What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-12 · 275 added, 212 removed, 603 unchanged (45% of the section changed)

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(in thousands, except share amounts and par value)

September 30 ,

Current assets:

Cash and cash equivalents

Collaborations

Short-term investments

Prepaids and other assets

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Preferred stock, par value $ 0.0001 ;

10,000,000 shares authorized as of June 30, 2021 and December 31, 2020 ;

no shares issued and outstanding at June 30, 2021 and

December 31, 2020 .

10,000,000 shares authorized as of September 30, 2021 and December 31, 2020 ;

no shares issued and outstanding at September 30, 2021

and December 31, 2020 .

Common stock, par value $ 0.0001 ;

75,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

16,891,855 and 10,882,495 shares issued and outstanding at June 30, 2021

and December 31, 2020 , respectively.

75,000,000 shares authorized as of September 30, 2021 and December 31, 2020;

17,295,434 and 10,882,495 shares issued and outstanding at September 30, 2021 and December 31, 2020 , respectively.

Additional paid-in-capital

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For the Three Months Ended

For the Six Months Ended

Collaborations

September 30,

For the Nine Months Ended

September 30,

Collaborations revenue

Operating expenses:

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Fair value change of warrant liability and premium conversion derivatives

extinguishment

Gain on note extinguishment

Other income, net

Loss before income taxes

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Ocuphire Pharma, Inc.

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

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts)

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Balance at March 31, 2020

Gain on note extinguishment

Gain on note extinguishment (Note 4)

Share–based compensation

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Balance at June 30, 2020

Share–based compensation

Net and comprehensive loss

Balance at September 30, 2020

Balance at December 31, 2020

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Balance at June 30, 2021

Issuance of common stock in connection with the at-the-market program

Issuance costs

Share–based compensation

Exercise of options

Net and comprehensive loss

Balance at September 30, 2021

See accompanying notes.

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(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

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Non-cash share settlement with investors

Receipt of investments related to license agreement

Unrealized gain from short-term investments

Gain on note extinguishment

Change in assets and liabilities:

Collaborations receivable

Prepaid expenses and other assets

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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 also in-licensed other product candidates including second-generation product candidates

and analogs of APX3330, including APX2009 and APX2014.

The Company has sustained operating losses since inception and expects

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As a result of the COVID-19 pandemic, Ocuphire has experienced, and will likely continue to experience, disruptions in its manufacturing, supply chain, research and development operations, clinical enrollment,

regulatory process, financial position and financing terms.

regulatory process as well as impacts to financial position and difficulties in obtaining more favorable financing terms.

The global outbreak of COVID-19 continues to rapidly evolve.

The extent to which the COVID-19 pandemic may impact Ocuphire’s business and preclinical and clinical trials will

depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and social distancing in the U.S.

and other countries, business closures or

business disruptions and the effectiveness of actions taken in the U.S.

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

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.

Although Ocuphire cannot estimate the length or gravity of

the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on Ocuphire’s results of future operations, financial position, and liquidity over the next 12 or more months.

Basis of Presentation

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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;

The December 31, 2020 condensed consolidated balance sheet was derived from audited financial

statements, and may not include all disclosures required by GAAP;

however, the Company believes that the disclosures are adequate to make the information presented not misleading.

These unaudited condensed financial statements should be read in

conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2020.

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

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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.

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 Company’s ability to continue operating as a going concern is contingent upon, among other things, its ability to secure additional

financing and to achieve and maintain profitable operations.

To continue to fund operations, Ocuphire will need to raise capital.

The Company plans to issue additional equity instruments and possibly debt to finance operating and working

capital requirements.

While the Company expects to obtain the additional financing that is needed, there is no assurance that the Company will be successful in obtaining the necessary funding for future operations.

These factors raise

substantial doubt as to the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original

maturity of 90 days or less at the time of deposit to be cash equivalents.

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and

cash equivalents.

The Company’s cash is held by one financial institution in the United States.

Amounts on deposit may at times exceed federally insured limits.

