of the Juilfs action in the United States District Court for the Eastern District of New York.

On August 6, 2020, another party sent a letter to the Company’s counsel demanding that the Company and the Individual Defendants amend the Initial Registration Statement to provide

additional disclosures that the party alleges were improperly omitted from the Initial Registration Statement in violation of Sections 14(a) and 20(a) of the Exchange Act, including certain information regarding financial data and the background and

process leading to the execution of the Merger Agreement (the “Demand Letter”).

The Company is unable to estimate the potential loss or range of losses as a result of the Stockholder Actions remaining as of September 30, 2020 and the Demand Letter.

Subsequent Events , for information regarding developments in the Stahlman and Manes actions subsequent to September 30,

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial

statements and accompanying notes.

Actual results could differ from those estimates.

Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate

resources and assessing performance.

The Company’s chief operating decision maker is its Chief Executive Officer.

The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the

business of development and commercialization of products related to vision performance and health.

Accordingly, the Company has a single reporting segment.

Fair Value Measurements

ASC 820 defines fair value 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, not adjusted for transaction costs.

ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices

in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels are described below:

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 in active markets for identical assets or liabilities that are accessible by the Company;

Unadjusted quoted prices for identical assets or liabilities in active markets;

Notes to Condensed Consolidated Financial Statements

Level 2 inputs:

Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

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

Level 3 inputs:

Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

The following tables present assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

Fair Value Measurements at September 30, 2020

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 March 31, 2021 and December 31, 2020, 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 while outstanding 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 three months ended March 31, 2021 and 2020.

The fair value of financial instruments measured on a recurring basis is as follows (in thousands):

As of March 31, 2021

Warrant liabilities

Fair Value Measurements at December 31, 2019

Commercial Paper

Corporate Bonds

Total Assets:

Total liabilities at fair value

As of December 31, 2020

Warrant liabilities

There have been no changes in the methodologies used at September 30, 2020 and December 31, 2019, and no transfers between Level 1, 2 and 3 during the nine months ended September 30, 2020.

REXAHN PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

The reconciliation of changes to the fair value of the Company’s warrant liabilities for the nine months ended September 30, 2020 is as follows:

Total liabilities at fair value

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 three months ended March

31, 2021 and 2020 (in thousands):

Warrant liabilities

Balance at January 1, 2020

Unrealized losses, net

Liability extinguished in warrant exchange

Balance at September 30, 2020

Balance as of beginning of period

Change in fair value of warrant liability

Reclassification of Series A warrants from liability to equity

Balance as of end of period

Premium conversion derivatives

Balance as of beginning of period

Value assigned to the underlying derivatives in connection with convertible notes

Change in fair value of premium conversion derivatives

Balance as of end of period

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

Recent Accounting Pronouncements

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

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.

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.

Notes to Condensed Consolidated Financial Statements

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.

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.

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

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;

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 March 31, 2021, no milestones had been

accrued as there were no potential milestones yet considered probable.

Former Rexahn Warrants

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 March 31, 2021, 66,538 of the Rexahn warrants remained outstanding with exercise prices ranging from $38.40 to $198.00 per share with an average remaining contractual life of 2.7 years.

Notes to Condensed Consolidated Financial Statements

Pre-Merger Financing

Waiver Agreements

Effective February 3, 2021, each investor that invested in the Pre-Merger Financing (as defined below) entered into a Waiver Agreement with the Company (collectively, the “Waiver Agreements”).

Pursuant to the Waiver

Agreements, the investors and the Company agreed to waive certain rights, finalize the exercise price and number of Series A Warrants and Series B Warrants, eliminate certain financing restrictions, extend the term of certain leak-out agreements,

and, in the case of certain investors, grant certain registration rights for the shares underlying the warrants.

The Waiver Agreements provide for the elimination of the full ratchet anti-dilution provisions, contained in the Series A Warrants (as certain of the anti-dilution provisions had previously caused liability

accounting treatment for the Series A Warrants).

Upon the effective date of the Waiver Agreement, the Series A Warrants were reclassified to equity.

Pursuant to the Waiver Agreements, the number of shares underlying all of the Series B Warrants was fixed to 1,708,334 in the aggregate with respect to all investors, eliminating any future resets.

