UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2022

OR

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

For the transition period from                to ________

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

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

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

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

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

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

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

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

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

Large accelerated filer
 ☐
Non-accelerated filer
 ☒
Accelerated filer
 ☐
Smaller reporting company
 ☒
   
Emerging growth company
 ☐

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

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

The number of outstanding shares of the registrant’s common stock as of November 2, 2022 was 20,807,015.

OCUPHIRE PHARMA, INC.
FORM 10-Q
INDEX

 
 
Page
 
 
Item 1.
2
 
 2
 
 3
 
 4
 
 5
 
 6
Item 2.
 18
Item 3.
 29
Item 4.
 29
 
 
 
 29
 
 
Item 1.
 29
Item 1A.
 29
Item 2.
 29
Item 3.
 29
Item 4.
 29
Item 5.
 29
Item 6.
 30
 
 
31

1
PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

Ocuphire Pharma, Inc.
Condensed Balance Sheets
(in thousands, except share amounts and par value)
 
   
As of
  
   
September 30,
2022
    
December 31,
2021
  
   
(unaudited)
        
Assets
            
Current assets:
            
Cash and cash equivalents
  
$
13,855
    
$
24,534
  
Prepaids and other current assets
     605       1,314  
Short-term investments
    
101
      
219
  
Total current assets
    
14,561
      
26,067
  
Property and equipment, net
    
7
      
10
  
Total assets
  
$
14,568
    
$
26,077
  
                 
Liabilities and stockholders’ equity
                
Current liabilities:
                
Accounts payable
  
$
1,468
    
$
1,584
  
Accrued expenses
    
1,223
      
1,733
  
Short-term loan
     —       538  
Total current liabilities
    
2,691
      
3,855
  
Warrant liabilities
    
—
      
—
  
Total liabilities
    
2,691
      
3,855
  
                 
Commitments and contingencies (Note 4, Note 9 and Note 10)
            
                 
Stockholders’ equity:
                
Preferred stock, par value $0.0001; 10,000,000 shares authorized as of September 30, 2022 and December 31, 2021; no shares issued and outstanding at September 30, 2022 and December 31, 2021.
    
—
      
—
  
Common stock, par value $0.0001; 75,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 20,801,506 and 18,845,828 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively.
    
2
      
2
  
Additional paid-in-capital
    
117,296
      
111,588
  
Accumulated deficit
    
(105,421
)
    
(89,368
)
Total stockholders’ equity
    
11,877
      
22,222
  
Total liabilities and stockholders’ equity
  
$
14,568
    
$
26,077
  
 
See accompanying notes.
2
Ocuphire Pharma, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)


  
For the Three Months Ended
September 30,
    
For the Nine Months Ended
September 30,
  
   
2022
    
2021
     2022     2021  
Collaborations revenue
   $ —     $ 489     $ —     $ 589  
                                 
Operating expenses:
                                
General and administrative
    
1,703
      
1,595
       5,215       6,707  
Research and development
    
2,835
      
3,126
       10,769       10,437  
Total operating expenses
    
4,538
      
4,721
       15,984       17,144  
Loss from operations
    
(4,538
)
    
(4,232
)
     (15,984 )     (16,555 )
Interest expense
    
—
      
—
       (9 )     —  
Fair value change of warrant liabilities
    
—
      
—
       —       (33,829 )
Other income (expense), net
    
7
      
2
       (60 )     4  
Loss before income taxes
    
(4,531
)
    
(4,230
)
     (16,053 )     (50,380 )
Benefit (provision) for income taxes
    
—
      
—
       —       —  
Net loss
    
(4,531
)
    
(4,230
)
     (16,053 )     (50,380 )
Other comprehensive loss, net of tax
    
—
      
—
       —       —  
Comprehensive loss
  
$
(4,531
)
  
$
(4,230
)
   $ (16,053 )   $ (50,380 )
Net loss per share:
                                
Basic and diluted (Note 11)
  
$
(0.22
)
  
$
(0.25
)
   $ (0.82 )   $ (3.64 )
Number of shares used in per share calculations:
                                
Basic and diluted
    
20,498,229
      
16,925,006
       19,635,651       13,841,067  

See accompanying notes.
 