Management believes that the financial institution is financially sound, and

accordingly, minimal credit risk exists with respect to the financial institution.

As of June 30, 2021, the Company had deposits that exceeded federally insured amounts by $ 23.9 million.

Financial instruments which potentially subject the Company to concentrations of credit

risk are cash and cash equivalent balances in bank accounts.

The Company keeps its cash and cash equivalent balances with high quality financial institutions in excess of federally insured limits.

The Company has not experienced any

losses in such accounts and believes that no significant concentration of credit risk exists with respect to those cash and cash equivalent balances.As of September 30, 2021, the Company had deposits that exceeded federally insured

amounts by $ 21.8 million.

Short-term Investments

The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and

are recorded on a settlement date basis.

The Company’s investments are comprised of equity securities, which in accordance with the fair value hierarchy described below are recorded at fair value using Level l inputs on the condensed

consolidated balance sheets.

Subsequent changes in fair values are recorded in other income, net on the condensed consolidated statements of comprehensive loss.

The Company classifies investments available to fund current operations

as current assets on its condensed consolidated balance sheets.

The Company did no t recognize any impairments on its

investments during the three and nine months ended September 30, 2021 and 2020.

Common Stock Valuation

Prior to the close of the Merger, due to the absence of an active market for Private

Ocuphire’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held

Company Equity Securities Issued as Compensation , to estimate the fair value of Private Ocuphire common stock.

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.

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.

Allowances for Doubtful Accounts

The Company records a provision for doubtful accounts, when appropriate, based on historical experience and a detailed assessment of the collectability of its accounts receivable.

In estimating the allowance for doubtful

accounts, the Company considers, among other factors, the aging of the accounts receivable, its historical write-offs, the credit worthiness of each customer, and general economic conditions.

Account balances are charged off against the

allowance when the Company believes that it is probable that the receivable will not be recovered.

Actual write-offs may be in excess of the Company’s estimated allowance.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP

requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

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.

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The Company follows the provisions of Accounting Standards Codification (“ASC”) 606 , Revenue from Contracts with Customers .

The guidance provides a five step model to determine how

revenue is recognized.

The guidance provides a

five-step model to determine how revenue is recognized.

The Company has entered into license agreements which have revenue recognition implications.

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and (v) recognition of revenue when (or as) the Company satisfies a performance obligation.

Notes to Condensed Consolidated Financial Statements

A performance obligation is a promise in a contract to transfer a distinct good or

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of performance using the cumulative catch-up method.

Notes to Condensed Consolidated Financial

As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price

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(such as a regulatory submission) is included in the transaction price.

Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of being achieved until such contingency occurs (such as receipt of those

When the Company’s assessment of probability of achievement changes and variable consideration becomes probable, any additional estimated consideration is allocated to each performance obligation based on the

estimated relative standalone selling prices of the promised goods or service underlying each performance obligation and recorded in license, collaboration, and other revenues based upon when the customer obtains control of each element.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed

to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has

been satisfied (or partially satisfied).

selling prices of the promised goods or service underlying each performance obligation and recorded in license, collaboration, and other revenues based upon when the customer obtains control of each element.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the

Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Segment Information

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measurement date.

As of June 30, 2021 and December 31, 2020, the fair

values of cash and cash equivalents, accounts receivable prepaid and other assets, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities.

The estimated fair

value of the Company’s convertible notes while outstanding were based on amortized cost which was deemed to approximate fair value.

The fair value of the warrant liabilities and premium conversion derivatives, while outstanding, were based

on cash flow models discounted at current implied market rates evidenced in recent arms-length transactions representing expected returns by market participants for similar instruments and were based on Level 3 inputs.

There were no transfers between fair value hierarchy levels during the three and six months ended June 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, the

fair values of cash and cash equivalents, prepaid and other assets, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities.

The estimated fair value of the

Company’s convertible notes while outstanding were based on amortized cost which was deemed to approximate fair value.

The fair value of the short-term investments, while outstanding, were based on observable Level 1 inputs in the form of

quoted market prices from a major stock exchange.

