UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


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

For the transition period from to

Commission File No. 001-36672

KIORA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		98-0443284
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1371 East 2100 South

Suite 200

Salt Lake City, UT 84105

(Address of Principal Executive Offices, including zip code)

(781) 788-8869

(Registrant’s telephone number, including area code)

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, $0.01 par value		KPRX		The Nasdaq Capital Market

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit). ⌧ 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	☐	Accelerated filer	☐

Non-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

At ~~November 10, 2021,~~July 7, 2022, there were ~~12,653,054~~13,067,426 shares of the registrant’s common stock outstanding.

Table of Contents

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

Table of Contents

QUARTERLY REPORT ON FORM 10-Q

For the Period Ended ~~September 30, 2021~~March 31, 2022

INDEX

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	4

	Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020~~2021	4

	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	5

	Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	6

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Three Months Ended ~~September 30,~~31, 2022 and 2021 ~~and 2020~~	87

	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2317

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	3121

Item 4.	Controls and Procedures.	3121

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	3223

Item 1A.	Risk Factors.	3223

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	3223

Item 3.	Defaults Upon Senior Securities.	3223

Item 4.	Mine Safety Disclosures.	3223

Item 5.	Other Information.	3223

Item 6.	Exhibits.	3223

SIGNATURES		3324

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations, and our plans, objectives, expectations, and intentions that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “goals,” “sees,” “estimates,” “projects,” “predicts,” “intends,” “think,” “potential,” “objectives,” “optimistic,” “strategy,” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

●

the timing and success of preclinical studies and clinical trials conducted by us and our development partners;

●

the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved products;

●

the scope, progress, expansion, and costs of developing and commercializing our product candidates;

●

the size and growth of the potential markets for our product candidates and the ability to serve those markets;

●

our expectations regarding our expenses and revenue, the sufficiency of our cash resources and needs for additional financing;

●

the rate and degree of market acceptance of any of our product candidates;

●

our expectations regarding competition;

●

our anticipated growth strategies;

●

our ability to attract or retain key personnel;

●

our ability to establish and maintain development partnerships;

●

our expectations regarding federal, state and foreign regulatory requirements;

●

regulatory developments in the U.S. and foreign countries;

●

our ability to obtain and maintain intellectual property protection for our product candidates;

●

the anticipated trends and challenges in our business and the market in which we operate; and

●

the impact of the evolving COVID-19 pandemic and the global response thereto.

Table of Contents

We discuss many of these risks in detail under the heading “Item 1A. Risk Factors” beginning on page 2423 of our Annual Report on Form ~~10-K,~~10-K/A, as filed with the Securities and Exchange Commission, or the SEC, on ~~March 25, 2021,~~July 7, 2022, or the Annual Report. You should carefully review all of these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors, including factors of which we are not currently aware, that could cause these differences.

Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information.

Kiora Pharmaceuticals, Inc. is referred to herein as “we,” “our,” “us,” and “the Company.”

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial ~~Statements.~~Statements

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2021


(unaudited)

December 31, 2020
ASSETS




Current Assets:




Cash and Cash Equivalents

$
11,106,927

$
1,185,677
Prepaid Expenses and Other Current Assets

341,629

449,569
Other Receivables

421,463

90,975
Total Current Assets

11,870,019

1,726,221
Property and Equipment, Net

78,833

30,566
Restricted Cash

45,000

45,000
Goodwill

3,484,607

3,484,607
Intangible Assets and In-Process R&D, Net

9,711,414

9,730,164
Operating Lease Assets with Right-of-Use

259,217

83,928
Other Assets

44,249

57,073
Total Assets

$
25,493,339

$
15,157,559
LIABILITIES AND STOCKHOLDERS’ EQUITY


Current Liabilities:


Accounts Payable

$
424,889

$
434,763
Accrued Expenses

1,389,311

1,289,261
Operating Lease Liabilities

144,742

48,303
Total Current Liabilities

1,958,942

1,772,327
Non-Current Liabilities:

Contingent Consideration

5,342,950

5,342,950
Deferred Tax Liability

728,926

728,926
Paycheck Protection Program Loan

—

278,190
Non-Current Operating Lease Liabilities

114,475

35,625
Total Non-Current Liabilities

6,186,351

6,385,691
Total Liabilities

8,145,293

8,158,018
Commitments and Contingencies (Note 10)