Securities Purchase Agreement

On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities

Purchase Agreement”).

Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by five directors of Private Ocuphire and one director of Rexahn, upon closing of the Merger

(the “Pre-Merger Financing”).

Pursuant to the Pre-Merger Financing, (i) Ocuphire issued and sold to the investors shares of Private Ocuphire common stock (the “Initial Shares”) which converted pursuant to the exchange ratio in the Merger into an

aggregate of approximately 1,249,996 shares (the “Converted Initial Shares”) of common stock, (ii) Ocuphire deposited into escrow, for the benefit of the Investors, additional shares of Private Ocuphire common stock (the “Additional Shares”) which

converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 3,749,992 shares of common stock (the “Converted Additional Shares”), which Converted Additional Shares were delivered (or became deliverable) to the

investors on November 19, 2020, and (iii) the Company agreed to issue to each investor on the tenth trading day following the consummation of the Merger (x) Series A Warrants representing the right to acquire shares of common stock equal to the sum

of (A) the Converted Initial Shares purchased by the investor, (B) the Converted Additional Shares delivered or deliverable to the investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement and (C)

the initial number of shares of common stock, if any, underlying the Series B Warrants issued to the Investor and (y) additional warrants to purchase shares of common stock.

Series A Warrants

The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance.

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).

Prior to the execution of the Waiver Agreements, the Series A Warrants were accounted for and

classified as liabilities on the accompanying condensed consolidated balance sheets given certain price reset provisions not used for a fair valuation under a fixed for fixed settlement scenario as required for equity balance sheet classification.

Upon the February 3, 2021 effective date of the Waiver Agreements, the Series A Warrants were reclassified to equity.

A final fair valuation of the Series A Warrants was performed utilizing a Black Scholes model to estimate the aggregate fair value

of the Series A Warrants prior to being re-classified as equity.

Input assumptions used were as follows:

risk-free interest rate 0.4%;

expected volatility of 86.6%;

expected life of 4.8 years;

and expected dividend yield zero percent.

underlying stock price used was the market price as quoted on Nasdaq as of February 3, 2021, the effective date of the Waiver Agreement.

The fair value change of the Series A Warrants was $33.8 million and was recorded to the fair value change in

warrant liabilities and premium conversion derivatives line item on the accompanying condensed consolidated statements of comprehensive loss for the three months ended March 31, 2021.

As a result of the reclassification to equity, the Series A

Warrants are no longer subject to remeasurement.

Series B Warrants

The Series B Warrants have an exercise price of $0.0001, were exercisable upon issuance and will expire on

the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the investor’s Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein)

and no shares remain issuable thereunder.

The Series B Warrants are fixed and were exercisable for 1,708,334 shares of Common Stock, as of the effective date of the Waiver Agreement, in the aggregate (without giving effect to any limitation on

exercise contained therein).

The Series B Warrants were accounted for and classified as equity on the accompanying condensed consolidated balance sheets.

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.

for the patent and other intellectual rights, the Company agreed to certain milestone payments and royalty payments on future sales (See Note 9 — Apexian Sublicense Agreement).

As of March 31, 2021, there was sufficient uncertainty with regard to

both the outcome of the relevant clinical trials and the ability of the Company to obtain sufficient funding to support any of the cash milestone payments under the sublicense agreement, that no liabilities were recorded related to the sublicense

Notes to Condensed Consolidated Financial Statements

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 $48,000 and

$9,000 during the three months ended March 31, 2021 and 2020, respectively.

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.

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.

Supplemental Balance Sheet Information

Prepaid and Other Assets

Prepaid and other assets consist of the following (in thousands):

Total prepaids and other assets

Property and Equipment, net

Property and equipment held for use by category are presented in the following table (in thousands):

Total property and equipment

Less accumulated depreciation

Property and equipment, net

Depreciation expense was $1,000 and $5,000 for the three months ended March 31, 2021 and 2020, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

R&D services and supplies

Professional services

Deferred issuance costs

Notes to Condensed Consolidated Financial Statements

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 7 - 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

The Convertible Notes accrued interest at a rate of 8% per annum, calculated on a 365-day year basis.