The fair value of the warrant liabilities and premium conversion derivatives, while outstanding, were based on cash flow models discounted at current implied market rates evidenced in recent

arms-length transactions representing expected returns by market participants for similar instruments and were based on Level 3 inputs.

There were no transfers between fair value hierarchy levels during the three and nine months ended September 30, 2021 and 2020.

Notes to Condensed Consolidated Financial Statements

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recurring basis is as follows (in thousands):

As of June 30, 2021

Warrant liabilities

Total liabilities at fair value

As of September 30, 2021

Short-term investments

Total assets at fair value

As of December 31, 2020

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Total liabilities at fair value

The following table provides a roll-forward of short-term investments measured at fair value on a recurring basis using observable level

1 inputs for the nine months ended September 30, 2021 and 2020 (in thousands):

Short-term Investments

Balance as of beginning of period

Receipt of investments related to license agreement

Unrealized gain

Balance as of end of period

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 six months ended June 30, 2021 and 2020 (in thousands):

warrant liabilities and premium conversion derivatives measured at fair value on a recurring basis using unobservable level 3 inputs for the nine months ended September 30, 2021 and 2020 (in thousands):

Warrant liabilities

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Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “ Financial Instruments – Credit Losses” .

The ASU sets forth a “current expected credit loss” (“CECL”) model which requires the Company to measure all expected credit

losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of

credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.

Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023.

Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “ Financial

Instruments – Credit Losses” .

The ASU sets forth a “current expected credit loss” (“CECL”) model which requires

the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

This replaces the existing incurred loss

model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.

Recently, the FASB issued the final ASU to delay adoption for smaller

reporting companies to calendar year 2023.

The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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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 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.

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following the Merger:

(i) Private Ocuphire’s stockholders owned substantially all of the voting rights in the combined company, (ii) Private Ocuphire designated all, but one , of the members of the initial board of directors of the combined company, and (iii) Private Ocuphire’s senior management held all key positions in the senior management of the

combined company.

As a result, as of the closing date of the Merger, the net assets of Rexahn were recorded at their acquisition-date relative fair values in the consolidated financial statements of the Company and the reported operating

results prior to the Merger are those of Private Ocuphire.

management of the combined company.

reported operating results prior to the Merger are those of Private Ocuphire.

Contingent Value Rights Agreement

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effect until the later of the end of the CVR Term and the payment of all amounts payable thereunder.

No payments were due under the CVR Agreement as of June 30, 2021.

As of September 30, 2021, $ 91 ,000

was due under the CVR Agreement and was recorded in the other income, net line item in the condensed consolidated statements of comprehensive loss.

As of the November 5, 2020, the

Merger closing date, and June 30, 2021, no milestones under the Merger Agreement had been accrued as there were no potential milestones yet considered probable.

Merger closing date, and September 30, 2021, no milestones under the license agreements subject to the CVR Agreement had

been accrued as there were no potential milestones yet considered probable.

Former Rexahn Warrants

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according to the terms of the original warrant agreements.

As of June 30, 2021, 66,538 of the Rexahn warrants remained

As of September 30, 2021, 66,538 of the Rexahn warrants remained

outstanding with exercise prices ranging from $ 38.40 to $ 198.00 per share with an average remaining contractual life of 2.2

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certain milestone payments and royalty payments on future sales (See Note 9 — Apexian Sublicense Agreement).

As of June 30, 2021, there was sufficient uncertainty with regard to both the outcome of the relevant clinical trials and the

As of September 30, 2021, there was sufficient uncertainty with regard to both the outcome of the relevant clinical trials and the

ability of the Company to obtain sufficient funding to support any of the cash milestone payments under the sublicense agreement that no liabilities were recorded related to the sublicense agreement.

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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 leased office space in Rockville, Maryland through June 30, 2021 previously occupied by Rexahn (the “Rexahn

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 $ 50,000 and $ 9,000 during the three months ended June 30, 2021 and 2020, respectively.