Stockholders’ Equity:


Preferred Stock, $0.01 Par Value: 10,000,000 shares authorized; 3,750 designated Series A, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020; 10,000 designated Series B, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020; 10,000 shares designated Series C, 0 and 4,092 shares issued and outstanding at September 30, 2021 and December 31, 2020; 20,000 shares designated Series D, 46 shares issued and outstanding at September 30, 2021 and December 31, 2020

—

41
Common Stock, $0.01 Par Value: 50,000,000 shares authorized; 12,619,256 and 5,556,394 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

126,193

55,564
Additional Paid-In Capital

133,637,500

115,283,572
Accumulated Deficit

(116,355,777)

(108,338,834)
Accumulated Other Comprehensive Loss

(59,870)

(802)
Total Stockholders’ Equity

17,348,046

6,999,541
Total Liabilities and Stockholders’ Equity

$
25,493,339

$
15,157,559


	March 31, 2022
	(unaudited)		December 31, 2021
ASSETS
Current Assets:
Cash and Cash Equivalents	$	5,067,354	$	7,854,690
Prepaid Expenses		930,345		606,520
Tax Receivables		552,237		529,560
Total Current Assets		6,549,936		8,990,770
Non-Current Assets:
Property and Equipment, Net		67,297		73,999
Restricted Cash		45,000		45,000
Intangible Assets and In-Process R&D, Net		10,761,914		10,768,164
Operating Lease Assets		158,309		209,411
Other Assets		53,820		42,964
Total Assets	$	17,636,276	$	20,130,308
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	302,263	$	160,621
Accrued Expenses		1,832,934		1,330,141
Operating Lease Liabilities		92,317		118,846
Contingent Consideration		293,947		0
Total Current Liabilities		2,521,461		1,609,608
Non-Current Liabilities:
Contingent Consideration, Non-Current		2,988,898		3,048,955
Deferred Tax Liability		802,131		802,131
Operating Lease Liabilities, Non-Current		65,992		90,566
Total Non-Current Liabilities		3,857,021		3,941,652
Total Liabilities		6,378,482		5,551,260
Commitments and Contingencies (Note 10)
Stockholders’ Equity:
Preferred Stock, $0.01 Par Value: 10,000,000 shares authorized; 3,750 designated Series A, 0 shares issued and outstanding at March 31, 2022 and December 31, 2021; 10,000 designated Series B, 0 shares issued and outstanding at March 31, 2022 and December 31, 2021; 10,000 shares designated Series C, 0 shares issued and outstanding at March 31, 2022 and December 31, 2021; 20,000 shares designated Series D, 7 shares issued and outstanding at March 31, 2022 and December 31, 2021		—		0
Common Stock, $0.01 Par Value: 50,000,000 shares authorized and 12,663,965 and shares issued and outstanding at March 31, 2022 and December 31, 2021		126,640		126,640
Additional Paid-In Capital		135,634,109		135,418,188
Accumulated Deficit		(124,444,363)		(120,879,349)
Accumulated Other Comprehensive Loss		(58,592)		(86,431)
Total Stockholders’ Equity		11,257,794		14,579,048
Total Liabilities and Stockholders’ Equity	$	17,636,276	$	20,130,308