3
Ocuphire Pharma, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
(Unaudited)

   
Common Stock
    
Additional
Paid–In
    
Accumulated
    
Total
  
   
Shares
    
Amount
    
Capital
    
Deficit
    
Equity (Deficit)
  
                               
Balance at December 31, 2020
    
10,882,495
    
$
1
    
$
19,207
    
$
(32,675
)
  
$
(13,467
)
Reclassification of Series A warrant liability to equity     —       —       61,793       —       61,793  
Stock–based compensation
    
40,000
      
—
      
494
      
—
      
494
  
Exercise of stock options     7,386       —       10       —       10  
Net and comprehensive loss
    
—
      
—
      
—
      
(39,014
)
    
(39,014
)
Balance at March 31, 2021
    
10,929,881
      
1
      
81,504
      
(71,689
)
    
9,816
  
Issuance of common stock and warrants in connection with registered direct offering     3,076,923       1       14,999       —       15,000  
Issuance of common stock in connection with the at-the-market program     900,943       —       4,067       —       4,067  
Issuance of common stock in connection with settlement with investors     350,000       —       1,614       —       1,614  
Issuance costs     —       —       (1,271 )     —       (1,271 )
Stock–based compensation
    
4,474
      
—
      
463
      
—
      
463
  
Exercise of Series B warrants     1,629,634       —       —       —       —  
Net and comprehensive loss
    
—
      
—
      
—
      
(7,136
)
    
(7,136
)
Balance at June 30, 2021
    
16,891,855
      
2
      
101,376
      
(78,825
)
    
22,553
  
Issuance of common stock in connection with the at-the-market program     332,600       —       1,739       —       1,739  
Issuance costs
    —       —       (50 )     —       (50 )
Share–based compensation     4,923       —       478       —       478  
Exercise of options
    66,056       —       76       —       76  
Net and comprehensive loss
    —       —       —       (4,230 )     (4,230 )
Balance at September 30, 2021
    17,295,434     $ 2     $ 103,619     $ (83,055 )   $ 20,566  
                                         
Balance at December 31, 2021
    
18,845,828
    
$
2
    
$
111,588
    
$
(89,368
)
  
$
22,222
  
Issuance of common stock in connection with the at-the-market program     336,544       —       1,208       —       1,208  
Issuance costs     —       —       (35 )     —       (35 )
Stock–based compensation
    
6,970
      
—
      
445
      
—
      
445
  
Exercise of stock options
    
24,309
      
—
      
27
      
—
      
27
  
Net and comprehensive loss
    
—
      
—
      
—
      
(6,595
)
    
(6,595
)
Balance at March 31, 2022
    
19,213,651
      
2
      
113,233
      
(95,963
)
    
17,272
  
Issuance of common stock in connection with the at-the-market program
    
877,927
      
—
      
1,858
       —      
1,858
  
Issuance costs
     —
     
—
      
(53
)
     —      
(53
)
Stock–based compensation
    
8,024
      
—
      
445
      
—
      
445
  
Net and comprehensive loss
    
—
      
—
      
—
      
(4,927
)
    
(4,927
)
Balance at June 30, 2022
    
20,099,602
      
2
      
115,483
      
(100,890
)
  
$
14,595
  
Issuance of common stock in connection with the at-the-market program
    634,509       —       1,362       —       1,362  
Issuance costs
    —       —       (42 )     —       (42 )
Stock–based compensation
    66,372       —       493       —       493  
Exercise of Series B warrants
    1,023       —       —       —       —  
Net and comprehensive loss
    —       —       —       (4,531 )     (4,531 )
Balance at September 30, 2022
    20,801,506     $ 2     $ 117,296     $ (105,421 )   $ 11,877  

See accompanying notes.

4
Index
 Ocuphire Pharma, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

   
Nine Months Ended
September 30,
  
   
2022
    
2021
  
Operating activities
            
Net loss
  
$
(16,053
)
  
$
(50,380
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Stock-based compensation
    
1,383
      
1,435
  
Depreciation
    
3
      
3
  
Fair value change in warrant liabilities
    
—
      
33,829
  
Non-cash share settlement with investors
     —       1,614  
Receipts of investments related to license agreement
     —       (289 )
Unrealized loss (gain) from short-term investments
     118       (94 )
Change in assets and liabilities:
                
Prepaid expenses and other assets
    
709
      
709
  
Accounts payable
    
(125
)
    
216
  
Accrued and other liabilities
    
(512
)
    
(767
)
Net cash used in operating activities
    
(14,477
)
    