The rent expense associated with the Lease and Rexahn Lease amounted to $ 98,000 and $ 18,000 during the six months ended June 30, 2021 and 2020, respectively.

The Lease, as amended, has extended the term to December 31, 2022.

Additionally, Ocuphire leased office space in Rockville, Maryland through June 30, 2021 previously occupied by Rexahn (the “Rexahn Lease”).

The Lease and the Rexahn Lease

qualified for the short-term lease exception under ASC 842.

The monthly base rent, as amended, for the Lease is approximately $ 3 ,000.

monthly base rent for the Rexahn Lease was $ 13 ,000.

The rent expense associated with the Lease amounted to $ 9 ,000 and $ 12 ,000 during the

three months ended September 30, 2021 and 2020, respectively.

The rent expense associated with the Lease and Rexahn Lease amounted to $ 107 ,000

and $ 30 ,000 during the nine months ended September 30, 2021 and 2020, respectively.

Issuance of Settlement Shares

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Prepaid and other assets consist of the following (in

September 30,

Total prepaids and other assets

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presented in the following table (in thousands):

September 30,

Total property and equipment

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Property and equipment, net

expense was $ 1,000 for the three months ended June 30, 2021 and 2020, and $ 2,000 and $ 6,000 for the six

months ended June 30, 2021 and 2020, respectively.

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

months ended September 30, 2021 and 2020, respectively.

Notes to Condensed Consolidated Financial Statements

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Accrued expenses consist of the following (in thousands):

September 30,

R&D services and supplies

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of which $ 1,550 ,000 was paid to Rexahn prior to the Merger.

During the three months ended June 30, 2021, the Company satisfied a performance obligation for the $ 100,000 payment that was remaining and recorded this amount as collaboration revenue.

During the nine months ended September 30, 2021, the Company satisfied a performance obligation for the $ 100 ,000 payment that was remaining and recorded this amount as collaboration revenue.

The Company received payments from BioSense of $ 50 ,000 in April 2021 and $ 50 ,000 in

Under the BioSense License and Assignment Agreement, the Company is eligible to receive additional milestone payments in an aggregate of up to $ 84,500 ,000 upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties at low double-digit rates on annual net sales in the BioSense Territory.

The Company determined that none of milestone payments under the BioSense License and

Assignment Agreement were probable of payment as of June 30, 2021, and as a result, no revenue related to the milestones was

recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control.

The Company determined that none of the milestone payments under the BioSense License

and Assignment Agreement were probable of payment as of September 30, 2021, and as a result, no revenue related to the milestones

was recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control.

Future sales-based royalties related to the exclusive license to develop RX-3117

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(“Processa”), pursuant to which the Company has agreed to grant Processa an exclusive license to develop, manufacture and commercialize RX-3117 globally, excluding the BioSense Territory.

As consideration for the Processa License Agreement, the Company received an upfront payment in July 2021 consisting of 44,689 shares of Processa common stock and a $ 200,000 cash

As additional consideration, Processa will make payments to the Company upon the achievement of

certain development and regulatory milestones, which primarily consist of dosing a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country.

In addition, Processa will

pay the Company mid-single-digit royalties based on annual sales under the license and will make one -time sales milestone payments

based on the achievement during a calendar year of certain thresholds for annual sales.

Processa is also required to give the Company 32 %

of any milestone payments received based on any sub-license agreement Processa may enter into

with respect to the Processa Licensing Agreement.

As consideration for the Processa License Agreement, the Company received an upfront payment in July 2021 consisting of 44,689 shares of Processa common stock with a value of $ 342 ,000

and a $ 200 ,000 cash payment.

The Company is restricted from selling the Processa common stock for a period of one year .

As additional consideration, Processa will make payments to the Company upon the achievement of certain development and regulatory milestones, which primarily consist

of dosing a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country.

In addition, Processa will pay the Company mid-single-digit royalties based on annual sales under

the license and will make one -time sales milestone payments based on the achievement during a calendar year of certain thresholds

for annual sales.