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,		September 30,		September 30,		September 30,		March 31,		March 31,
	2021		2020		2021		2020		2022		2021
Operating Expenses:
General and Administrative									$	1,664,791	$	1,300,143
Research and Development	$	1,628,467	$	985,880	$	4,348,631	$	2,555,035		707,928		1,280,242
General and Administrative		1,338,616		1,021,325		3,944,624		3,144,255
Executive Severance										962,833		—
Change in Fair Value of Contingent Consideration										233,890		(570,203)
Total Operating Expenses		2,967,083		2,007,205		8,293,255		5,699,290		3,569,442		2,010,182
Operating Loss Before Other Expense		(2,967,083)		(2,007,205)		(8,293,255)		(5,699,290)
Other Income, Net:
Gain on Forgiveness of Loan		—		—		278,190		—
Operating Loss Before Other Income (Expense)										(3,569,442)		(2,010,182)
Other Expense, Net:
Gain on Disposal										4,211		—
Interest Income		259		331		841		23,115		217		250
Interest Expense		—		—		(2,719)		—		—		(686)
Total Other Income, Net		259		331		276,312		23,115
Total Other Expense, Net										4,428		(436)
Net Loss	$	(2,966,824)	$	(2,006,874)	$	(8,016,943)	$	(5,676,175)	$	(3,565,014)	$	(2,010,618)
Net Loss per Common Share - Basic and Diluted	$	(0.29)	$	(0.44)	$	(0.99)	$	(1.25)	$	(0.27)	$	(0.27)
Weighted Average Shares Outstanding - Basic and Diluted		10,265,108		4,547,524		8,101,004		4,536,014		13,058,629		7,357,899

Other Comprehensive Loss:
Net Loss	$	(2,966,824)	$	(2,006,874)	$	(8,016,943)	$	(5,676,175)	$	(3,565,014)	$	(2,010,618)
Foreign Currency Translation Adjustments		(44,734)		(17,110)		(59,068)		(16,944)		27,839		10,473
Comprehensive Loss	$	(3,011,558)	$	(2,023,984)	$	(8,076,011)	$	(5,693,119)	$	(3,571,175)	$	(2,000,145)

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

~~(unaudited)~~

Accumulated

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’


Shares

Amount

Shares

Amount

Capital

Loss

Deficit

Equity
Balance at June 30, 2021

4,138

$
41

7,097,912

$
70,979

$
123,786,856

$
(15,136)

$
(113,388,953)

$
10,453,787













Stock-Based Compensation

149,469

149,469

Conversion of Series C Preferred Stock into Common Stock

(4,092)

(41)

852,500

8,525

(8,484)

—

Issuance of Common Stock from Registered Direct Offering, Net of Offering Costs of $993,666

4,668,844

46,689

9,709,659

9,756,348

Foreign Currency Translation Adjustment

(44,734)

(44,734)

Net Loss

(2,966,824)

(2,966,824)














Balance at September 30, 2021

46

$
—

12,619,256

$
126,193

$
133,637,500

$
(59,870)

$
(116,355,777)

$
17,348,046

~~See~~ ~~Accompanying Notes to Condensed Consolidated Financial Statements.~~

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY~~

~~Nine Months Ended September 30, 2021 and 2020~~

~~(unaudited)~~

Accumulated

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’


Shares

Amount

Shares

Amount

Capital

Loss

Deficit

Equity
Balance at December 31, 2020

4,138

$
41

5,556,394

$
55,564

$
115,283,572

$
(802)

$
(108,338,834)

$
6,999,541

Stock-Based Compensation

629,306

629,306

Issuance of Common Stock from Warrants, Net

10,417

104

49,897

50,001

Conversion of Series C Preferred Stock into Common Stock

(4,092)

(41)

852,500

8,525

(8,484)

—

Issuance of Common Stock from Private Placement, Net of Offering Costs of $11,142

1,531,101

15,311

7,973,550

7,988,861

Issuance of Common Stock from Registered Direct Offering, Net of Offering Costs of $993,666

4,668,844

46,689

9,709,659

9,756,348

Foreign Currency Translation Adjustment

(59,068)

(59,068)

Net Loss

(8,016,943)

(8,016,943)

Balance at September 30, 2021

46

$
—

12,619,256

$
126,193

$
133,637,500

$
(59,870)

$
(116,355,777)

$
17,348,046

Accumulated

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’


Shares

Amount

Shares

Amount

Capital

Income

Deficit

Equity
Balance at December 31, 2019

4,092

$
41

4,077,775

$
40,778

$
106,689,065

$
139,465

$
(100,246,894)

$
6,622,455

Stock-Based Compensation

530,704

530,704

Issuance of Common Stock in Offerings, Net of Offering Costs of $498,687

500,000

5,000

4,496,313

4,501,313

Issuance of Common Stock from Restricted Stock Award Grants

49,000

490

(490)

—

Foreign Currency Translation Adjustment

(16,944)

(16,944)

Net Loss

(5,676,175)