Interest expense on principal during the three months ended March 31, 2020 was $138,000.

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:

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.

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).

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

during the three months ended March 31, 2020.

The embedded derivatives were accounted for separately on a fair market value basis.

There were no outstanding premium conversion derivatives as of March 31, 2021 or December 31, 2020 given the

conversion of the Convertible Notes.

The Company recorded the fair value changes of the premium conversion derivatives while outstanding to fair value change in derivative and warrant liabilities in the accompanying condensed consolidated

statements of comprehensive loss which amounted to a benefit of $0.2 million during the three months ended March 31, 2020.

Notes to Condensed Consolidated Financial Statements

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 $0.4 million during the three months ended March 31, 2020.

Related Party Transactions

Convertible Notes with Related Parties

The Company entered into Convertible Notes with certain investors beginning on May 25, 2018.

Through March 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 6 – 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 891,422 shares of common stock (as adjusted for

the Exchange Ration) to Apexian and to certain affiliates of Apexian, following which Apexian became a holder of over 5% of the Company’s common stock.

See Note 9 – 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 3 – Pre-Merger Financing.

Waiver Agreements

Six directors of the Company signed Waiver Agreements, waiving certain reset provisions and financing restrictions.

These directors did not receive any of the additional Series B Warrants that were issued in

connection with the Waiver Agreements.

See Note 3 – Pre-Merger Financing.

Share-based Compensation

Share-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed consolidated statements of comprehensive loss for the three

month periods indicated below (in thousands):

General and administrative

Research and development

Total share-based compensation

Ocuphire Stock Options

2020 Equity Incentive Plan

The stockholders of the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”) for stock-based awards, which became effective on November 5, 2020.

Under the 2020 Plan, (i) 1,000,000 new shares of common

stock were reserved for issuance and (ii) up to 70,325 additional shares of common stock may be issued, consisting of (A) shares that remain available for the issuance of awards under prior equity plans and (B) shares of common stock subject to

outstanding stock options or other awards covered by prior equity plans that have been cancelled or expire on or after the date that the 2020 Plan became effective.

2018 Equity Incentive Plan

Prior to the 2020 Plan, the Company adopted a 2018 Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,241,387 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants upon the

amendment of the 2018 Plan in December 2019.

The reserve of common stock for the 2018 Plan has been adjusted to give effect to the Exchange Ratio.

Inducement Plan

On February 22, 2021, the Company adopted the Ocuphire Pharma, Inc.

Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 325,258 shares of its common stock to be used exclusively for grants

of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

Notes to Condensed Consolidated Financial Statements

The 2020 Plan, 2018 Plan and Inducement Plan permit the grant of stock options, appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other share‑based awards.

Incentive and non‑statutory stock

options may be granted under the 2020 and 2018 Plans.

Only non-statutory options may be granted under the Inducement Plan.

2020 Plan Evergreen Provision

Under the 2020 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date the 2020 Plan is approved by the stockholders of the Company,

commencing on January 1, 2021 and ending on (and including) January 1, 2030, by an amount equal to 5% of the shares of common stock outstanding as of December 31st of the preceding calendar year.

Notwithstanding the foregoing, the Board of

Directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common

stock than would otherwise occur pursuant to the preceding sentence.

On January 1, 2021, 544,125 shares were added to the 2020 Plan as a result of the evergreen provision.

During the three months ended March 31, 2021 and 2020, 41,800 and zero stock options were granted to newly-hired consultants (as adjusted for the Exchange Ratio), respectively, generally vesting over a six (6) to

forty-eight (48) month period.

The Company recognized $446,000 and $61,000 in share-based compensation expense related to stock options during the three months ended March 31, 2021 and 2020, respectively.

The weighted average fair value per share of options granted during the three months ended March 31, 2021 was $6.71.

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 three months ended March 31, 2021 and 2020:

Expected stock price volatility

Expected life of options (years)

Expected dividend yield

Risk free interest rate

During the three months ended March 31, 2021 and 2020, 118,217 and 66,601 stock options vested (as adjusted for the Exchange Ratio), respectively.