Processa is also required to give the Company 32 % of any milestone payments received based on any sub-license agreement Processa may enter into with respect to the Processa License Agreement.

Company determined that none of the milestone payments under the Processa License Agreement were probable of payment as of September 30, 2021, and as a result, no revenue related to the milestones was recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s

Notes to Condensed Consolidated Financial Statements

Processa is required to use commercially reasonable efforts, at its sole cost and expense, to conduct development activities in one or more countries, including meeting specific diligence milestones that consist of:

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Either party may terminate the agreement in the event of a material breach of the agreement that has not been cured following written notice and a 120 -day opportunity to cure such breach, and Processa may terminate the agreement for any reason upon 120 days prior written notice to Ocuphire.

As of June 30,

2021, the Company has not yet fulfilled its performance obligations under the Processa License Agreement and has no t recognized any

related revenue.

As of September 30,

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

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

Notes to Condensed Consolidated Financial Statements

Convertible Notes

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On November 4, 2020, all of Ocuphire’s outstanding Convertible Notes were converted into 977,128 shares of Ocuphire common stock as adjusted for the Exchange Ratio in connection with the completion of the Merger.

Prior to the completion of the Merger, on June 8, 2020, the Company amended the Convertible Notes (the “Conversion Agreement”).

Under the Conversion Agreement, upon such date selected by the Company

following Rexahn’s receipt of the required Rexahn stockholder vote and prior to the effectiveness of the Merger, each Convertible Note shall automatically and without any action required by any purchaser or the Company be cancelled and,

simultaneously with such cancellation, convert into that number of fully paid and non-assessable shares of the Company’s common stock that is equal to 175 % times the outstanding principal and accrued but unpaid interest (“Note Value”) divided by the conversion price (the “Conversion Price”), rounded to the nearest whole share.

The Conversion Price

has the meaning of the per share price resulting from the quotient of (1) $ 100,000 ,000 less the aggregate amount of 175 % times the Note Value of all of the Convertible Notes divided by (2) the fully diluted shares (the “Fully Diluted Shares”).

Diluted Shares has the meaning of:

(1) all of the issued outstanding shares of the Company’s common stock;

and (2) the aggregate number of shares of the Company’s common stock reserved for issuance under all outstanding options or other

awards under equity incentive plans of the Company in effect as of such date of determination.

The addition of the new conversion feature under the Conversion Agreement represented a substantial modification to the Convertible Notes, and as such, the Company recorded the

modification as a note extinguishment.

On the modification date, the fair value of the Convertible Notes (inclusive of the embedded features) was $ 1,260 ,000

lower upon modification than the aggregate of the carrying value of the Convertible Notes and the fair value of the embedded features;

the difference was recorded as a gain on note extinguishment in the accompanying condensed

consolidated statements of comprehensive loss for the nine months ended September 30, 2020.

Lastly, an increase to additional paid-in capital in the amount of $ 971 ,000 was recorded in connection with the Conversion Agreement to account for the excess of the Convertible Notes’ fair value over the aggregate value of outstanding note principal,

accrued interest and fair value of the premium conversion derivatives upon execution of the Conversion Agreement.

The Convertible

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Interest expense on principal during the

three and six months ended June 30, 2020 was $ 169,000 and $ 307,000 , respectively.

three and nine months ended September 30, 2020 was $ 171 ,000 and $ 478 ,000, respectively.

The outstanding

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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

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

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.

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

Notes to Condensed Consolidated Financial Statements

Qualified Financing :

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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

nearest whole share.

The Company was

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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 and six months ended June 30, 2020.

The bifurcation of the embedded derivatives from the debt host resulted in a discount to the Convertible Notes in the amount of $ 831 ,000 during the nine months ended September 30, 2020.

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

There were no outstanding premium conversion derivatives as of June 30, 2021 or December 31, 2020 given the conversion of the Convertible Notes.

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 an expense of $ 0.9 million and $ 0.7 million during the three and six months ended June 30, 2020, respectively.