(5,676,175)

Balance at September 30, 2020

4,092

$
41

4,626,755

$
46,268

$
111,715,592

$
122,521

$
(105,923,069)

$
5,961,353

~~See~~ ~~Accompanying Notes to Condensed Consolidated Financial Statements.~~

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

(unaudited)

Nine Months Ended September 30,


2021

2020
Operating Activities:




Net Loss

$
(8,016,943)

$
(5,676,175)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

Depreciation and Amortization of Intangible Assets

34,260

24,343
Reduction of Right-of-Use Assets

133,514

124,896
Stock-Based Compensation

629,306

530,704
Expiration of Prepaid Agreement

-

159,848
Changes in Operating Assets and Liabilities:

Prepaid Expenses and Other Current Assets

107,940

(202,909)
Refundable Tax Credit Receivable

(335,096)

2,303
Other Assets

12,826

16,369
Accounts Payable

(9,875)

(150,755)
Lease Liabilities

(133,514)

(124,896)
Accrued Expenses

100,050

(311,430)
Net Cash Used in Operating Activities

(7,477,532)

(5,607,702)
Investing Activities:

Purchases of Property, Plant and Equipment

(63,865)

—
Net Cash Used in Investing Activities

(63,865)

—
Financing Activities:

Proceeds from Stock Offerings, Net of Offering Costs

17,745,207

4,501,313
Paycheck Protection Program Loan Proceeds

—

278,190
Paycheck Protection Program Loan Forgiveness

(278,190)

—
Exercise of Warrants

50,001

—
Net Cash Provided by Financing Activities

17,517,018

4,779,503
Effect of Exchange Rate Changes on Cash

(54,371)

(17,164)
Net Increase (Decrease) in Cash

9,921,250

(845,363)
Cash, Including Restricted Cash, Beginning of Period

1,230,677

3,821,712
Cash, Including Restricted Cash, End of Period

$
11,151,927

$
2,976,349
Supplemental Disclosures of Noncash Operating and Financing Activities

Creation of Right-of-Use Assets and Related Lease Liabilities

$
313,312

$
102,579
Conversion of Series C Preferred Stock into Common Stock

$
8,525

$
—
Grant of Restricted Stock Awards

$
—

$
490


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balance at December 31, 2021	7	$	—	12,663,965	$	126,640	$	135,418,188	$	(86,431)	$	(120,879,349)	$	14,579,048

Stock-Based Compensation	—		—	—		—		215,921		—		—		215,921

Foreign Currency Translation Adjustment	—		—	—		—		—		27,839		—		27,839

Net Loss	—		—	—		—		—		—		(3,565,014)		(3,565,014)

Balance at March 31, 2022	7	$	—	12,663,965	$	126,640	$	135,634,109	$	(58,592)	$	(124,444,363)	$	11,257,794


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balance at December 31, 2020	4,138	$	41	5,556,394	$	55,564	$	116,783,602	$	(802)	$	(107,108,664)	$	9,729,741

Stock-Based Compensation	—		—	—		—		216,945		—		—		216,945

Issuance of Common Stock from Warrants, Net	—		—	10,417		104		49,897		—		—		50,001

Issuance of Common Stock from Private Placement, Net of Offering Costs of $11,142	—		—	1,531,101		15,311		7,973,550		—		—		7,988,861

Foreign Currency Translation Adjustment	—		—	—		—		—		10,473		—		10,473

Net Loss	—		—	—		—		—		—		(2,010,618)		(2,010,618)

Balance at March 31, 2021	4,138	$	41	7,097,912	$	70,979	$	125,023,994	$	9,671	$	(109,119,282)	$	15,985,403