(13,724
)
Investing activities
                
Net cash used in investing activities
    
—
      
—
  
Financing activities
                
Proceeds from issuance of common stock – registered direct offering     —       15,000  
Proceeds from issuance of common stock – at-the-market program
     4,428       5,806  
Issuance costs     (119 )     (1,317 )
Payments in connection with short-term loan     (538 )     —  
Exercise of stock options and Series B warrants
    
27
      
86
  
Net cash provided by financing activities
    
3,798
      
19,575
  
Net (decrease) increase in cash and cash equivalents
    
(10,679
)
    
5,851
  
Cash and cash equivalents at beginning of period
    
24,534
      
16,399
  
Cash and cash equivalents at end of period
  
$
13,855
    
$
22,250
  
Supplemental disclosure of cash flow information:
                
Cash paid for income taxes
  
$
—
    
$
—
  
Cash paid for interest
  
$
9
    
$
—
  
Supplemental non-cash financing transactions:
                
Non-cash reclassification of Series A warrant liability to equity
  
$
—
    
$
61,793
  
Unpaid issuance and deferred offering costs
  
$
11
    
$
4
  
 
See accompanying notes.

5
Notes to Condensed Consolidated Financial Statements
 
1.
Company Description and Summary of Significant Accounting Policies

Nature of Business
 
Ocuphire Pharma, Inc. (the “Company” or “Ocuphire”) is a clinical-stage ophthalmic biopharmaceutical company focused on developing and commercializing therapies for the treatment of refractive and retinal eye disorders. Ocuphire’s pipeline currently includes two small molecule product candidates targeting several of such 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 (the vascular layer of the eye) diseases such as diabetic retinopathy (“DR”) and diabetic macular edema (“DME”) which, if left untreated, can result in permanent visual acuity loss and eventual blindness. The Company has also in-licensed APX2009 and APX2014, which are second-generation product candidates and analogs of APX3330.
 
The Company has sustained operating losses since inception and expects such losses to continue indefinitely until a sustained revenue source is realized. Management plans to continue financing the Company’s operations primarily through additional issuances of the Company’s equity and debt securities or through collaborations or partnerships with other companies. 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.
 
The Company’s headquarters is located in Farmington Hills, Michigan.
 

Global Economic Conditions
Generally, worldwide economic conditions remain uncertain, particularly due to the effects of the COVID‑19 pandemic and increased inflation. The general economic and capital market conditions both in the U.S. and worldwide, have been volatile in the past and at times have adversely affected the Company’s access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, the Company’s future cost of equity or debt capital and access to the capital markets could be adversely affected.

 

The COVID-19 pandemic that began in late 2019 introduced significant volatility to the global economy, disrupted supply chains and had a widespread adverse effect on the financial markets. As a result of the COVID-19 pandemic, the Company has experienced, and may continue to experience, delays and disruptions in our clinical trials, as well as interruptions in our manufacturing, supply chain, shipping and research and development operations.  Testing and clinical trials, manufacturing, component supply, shipping and research and development operations may be further impacted by the continuing effects of COVID-19.

 

Additionally, the Company’s operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates.


Basis of Presentation
 
The accompanying condensed consolidated 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, 2021 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, 2021.
 
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.
 
On December 31, 2021, the Company merged its wholly-owned subsidiary, OcuSub Inc, with and into the Company, with the Company remaining as the surviving entity. The merger of the Company’s wholly-owned subsidiary did not have a financial impact in the periods presented. Upon close of this merger, the Company did not have any remaining entities that required consolidation for financial statement reporting purposes. All significant intercompany accounts and transactions were eliminated in the preparation of the condensed consolidated financial statements prior to the December 31, 2021 merger with OcuSub Inc.
 
6
Notes to Condensed Consolidated Financial Statements
Going Concern
 
The Company’s ability to continue operating as a going concern is contingent upon, among other things, its ability to secure additional financing and to achieve and maintain profitable operations. The Company plans to issue additional equity and/or debt instruments to finance operating and working capital requirements, including additional issuances under the 2021 at-the-market program discussed further below. 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.

Use of Estimates

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

 
Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of development and commercialization of products related to vision performance and health. Accordingly, the Company has a single reporting segment.

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company’s cash is held by two long-standing financial institutions in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institutions are financially sound, and accordingly, minimal credit risk exists with respect to the financial institutions. As of September 30, 2022, the Company had deposits that exceeded federally insured amounts by $13.4 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 short-term 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 balance sheets.  Subsequent changes in fair values are recorded in other income (expense), net on the  condensed consolidated statements of comprehensive loss. The Company classifies investments available to fund current operations as current assets on its balance sheets. The Company did not recognize any impairments on its investments to date through September 30, 2022.