The note discounts were

amortized to interest expense over the term of the Convertible Notes using the straight-line method which approximates the effective interest method and amounted to $ 0.5 million

and $ 0.9 million during the three and six months ended June 30, 2020, respectively.

Notes to Condensed Consolidated Financial Statements

There were no outstanding premium conversion derivatives as of September 30, 2021 or December 31, 2020 given the conversion of the Convertible Notes.

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

statements of comprehensive loss which amounted to a benefit of $( 879 ,000) and $( 158 ,000) during the three and nine months ended September 30, 2020, respectively.

recorded a discount to the Convertible Notes, attributed to

both third party costs

in connection with the note extinguishment and note issuance costs, of $ 10 ,000 during the nine months ended September 30, 2020.

The note discounts associated with the bifurcation of derivatives, note extinguishment and issuances costs were amortized to interest expense over the term of the Convertible Notes using the straight-line method which approximated the effective interest method and amounted to $ 8 ,000 and $ 944 ,000 during the three and

nine months ended September 30, 2020, respectively.

Stockholders’ Equity (Deficit)

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acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $ 40 million (the “2021

During the three and six months ended June 30, 2021, 900,943 shares were sold under the 2021 ATM for gross proceeds

in the amount of approximately $ 4.1 million, before deducting issuance expenses in the amount of approximately $ 0.2 million.

During the three and nine months ended September 30, 2021, 332,600 and 1,233,543 shares, respectively, were sold under the 2021 ATM for gross proceeds in the amount of approximately $ 1.7 million and $ 5.8 million, respectively, before deducting issuance

expenses in the amount of approximately of $ 0.1 million and $ 0.3 million, respectively.

Registered Direct Offering

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The offering of the Securities (the “Registered Direct Offering”) was made pursuant to the Company ’s 2021 Shelf.

The RDO Warrants have an exercise price of $ 6.09 per share, are exercisable from the initial

issuance date of June 8, 2021, and will expire five years following the initial exercise date.

The fair value of the RDO Warrants

was determined to be $ 6.4 million based on the Black-Scholes pricing model.

Notes to Condensed Consolidated Financial Statements

The RDO Warrants have an exercise price of $ 6.09 per share, are exercisable from the initial issuance date of June 8, 2021, and will expire five years following the initial exercise date.

The fair value of the RDO Warrants was determined to be $ 6.4 million based on the Black-Scholes pricing model.

Input assumptions used were as follows:

risk-free interest rate of 0.8 %;

a risk-free interest rate of 0.8 %;

expected volatility of 99.2 %;

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and the underlying fair market of the common stock.

The RDO Warrants were classified in stockholders’ equity (deficit) as the number of

shares were fixed and determinable, no cash settlement was required and no other provisions precluded equity treatment.

As of June 30, 2021, 1,538,461

RDO Warrants were outstanding.

The RDO Warrants were classified in stockholders’ equity (deficit) as the number of shares were fixed and determinable, no cash settlement was required and no other provisions precluded

equity treatment.

As of September 30, 2021, 1,538,461 RDO Warrants were outstanding.

limited exceptions, a holder of a RDO Warrant will not have the right to exercise any portion of its RDO Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99 % (or, at the election of a holder prior to the date of issuance, 9.99 %) of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise;

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with respect to all investors, eliminating any future resets.

Notes to Condensed Consolidated Financial Statements

Purchase Agreement

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at an initial exercise price of $ 4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance.

The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein) and were outstanding as of June 30, 2021.

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

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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 six months ended June 30, 2021.

derivatives line item on the accompanying condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2021.

As a result of the reclassification to equity, the Series A Warrants are no longer subject to

remeasurement.

Notes to Condensed Consolidated Financial Statements

Series B Warrants

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In April 2021, investors exercised Series B Warrants for a total of 1,629,634

As of June 30, 2021, 78,700 Series B warrants were outstanding.

As of September 30, 2021, 78,700 Series B warrants were outstanding.