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
	2022		2021
Operating Activities:
Net Loss	$	(3,565,014)	$	(2,010,618)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		10,773		10,599
Reduction of Right-of-Use Assets		51,102		39,490
Stock-Based Compensation		215,921		216,945
Change in Fair Value of Contingent Consideration		233,890		(570,203)
Gain on Disposal of Equipment		(4,211)		—
Changes in Operating Assets and Liabilities:
Prepaid Expenses		(323,825)		216,078
Tax Receivable		(33,497)		(59,706)
Other Assets		(10,856)		8,073
Accounts Payable		141,641		22,583
Lease Liabilities		(51,102)		(39,490)
Accrued Expenses		502,792		(403,802)
Net Cash Used in Operating Activities		(2,832,386)		(2,570,051)
Investing Activities:
Purchases of Property and Equipment		—		(58,119)
Proceeds on Sale of Equipment		6,375		—
Net Cash Provided by (Used in) Investing Activities		6,375		(58,119)
Financing Activities:
Proceeds from Stock Offerings, Net of Offering Costs		0		7,988,861
Exercise of Warrants		—		50,001
Net Cash Provided by Financing Activities		0		8,038,862
Effect of Exchange Rate Changes on Cash		38,675		14,123
Net (Decrease) Increase in Cash		(2,787,336)		5,424,815
Cash, Cash Equivalents and Restricted Cash, Beginning of Period		7,899,690		1,230,677
Cash, Cash Equivalents and Restricted Cash, End of Period	$	5,112,354	$	6,655,492
Supplemental Disclosures of Noncash Operating and Financing Activities
Creation of Right-of-Use Assets and Related Lease Liabilities	$	0	$	201,089

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

1. ~~Organization,~~ Business, Presentation and Recent Accounting Pronouncements

~~On November 5, 2021,~~ Overview

Kiora Pharmaceuticals, Inc. ~~(formerly known as EyeGate Pharmaceuticals, Inc.)~~ (“Kiora” or the “Company”) ~~filed with the Secretary of State of the State of~~was formed as a Delaware a Certificate of Ownership and Merger, merging its wholly-owned Delaware subsidiary, Kiora Pharmaceuticals, Inc., (incorporated in October 2021) into the Company and amending the Company's certificate of incorporation to change its name to “Kiora Pharmaceuticals, Inc.” effective November 8, 2021 (the “Name Change”). The Company also amended and restated its bylaws to reflect the change to the Company's name (the “Bylaws Amendment”). The Name Change and the Bylaws Amendment each became effective on November 8, 2021. The Company’s common shares commenced trading on the Nasdaq Capital Market under the new ticker symbol "KPRX" and a new CUSIP number (49721T101) effective at the market open on November 8, 2021.corporation December 28, 2004 as amended. Kiora is a clinical-stage specialty pharmaceutical company developing and commercializing ~~products~~therapies for ~~treating~~the treatment of ophthalmic diseases.

In the fourth quarter of 2020, Kiora acquired Panoptes Pharma Ges.m.b.H. (“Panoptes”) adding to its pipeline KIO-101(formerly known as PP-001), a next-generation, non-steroidal, immuno-modulatory and small-molecule inhibitor of Dihydroorotate Dehydrogenase (“DHODH”), with what Kiora believes to be a best-in-class picomolar potency and a validated immune modulating mechanism designed to overcome the off-target side effects and safety issues associated with DHODH inhibitors. KIO-101 has been developed in two clinical-stage ophthalmic formulations: an intravitreal injection for inflammatory diseases of the eye including posterior uveitis, and a novel nano carrier technology eye drop for ocular surface diseases such as dry eye disease. Other administration routes are also in development.

In addition, Kiora is developing KIO-201(formerly known as Ocular Bandage Gel or “OBG”), a modified form of the natural polymer hyaluronic acid, designed to protect the ocular surface to permit re-epithelialization of the cornea and improve ocular surface integrity. KIO-201, with unique properties that help hydrate and protect the ocular surface, is in clinical evaluation for patients undergoing photorefractive keratectomy (“PRK”) surgery for corneal wound repair after refractive surgery and patients with punctate epitheliopathies (“PE”) as a result of dry eye. A type-B meeting was held with the U.S. Food and Drug Administration’s (“FDA”) Center for Drug Evaluation and Research (“CDER”) division during the first quarter of 2021 to discuss eligibility of continuing KIO-201 clinical studies as a drug. As a result, development of KIO-201 has shifted from a medical device to a drug, which allows for reimbursement under Medicare Part D.

Since its inception, Kiora has devoted substantially all of its efforts to business planning, research and development, and raising capital.