Revenue Recognition
 

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 Company has entered into license agreements which have revenue recognition implications. (See Note 10 – Collaboration License Agreements.)

 

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

 

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


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


7
Notes to Condensed Consolidated Financial Statements

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


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


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



General and Administrative Expenses



General and administrative expenses (“G&A”) consist primarily of personnel-related costs, including salaries and stock-based compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and tax services, settlement costs with third parties and other services provided by business consultants.



Research and Development Expenses



Research and development expenses (“R&D”) consist of costs incurred in performing research and development activities, including compensation for research and development employees and consultants, costs associated with preclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, fees paid to external service providers that conduct certain research and development, and an allocation of R&D related overhead expenses.



 Other Income (Expense), net



Other income (expense), net includes payments made by the Company in connection with the Contingent Value Rights Agreement discussed further below with former stockholders of Rexahn Pharmaceuticals, Inc. (“Rexahn”). In addition, other income (expense), net includes interest earned from cash and cash equivalent investments, realized and unrealized gains (losses) from equity investments and from foreign currency exchange transactions, and when they occur, reimbursements in connection with grants and other sources.
 

Stock-Based Compensation



The Company accounts for stock-based compensation in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 718”), Compensation — Stock Compensation. Accordingly, compensation costs related to equity instruments granted are recognized at the grant date fair value. The Company records forfeitures when they occur. Stock-based compensation arrangements to non-employees are accounted for in accordance with the applicable provisions of ASC 718.



Warrant Liabilities



The Company issued Series A Warrants in connection with the Pre-Merger Financing (see Note 3 – Pre-Merger Financing) and assumed Rexahn warrants issued prior to the Merger. The Company accounts for these warrants as a liability while outstanding at fair value during periods when certain provisions preclude equity accounting treatment for these instruments. Additionally, issuance costs associated with the warrants classified as liabilities are expensed as incurred and reflected as interest expense in the accompanying consolidated statements of comprehensive loss. The change in fair value of the warrant liabilities while outstanding was recognized as a component of the fair value change in warrant liabilities line item in the condensed consolidated statements of comprehensive loss.

8
Notes to Condensed Consolidated Financial Statements
Fair Value Measurements
 
The Company follows accounting guidance that emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are defined on a three-level hierarchy:
 

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


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


●
Level 3 inputs: Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

As of September 30, 2022 and December 31, 2021, the fair values of cash and cash equivalents, prepaid and other assets, accounts payable, accrued expenses and short-term loan, while outstanding, approximated their carrying values because of the short-term nature of these assets or liabilities. 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, 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, 2022 and 2021.
 
The fair value of financial instruments measured on a recurring basis is as follows (in thousands):
 
   
As of September 30, 2022
  
Description
  
Total
    
Level 1
    
Level 2
    
Level 3
  
Assets:
                        
Short-term investments
  
$
101
    
$
101
    
$
—
    
$
—
  
Total assets at fair value
  
$
101
    
$
101
    
$
—
    
$
—
  

   
As of December 31, 2021
  
Description
  
Total
    
Level 1
    
Level 2
    
Level 3
  
Assets:
                        
Short-term investments
  
$
219
    
$
219
    
$
—
    
$
—
  
Total assets at fair value
  
$
219
    
$
219
    
$
—
    
$
—
  

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, 2022 and 2021 (in thousands):

   
2022
    
2021
  
Short-term investments
            
Balance as of beginning of period
  
$
219
    
$
—
  
Receipt of investments related to license agreement     —       342  
Unrealized (loss) gain
    
(118
)
    
41
  
Balance as of end of period
  
$
101
    
$
383
  

9
Notes to Condensed Consolidated Financial Statements
The following table provides a roll-forward of the warrant liabilities measured at fair value on a recurring basis using unobservable level 3 inputs for the nine months ended September 30, 2022 and 2021 (in thousands):
 
   
2022
    
2021
  
Warrant liabilities
            
Balance as of beginning of period
  
$
—
    
$
27,964
  
Change in fair value of warrant liabilities
    
—
      
33,829
  
Reclassification of Series A warrants from liability to equity
    
—
      
(61,793
)
Balance as of end of period
  
$
—
    
$
—
  
 
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. The Company does not expect that the adoption of this ASU on January 1, 2023 will have a significant impact on its condensed consolidated financial statements.