The weighted average fair value per share of options vesting during

the three months ended March 31, 2021 and 2020 was $3.66 and $0.87, respectively.

During the three months ended March 31, 2021 and 2020, zero and 7,923 options were forfeited, respectively.

As of March 31, 2021, 1,274,408 shares were available for

future issuance under the 2020 Plan and Inducement Plan.

No shares were available for future issuance under the 2018 Plan.

Unrecognized share‑based compensation cost was $2.3 million as of March 31, 2021.

The unrecognized share‑based expense is expected to be recognized over a weighted average period of 1.4 years.

Ocuphire Restricted Stock Awards

The Company did not grant any restricted stock awards (RSAs) during any of the periods presented.

The RSAs granted in previous periods were subject to various vesting schedules.

During the three months ended March

31, 2021 and 2020, 40,000 and zero RSAs vested, respectively, and no RSAs were forfeited during the periods presented.

The share-based compensation expense attributed to the RSAs during the three months ended March 31, 2021 and 2020 was $22,000 and

zero, respectively.

Ocuphire Stock Awards

The Company granted stock awards in the amount of 4,474 common shares to two board members for services performed during the first quarter of 2021.

The stock-based compensation related to these awards amounted to

$26,000 during the three months ended March 31, 2021.

Notes to Condensed Consolidated Financial Statements

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”),

remained outstanding as of March 31, 2021 and December 31, 2020.

The exercise prices related to the outstanding options granted under the Rexahn 2003 Plan ranged from $182.40 to $600.00 per share with an average remaining contractual life of 0.9

Apexian Sublicense Agreement

On January 21, 2020, the Company entered into a sublicense agreement (as amended on June 4, 2020, the “Apexian Sublicense Agreement”) with Apexian, 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.

As a result of the Sublicense Agreement,

Apexian is considered by Ocuphire to be a related party.

In connection with the Apexian Sublicense Agreement, the Company issued a total of 891,422 shares (as adjusted for the Exchange Ratio) of its common stock to Apexian and to certain affiliates of Apexian.

issuance transaction was recorded in the amount of $2.1 million as IPR&D expense for the three months ended March 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 Apexian Sublicense Agreement, the Company paid the

balance remaining of $0.4 million of Ref-1 Inhibitor program costs to Apexian following the Company’s listing on a major stock exchange.

The Company also agreed to make one-time milestone payments under the Apexian 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 Apexian Sublicense Agreement.

If it is not terminated pursuant to its terms, the Apexian Sublicense Agreement shall remain in effect until expiration of the last to expire of the covered patents.

None of the milestone or royalty payments were triggered as of March 31, 2021.

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 prior to the November 5, 2020 closing 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 three month periods ended presented below:

Series A Warrants and Series B Warrants

Stock options

Restricted stock awards

Former Rexahn warrants

Former Rexahn options

The effective tax rate for the three months ended March 31, 2021 and 2020 was zero percent.

As of March 31, 2021, a full valuation allowance has been established to reduce the Company’s net deferred income tax

As such, no tax benefit related to the Company’s pre-tax loss was recognized for any of the periods presented.

Notes to Condensed Consolidated Financial Statements

The Company’s corporate returns are subject to examination for the 2018 and 2019 tax years for federal income tax purposes and subject to examination for the 2018 and 2019 tax years in one state jurisdiction.

The Company does not have any reserves

for income taxes that represent the Company’s potential liability for uncertain tax positions.

Subsequent Events

Legal Proceedings

On October 1, 2020, the Chancery Court granted an unopposed motion to dismiss the Stahlman action, but retained jurisdiction for the limited purpose of deciding

any fee application should that become necessary.

On October 8, 2020, the plaintiff filed a notice of voluntary dismissal of the Manes action in the United States District Court for the Southern District of

Warrant Exercise

In April 2021, investors exercised Series B Warrants for a total of 1,629,634 shares, for total proceeds of $163.

Issuance of Settlement Shares

On May 6, 2021, the Company issued 350,000 shares of common stock of the Company to three accredited investors pursuant to a settlement agreement, dated May 6, 2021, in exchange for a release of potential claims.

Ocuphire Pharma, Inc.

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

What changed 10-Q

Item 1. Financial Statements