Going Concern

The accompanying Condensed Consolidated Financial Statements have been prepared assuming that Kiora will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At ~~September 30, 2021,~~March 31, 2022, Kiora had unrestricted Cash and Cash Equivalents of ~~$11.107~~$5.067 million, and an Accumulated Deficit of ~~$116.356~~$124.444 million. Kiora has incurred losses and negative cash flows since inception, and future losses are anticipated. Based on its cash on hand at ~~September 30, 2021,~~March 31, 2022, the Company anticipates having sufficient cash to fund planned operations ~~into the second half of~~through July 2022, however, the acceleration or reduction of cash outflows by Company management can significantly impact the timing for the need to raise additional capital to complete development of its products. To continue development, Kiora will need to raise additional capital through equity financing, license agreements, and/or additional U.S. government grants. Although historically the Company has been successful at raising capital, most recently raising net proceeds of approximately ~~$9.8~~$9.756 million in a registered direct offering that closed on August 11, 2021, additional capital may not be available on terms favorable to Kiora, if at all. On May 13, 2019, the SEC declared effective Kiora’s registration statement on Form S-3, registering a total of $50,000,000 of its securities for sale to the public from time to time in what is known as a “shelf offering”. The Company does not know if any future offerings ~~including offerings pursuant to its shelf registration statement,~~ will succeed. Accordingly, no assurances can be given that Company management will succeed in these endeavors. The Company’s recurring losses from operations have caused management to determine there is substantial doubt about the Company’s ability to continue as a going concern. The Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

~~2. Summary of Significant Accounting Policies~~

~~Basis of Presentation and Principles of Consolidation~~Unaudited Interim Financial Information

The accompanying ~~Condensed Consolidated Financial Statements include the accounts~~unaudited consolidated financial statements of the Company and its subsidiaries, EyeGate Pharma S.A.S. (through its dissolution on December 30, 2020), Jade Therapeutics, Inc. (“Jade”) and Panoptes Pharma Ges.m.b.H. (“Panoptes”) (effective December 18, 2020 when the Company acquired all of the capital stock of Panoptes), collectively referred to as “the Company”. All inter-company balances and transactions have been eliminated in consolidation. These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) ~~pursuant~~for interim financial information and with the instructions to ~~the~~Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, ~~of the Securities and Exchange Commission (“SEC”) for interim financial information. Certain~~they do not include all information and ~~disclosures normally included in Condensed Consolidated Financial Statements prepared in accordance with~~notes required by U.S. GAAP ~~have been condensed or eliminated. Accordingly, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the annual~~for complete financial ~~statements of the Company as of and for the year ended December 31, 2020.~~statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the ~~consolidated~~Company’s financial ~~position, consolidated~~condition and results of operations ~~and other comprehensive loss and consolidated cash flows,~~have been included. Operating results for the periods indicated, have been made. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of operating results that may be achieved over the course of the full year.

~~Unaudited Interim Financial Information~~

The accompanying interim financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation of the results of operations for the periods presented. The year-end balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for an interim periodpresented are not necessarily indicative of the results tothat may be expected for the full ~~year or~~year. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in the Company’s 2021 Annual Report on Form 10-K/A dated July 6, 2022. The balance sheet as of December 31, 2021 was derived from audited consolidated financial statements of the Company but does not include all the disclosures required by U.S. GAAP.

Recent Accounting Pronouncements

None noted

Table of Contents

KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

2. Balance Sheet Information

Cash, Cash Equivalents and Restricted Cash

A summary of cash and cash equivalents and restricted cash is as follows:


	March 31, 2022
	(unaudited)		December 31, 2021
Cash and Cash Equivalents	$	5,067,354	$	7,854,690
Restricted Cash, Non-current		45,000		45,000
Total Cash, Cash Equivalents and Restricted Cash	$	5,112,354	$	7,899,690

Noncurrent restricted cash consists of an deposit with a financial institution for ~~any other future year or interim period.~~corporate credit card.