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ​ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for public business entities that meet the definition of a Securities and Exchange Commission (“SEC”) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its condensed consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance, to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 and it did not have a material impact to our financial statements.
 
2.
Merger and Contingent Value Rights Agreement
  
On November 5, 2020, the Company completed its merger transaction (the “Merger”) with Rexahn. 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 terms of the Merger and the CVR Agreement, Rexahn stockholders of record as of immediately prior to the effective time of the Merger received one contingent value right (“CVR”) for each share of Rexahn common stock held.
 
Each CVR entitles such holders to receive, for each calendar quarter (each, a “CVR Payment Period”) during the 15-year period after the Closing (the “CVR Term”), an amount equal to the following:
 

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

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

●
75% of the sum of (i) all cash consideration paid by a third party to Rexahn or its affiliates during the applicable CVR Payment Period in connection with the grant, sale or transfer of rights to Rexahn’s pre-closing intellectual property (other than a grant, sale or transfer of rights involving a sale or disposition of the post-Merger combined company) that is entered into during the 10-year period after the Closing (“Parent IP Deal”), plus (ii) with respect to any non-cash consideration received by Rexahn or its affiliates from a third party during the applicable CVR Payment Period in connection with any Parent IP Deal, all amounts received by Rexahn and its affiliates for such non-cash consideration at the time such non-cash consideration is monetized by Rexahn or its affiliates, minus (iii) certain permitted deductions.
 
10
Notes to Condensed Consolidated Financial Statements
The CVRs are not transferable, except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not accrue interest and will not be registered with the SEC or listed for trading on any exchange. The CVR Agreement will continue in effect until the later of the end of the CVR Term and the payment of all amounts payable thereunder. As of September 30, 2022, no milestones had been accrued as there were no additional potential milestones yet considered probable beyond those previously reported in the second and third quarters of calendar year 2021.

Former Rexahn Warrants
 
Following the closing of the Merger, 231,433 outstanding, unexercised Rexahn warrants to purchase common stock remained outstanding, the majority of which were subsequently repurchased according to the terms of the original warrant agreements.  As of September 30, 2022, 63,734 of the Rexahn warrants remained outstanding with exercise prices ranging from $38.40 to $146.88 per share with an average remaining contractual life of 1.2 years.

3.
Pre-Merger Financing



Securities Purchase Agreement



On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”).  Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by five directors of Ocuphire Pharma, Inc., prior to the Merger and one director of Rexahn upon closing of the Merger (the “Pre-Merger Financing”).  The Pre-Merger Financing also included the issuance of Series A Warrants and Series B Warrants discussed further below.



Waiver Agreements



Effective February 3, 2021, each investor that invested in the Pre-Merger Financing 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 Agreements, 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 in the aggregate with respect to all investors, eliminating any future resets.


Series A Warrants



The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein) and were outstanding as of September 30, 2022. Prior to the execution of the Waiver Agreements, the Series A Warrants were accounted for and classified as liabilities on the accompanying condensed balance sheets given certain price reset provisions not used for a fair valuation under a fixed for fixed settlement scenario as required for equity balance sheet classification. Upon the February 3, 2021 effective date of the Waiver Agreements, the Series A Warrants were reclassified to equity. A final fair valuation of the Series A Warrants was performed utilizing a Black Scholes model to estimate the aggregate fair value of the Series A Warrants prior to being re-classified as equity. Input assumptions used were as follows: risk-free interest rate 0.4%; expected volatility of 86.6%; expected life of 4.8 years; and expected dividend yield zero percent. The underlying stock price used was the market price as quoted on Nasdaq as of  February 3, 2021, the effective date of the Waiver Agreement.  The fair value change of the Series A Warrants was $33.8 million and was recorded to the fair value change in warrant liabilities 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.



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 outstanding as of September 30, 2022 were exercisable for 77,678 shares of common stock. The Series B Warrants were accounted for and classified as equity on the accompanying condensed balance sheets.

11
Notes to Condensed Consolidated Financial Statements
4.
Commitments and Contingencies
 
Apexian Sublicense Agreement
 
On January 21, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc., pursuant to which it obtained exclusive worldwide patent and other intellectual property rights. In exchange for the patent and other intellectual rights, the Company agreed to certain milestone payments and royalty payments on future sales (See Note 9 — Apexian Sublicense Agreement). As of September 30, 2022, there was sufficient uncertainty with regard to any future cash milestone payments under the sublicense agreement, and as such, no liabilities were recorded related to the sublicense agreement.