The Series B Warrants were accounted for

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Share-based Compensation

compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed consolidated statements of comprehensive loss for the three and six month periods indicated below

(in thousands):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

General and administrative

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Total share-based compensation

Notes to Condensed Consolidated Financial

Ocuphire Stock Options

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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

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

Notes to Condensed Consolidated Financial Statements

2020 Plan Evergreen Provision

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

During the three and six months ended June 30, 2021, 218,000 and 259,800 stock options were granted to newly-hired consultants and employees, respectively, generally vesting over a six ( 6 ) to forty-eight ( 48 ) month

During the three and six months ended June 30, 2020, 211,592 stock options to consultants were granted,

generally vesting over a twelve ( 12 ) to twenty-one ( 21 ) month period.

The Company recognized $ 434,000 and $ 316,000 in share-based compensation expense related to stock options during the three months ended June 30, 2021 and 2020, respectively, and

$ 880,000 and $ 377,000

during the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, 7,386 stock

options were exercised with an intrinsic value of $ 74,000 .

The weighted average fair value per share of options granted during the three and six months ended June 30, 2021 was $ 4.50 and $ 4.85 , respectively.

The weighted average fair value per

share of options granted during the three and six months ended June 30, 2020 was $ 5.98 .

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.

During the three and nine months ended September 30, 2021, 128,000 and 387,800 stock

options were granted to newly-hired consultants and employees, respectively, generally vesting over a six ( 6 ) to forty-eight

( 48 ) month period.

During the three and nine months ended September 30, 2020, 22,397 and 233,989 stock options to consultants were

granted, respectively, generally vesting over an immediate to twenty-eight ( 28 ) month period.

The Company recognized $ 452 ,000 and $ 616 ,000 in

share-based compensation expense related to stock options during the three months ended September 30, 2021 and 2020, respectively, and $ 1,331 ,000

and $ 993 ,000 during the nine months ended September 30, 2021 and 2020, respectively.

During the three and nine months ended

September 30, 2021, 66,056 and 73,442

stock options were exercised, respectively, with an intrinsic value of $ 271 ,000 and $ 345 ,000, respectively.

There were no

exercises during the comparable prior year periods.

The weighted average fair value per share of options granted during the

three and nine months ended September 30, 2021 was $ 3.69 and $ 4.47 , respectively.

The weighted average fair value per share of options granted during the three and nine months ended September 30, 2020 was $ 6.27 and $ 6.01 , respectively.

The Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, directors, consultants and directors on the date of grant using the Black-Scholes option pricing model.

Company does not have adequate history to support a calculation of volatility and expected term.

As such, the Company has used a weighted-average volatility considering the volatilities of several guideline companies.

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The weighted‑average assumptions used

in the Black‑Scholes option‑pricing model are as follows during the three and six months ended June 30, 2021 and 2020:

in the Black-Scholes option-pricing model are as follows during the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Expected stock price volatility

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Risk free interest rate

Notes to Condensed Consolidated Financial

During the three and six months ended June 30, 2021, 114,727 and 232,944 stock options vested, respectively.

three and six months ended June 30, 2020, 14,586 and 81,198 stock options vested (as adjusted for the Exchange Ratio), respectively.

During the three and six months ended June 30, 2021, 25,558 options were forfeited.

During the three and six months ended June 30, 2020, zero

and 7,924 options were forfeited, respectively.

As of June 30, 2021, 1,047,011 shares were available for future issuance under the 2020 Plan and Inducement Plan.

During the three and nine months ended September 30, 2021, 95,949 and 328,893 stock options vested, respectively.

During the three and nine months ended September 30, 2020, 188,230 and 269,428 stock options vested (as

adjusted for the Exchange Ratio), respectively.

During the three and

nine months ended September 30, 2021, zero and 25,558 options were forfeited, respectively.

During the three and nine months ended September 30, 2020, 22,399 and 30,323 options were forfeited, respectively.

September 30, 2021, 922,300 shares were available for future issuance under the 2020 Plan and Inducement Plan.