Facility Leases
 
In May 2019, the Company entered into a short-term non-cancellable facility lease (the “HQ Lease”) for its operations and headquarters for a seven-month term beginning in June 2019. The HQ 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 HQ Lease and the Rexahn Lease qualified for the short-term lease exception under ASC 842, Leases. The monthly base rent, as amended, for the HQ Lease is approximately $3,000. The monthly base rent for the Rexahn Lease was $13,000. The rent expense associated with the HQ Lease and Rexahn Lease amounted to $9,000 during each three month period ended September 30, 2022 and 2021. The rent expense associated with the HQ Lease and Rexahn Lease amounted to $30,000 and $107,000 during the nine months ended September 30, 2022 and 2021, respectively. The total remaining expected rental payments under the HQ Lease amount to $45,000 through its new December 31, 2023 expiration date as amended in October 2022. (See Note 14 — Subsequent Events).

Other

In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legal proceedings that relate to contractual allegations, patent infringement and other claims. In addition, the Company from time to time may be potentially committed to reimburse third parties for costs incurred associated with business development related transactions upon the achievement of certain milestones. The Company establishes accruals when applicable for matters and commitments which it believes losses are probable and can be reasonably estimated. To date, no loss contingency for such matters and potential commitments have been recorded. Although it is not possible to predict with certainty the outcome of these matters or potential commitments, the Company is of the opinion that the ultimate resolution of these matters and potential commitments will not have a material adverse effect on its results of operations or financial position.
 
5.
Supplemental Balance Sheet Information
 
Prepaid and Other Assets
 
Prepaid and other assets consist of the following (in thousands):
 
   
September 30,
2022
    
December 31,
2021
  
Prepaids
  
$
544
    
$
1,243
  
Other
    
61
      
71
  
Total prepaids and other assets
  
$
605
    
$
1,314
  

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

   
September 30,
2022
    
December 31,
2021
  
Equipment
  
$
20
    
$
20
  
Furniture
    
5
      
5
  
Total property and equipment
  

25
      
25
  
Less accumulated depreciation
    
(18
)
    
(15
)
Property and equipment, net
  
$
7
    
$
10
  

Depreciation expense was $1,000 during each of the three month periods ended September 30, 2022 and 2021 and $3,000 during each of the nine month periods ended September 30, 2022 and 2021.

Accrued Expenses
 

Accrued expenses consist of the following (in thousands):
 
   
September 30,
    
December 31,
  
   
2022
    
2021
  
R&D services and supplies
  
$
583
    
$
1,081
  
Payroll
    
380
      
488
  
Professional services
    
186
      
84
  
Other
    
74
      
80
  
Total
  
$
1,223
    
$
1,733
  

12
Notes to Condensed Consolidated Financial Statements

Short-Term Loan



The Company entered into an unsecured short-term loan (the “Loan”) agreement in the amount of $0.6 million in November 2021 related to financing an insurance policy.  The Loan was payable in six monthly installments of $108,000 beginning in December 2021.  The Loan had an annual interest rate of 5.5% per annum.  Interest expense in the amount of $9,000 was recognized in connection with the Loan during the nine months ended September 30, 2022. The final payment on the Loan was made in May 2022.

6.
Related Party Transactions
 
Pre-Merger Financing and Waiver Agreements
 
Five directors of Ocuphire Pharma, Inc., prior to the Merger, 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 of common stock, 53,189 converted shares of additional common stock, 80,366 Series A Warrants and 9,444 Series B Warrants. In connection with the Pre-Merger Financing, 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.

On April 8, 2022, Ocuphire entered into a consulting agreement with a director of the Company. The consulting agreement provides for $10,000 a month in cash payments, effective as of April 1, 2022. Additionally, on April 8, 2022, in connection with the consulting arrangement, the director received a stock option grant for 50,000 options, 25% of which will vest on March 31, 2023, with the remainder vesting in equal monthly installments over 36 months. The consulting agreement was amended on September 19, 2022 to provide for vesting acceleration for stock-based awards in the event of a change in control. The Company incurred related consulting expenses of $30,000  and $60,000 during the three and nine months ended September 30, 2022, respectively. There were no related consulting expenses incurred during the three and nine months ended September 30, 2021. As of September 30, 2022, $10,000 of the related consulting expenses were unpaid.
 