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

share‑based compensation cost was $ 2.8 million as of June 30, 2021.

share-based compensation cost was $ 2.8 million as of September 30, 2021.

The unrecognized share-based expense is expected to be

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were subject to various vesting schedules.

During the six months ended June 30, 2021 and 2020, 40,000 and zero RSAs vested, respectively, and no

During the nine months ended September 30, 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 six months ended June 30, 2021 and 2020 was $ 22,000 and zero , respectively.

The share-based compensation expense attributed to the RSAs during the nine months ended September 30, 2021 and 2020 was $ 22 ,000 and zero , respectively.

Notes to Condensed Consolidated Financial Statements

Ocuphire Stock Awards

granted stock awards in the amount of 4,923 and 9,397 common shares to two board members for services performed

during the three and six months ended June 30, 2021 , respectively.

The stock-based compensation related to these awards amounted to $ 29,000 and $ 55,000 during the three and six months ended June 30, 2021, respectively.

granted stock awards in the amount of 5,047 and 14,444 common shares to two board members in lieu

of cash payments for services performed during the three and nine months ended September 30, 2021 , respectively.

The stock-based compensation related to these awards amounted to $ 26 ,000 and $ 82 ,000 during the three and nine months ended September

30, 2021, respectively.

Rexahn Options

the closing of the Merger, 82 and 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 June 30, 2021 and December 31, 2020 respectively.

D uring the three and six months ended June 30, 2021, 41 options expired .

The exercise price related to the outstanding options granted under the Rexahn 2003 Plan was $ 182.40 per share with an average remaining contractual life of 1.0 years.

September 30, 2021 and December 31, 2020, respectively.

D uring the nine months ended September 30, 2021, 41 options expired .

price related to the outstanding options granted under the Rexahn 2003 Plan was $ 182.40 per share with an average remaining

contractual life of 0.7 years.

Apexian Sublicense Agreement

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The share issuance transaction was recorded in the amount of $ 2.1

million as IPR&D expense for the six months ended June 30, 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.

million as IPR&D expense for the nine months ended September 30, 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.

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

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None of the criteria to recognize milestone or royalty obligations were met

during the six-month period ended June 30, 2021.

Notes to Condensed Consolidated Financial Statements

during the nine-month period ended September 30, 2021.

Related Party Transactions

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Agreements with certain investors beginning on May 25, 2018.

Through June 30, 2020, Convertible Notes in the principal aggregate amount of $ 0.7

Through September 30, 2020, Convertible Notes in the principal aggregate amount of $ 0.7

million were issued to four board members and to two officers, one of which was also a board member of the Company.

Note 6 – Convertible Notes.

See Note 6 – Convertible

Sublicense Agreement

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See Note 9 – Apexian Sublicense Agreement.

Five directors of Private Ocuphire and one director of Rexahn

participated in the Pre-Merger Financing, investing an aggregate of $ 300,000 .

Notes to Condensed Consolidated Financial Statements

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.

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 7 – Stockholders’ Equity (Deficit).

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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.

These directors did not receive any of the

additional Series B Warrants that were issued in connection with the Waiver Agreements.

See Note 7 – Stockholders’ Equity (Deficit).

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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 and six month periods ended presented below:

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 and nine month periods ended presented below:

September 30,

Stock options

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The effective

tax rate for the three and six months ended June 30, 2021 and 2020 was zero percent.

As of June 30, 2021, a full valuation

allowance has been established to reduce the Company’s net deferred income tax assets.

As such, no tax benefit related to

the Company’s pre-tax loss was recognized for any of the periods presented.

tax rate for the three and nine months ended September 30, 2021 and 2020 was zero percent.

As of September 30, 2021, a full

valuation allowance has been established to reduce the Company’s net deferred income tax assets.

As such, no tax benefit

related to the Company’s pre-tax loss was recognized for any of the periods presented.

The Company’s corporate returns

are subject to examination for the 2018, 2019 and 2020 tax years for federal income tax purposes and subject to examination for the 2018, 2019 and 2020 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.

The Company does not have any reserves for income

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

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