7.
Stockholders’ Equity
 
At-The-Market Program

On February 4, 2021, Ocuphire filed a Form S-3 shelf registration under the Securities Act of 1933 which was declared effective by the SEC on February 12, 2021 (the “2021 Shelf”) under which the Company may offer and sell, from time to time in its sole discretion, securities having an aggregate offering price of up to $125 million. In connection with the 2021 Shelf, on March 11, 2021, Ocuphire entered into a sales agreement with JonesTrading Institutional Services LLC (“JonesTrading”) under which the Company may offer and sell, from time to time at its sole discretion, to or through JonesTrading, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $40 million (the “2021 ATM”). During the three and nine months ended September 30, 2022, 634,509 and 1,848,980 shares of common stock were sold under the 2021 ATM for aggregate gross proceeds in the amount of $1.4 million and $4.4 million, respectively, before deducting issuance expenses, including the placement agent’s fees, legal and accounting expenses, in the amount of $42,000 and $130,000, respectively.  During the three and nine months ended September 30, 2021, 332,600 and 1,233,543 shares were sold under the 2021 ATM for gross proceeds in the amount of approximately $1.7 million and $5.8 million, before deducting issuance expenses in the amount of approximately $0.1 and $0.3 million, respectively.

Registered Direct Offering

On June 4, 2021, the Company entered into a placement agency agreement for a registered direct offering (“RDO”) with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the placement agency agreement, AGP on June 8, 2021 sold an aggregate of 3,076,923 shares of the Company’s common stock and warrants to purchase 1,538,461 shares of the Company’s common stock (the “RDO Warrants”) at an offering price of $4.875 per one share and 0.50 RDO Warrants, for gross proceeds of approximately $15,000,000, before AGP’s fees and related offering expenses in the amount of approximately $1.1 million.

The 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 issuance date. As of September 30, 2022, 1,538,461 RDO Warrants were outstanding.

8.
Stock-based Compensation
 
Stock-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed consolidated statements of comprehensive loss for the three and nine month periods indicated below (in thousands):
 
 
  
Three Months
Ended
September 30,
    
Nine Months
Ended
September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
General and administrative
  
$
 299
    
$
322
    
$
870
    
$
804
  
Research and development
    
194
      
156
      
513
      
631
  
Total stock-based compensation
  
$
493
    
$
478
    
$
1,383
    
$
1,435
  

13
Notes to Condensed Consolidated Financial Statements
Ocuphire Stock Options
 
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.

2020 Equity Incentive Plan
 
The stockholders of the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”) for stock-based awards. The 2020 Plan became effective on November 5, 2020.  Under the 2020 Plan, (i) 1,000,000 new shares of common stock 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. The 2020 Plan permits the grant of incentive and nonstatutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock and net loss awards, and other stock-based awards.
 
2018 Equity Incentive Plan 
 
Prior to the 2020 Plan, the Company had adopted a 2018 Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,175,000 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants. Upon the effective date of the 2020 Plan, no additional shares were available for issuance under the 2018 Plan.

2020 Plan Evergreen Provision 
 
Under the 2020 Plan, the shares reserved automatically increase on January 1 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 31 of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1 of a given year to provide that there will be no January 1 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, 2022, 942,291 shares were added to the 2020 Plan as a result of the evergreen provision. 
 
General

During the three and nine months ended September 30, 2022, 167,000 and 893,305 stock options were granted to directors, officers, employees and consultants, respectively, generally vesting over a ten (10) to forty-eight (48) month period. 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. The Company recognized $394,000 and $452,000 in stock-based compensation expense related to stock options during the three months ended September 30, 2022 and 2021, respectively, and $1,229,000 and $1,331,000 during the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, 24,309 stock options were exercised with an intrinsic value of $59,000. 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.
 
The weighted average fair value per share of options granted during the three and nine months ended September 30, 2022 was $1.65 and $2.06, respectively. 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 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.
 
14
Notes to Condensed Consolidated Financial Statements
For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life of the options was based on the contractual term for agreements that allow for exercise of vested options through the end of the contractual term upon termination of continuous service, and for all other agreements, was based on the midpoint between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.

The weighted-average assumptions used in the Black-Scholes option pricing model are as follows during the three and nine months ended September 30, 2022 and 2021:

 
  
Three Months
Ended
September 30,
    
Nine Months
Ended
  September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
Expected stock price volatility
    
91.2
%
    
99.7
%
    
97.4
%
    
98.0
%
Expected life of options (years)
    
5.4
      
5.8
      
5.8
      
5.8
  
Expected dividend yield
    
0
%
    
0
%
    
0
%
    
0
%
Risk free interest rate
    
3.4
%
    
0.9
%
    
2.3
%
    
0.9
%

During the three and nine months ended September 30, 2022, 89,623 and 356,726 stock options vested, respectively. 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, 2022, 13,500 and 27,788 options were forfeited, respectively. During the nine months ended September 30, 2021, 25,558 options were forfeited. As of September 30, 2022, 892,920 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 stock-based compensation cost was $3.0 million as of September 30, 2022. The unrecognized stock-based expense is expected to be recognized over a weighted average period of 1.3 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 nine months ended September 30, 2022 and 2021, zero and 40,000 RSAs vested, respectively, and no RSAs were forfeited during the periods presented. The stock-based compensation expense attributed to the RSAs during the nine months ended September 30, 2022 and 2021 was zero and $22,000, respectively.

Common Stock Issued for Services
 

The Company granted stock for services in the amount of 52,225 common shares during the three months ended September 30, 2022 to four board members who elected to receive their board retainers in the form of stock for services performed as compared to 5,047 shares of common stock granted for services to two board members during the three months ended September 30, 2021. During the nine months ended September 30, 2022 and 2021, 74,396 and 14,444 common shares were issued to board members for services, respectively. The stock-based compensation related to these services amounted to $99,000 and $26,000 during the three months ended September 30, 2022 and 2021, respectively, and $154,000 and $82,000 during the nine months ended September 30, 2022 and 2021, respectively.
 
Former Rexahn Options

None of the 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 September 30, 2022.  All of the previously outstanding Rexahn options expired unexercised.

15
Notes to Condensed Consolidated Financial Statements
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. In connection with the Apexian Sublicense Agreement, the Company issued a total of 891,422 shares of its common stock to Apexian and to certain affiliates of Apexian in calendar year 2020. As a result of the common stock issued pursuant to the Apexian Sublicense Agreement, Apexian is considered by Ocuphire to be a related party.

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 several 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 criteria to recognize milestone or royalty obligations were met during the three and nine month periods ended September 30, 2022 and 2021.

10.
Collaboration and License Agreements


BioSense License and Assignment Agreement


On March 10, 2020, pre-Merger, Rexahn entered into an amendment to its collaboration and license agreement, (as amended, the “BioSense License and Assignment Agreement”) with BioSense to advance the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “BioSense Territory”). Under the terms of the BioSense License and Assignment Agreement, the Company (i) granted BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the BioSense Territory and (ii) assigned and transferred all of the former Rexahn patents and patent applications related to RX-3117 in the BioSense Territory. The upfront payment consisted of an aggregate of $1,650,000, of which $1,550,000 was paid to Rexahn prior to the Merger. During the nine month period 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.


Under the BioSense License and Assignment Agreement, the Company is eligible to receive additional milestone payments in an aggregate of up to  $84,500,000 upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties at low double-digit rates on annual net sales in the BioSense Territory. The Company determined that none of the milestone payments under the BioSense License and Assignment Agreement were probable of payment as of September 30, 2022, and as a result, no revenue related to the milestones was recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control. Future sales-based royalties related to the exclusive license to develop RX-3117 will be recognized in the period the underlying sales transaction occurs.

 

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

 
Processa License Agreement
 

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

 

As consideration for the Processa License Agreement, the Company received an upfront payment in July 2021 consisting of 44,689 shares of Processa common stock with a fair value of $289,000 (at the contract date) and a $200,000 cash payment. The Company was restricted from selling the Processa common stock for a period of one year ending June 16, 2022. As additional consideration, Processa will make payments to the Company upon the achievement of certain development and regulatory milestones, which primarily consist of dosing a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country. In addition, Processa will pay the Company mid-single-digit royalties based on annual sales under the license and will make one-time sales milestone payments based on the achievement during a calendar year of certain thresholds for annual sales. Processa is also required to give the Company 32% of any milestone payments received based on any sub-license agreement Processa may enter into with respect to the Processa License Agreement. The Company determined that none of the milestone payments under the Processa License Agreement were probable of payment as of September 30, 2022, 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.