~~Use~~

Accrued Expenses

Accrued expenses consist of ~~Estimates~~the following:


	March 31, 2022
	(unaudited)		December 31, 2021
Executive Severance	$	1,049,808	$	200,605
Payroll and Benefits		336,680		737,365
Professional Fees		384,452		194,425
Clinical Trials		61,994		168,785
Other		—		28,961
Total Accrued Expenses	$	1,832,934	$	1,330,141

For the three months ended March 31, 2022, executive severance increased due to a one-time severance benefit accrual of $0.963 million for the Company’s previous Chief Executive Officer.

3. Acquisition

Effective October 21, 2021, the Company acquired all of the capital stock of Bayon Therapeutics, Inc. (“Bayon”), a privately held ophthalmic specialty pharmaceutical company focused on developing light sensitive small molecules.

The ~~preparation~~fair value of ~~financial statements~~the consideration for the Bayon acquisition is comprised of the following:


	Common	Price per
	Shares	Share ^(a)		Amount
Contingent Consideration at Fair Value				$	1,007,556
Cash Consideration					97,066
Kiora Common Stock	33,798	$	2.01		67,934
Total Fair Value of Consideration				$	1,172,556

(a)	Average closing price of the Company’s common stock for five trading days immediately preceding October 21, 2021.

Table of Contents

KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

The former stockholders of Bayon are also eligible to receive up to $7.135 million in ~~conformity with U.S. GAAP requires management~~additional cash or stock payments based on clinical trial and FDA approval milestones for Bayon’s product candidates, as set forth in the Purchase Agreement. Brian M. Strem, Ph.D., our President and Chief Executive Officer and Eric J. Daniels, MD, MBA, our Chief Development Officer, are former shareholders of Bayon, and received 9,517 and 9,520 shares of Common Stock, respectively, at the closing of the Bayon acquisition. Bayon shareholders, including Drs. Strem and Daniels, will also be entitled to ~~make significant estimates~~receive up to approximately $7.135 million in milestone payments, which we may elect to pay in cash or in shares.

The Company accounted for the Bayon acquisition using the acquisition method of accounting whereby the total purchase price was preliminarily allocated to tangible and ~~assumptions that affect the reported amounts of~~intangible assets acquired and liabilities ~~and disclosure~~assumed based on respective fair values. The following table summarizes the preliminary fair value of ~~contingent~~the assets acquired and liabilities assumed at the date of acquisition.


Current Assets	$	5,290
Intangible Assets		1,063,000
Goodwill		406,599
Accounts Payable		(36,525)
Deferred Tax Liability		(265,808)
Total Fair Value of Asset and Liabilities Purchased	$	1,172,556

As of March 31, 2022, the ~~financial statements,~~purchase price allocation for the Bayon acquisition was preliminary in nature and subject to completion. Adjustments to the ~~reported amounts~~current fair value estimates in the above table may occur as the process conducted for various valuations and assessments is finalized, including tax liabilities and other working capital accounts. Nearly 100% of ~~expenses during~~ the goodwill represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The goodwill is not expected to be tax deductible. As a result of the impairment evaluation of the Company as a single reporting ~~periods.~~ unit, goodwill was considered impaired at December 31, 2021.

The ~~Company makes significant estimates and assumptions in recording~~acquired intangible assets, which consist solely of in-process R&D, will not be amortized until the ~~accruals~~underlying development programs are completed. Upon obtaining regulatory approval, the intangible assets are then accounted for ~~its clinical trial and research activities, establishing the useful lives of~~as finite-lived intangible assets and ~~property and equipment, and conducting impairment reviews of long-lived assets. The Company bases~~amortized on a straight-line basis over its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Although the Company monitors and regularly assesses these estimates, actual results could differ significantly from these estimates. The Company records changes in estimatesestimated useful life.

Consolidated Pro Forma Results

Net loss in the ~~period~~Condensed Consolidated Statement of Operations for the three months ended March 31, 2022 includes net losses of Bayon of $0.179 million.

4. Fair Value Disclosures

Fair value is the price that ~~it becomes aware~~would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction to a third party under current market conditions at the ~~change.~~

~~Research~~measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ~~Development Expenses~~

~~The Company expenses research and development (“R&D”) expenditures as incurred. R&D expenses are comprised~~ranks the level of ~~costs incurred~~observability of inputs used in ~~performing R&D activities, including salaries, benefits, facilities, research-related overhead, sponsored research costs, contracted services, license fees, expenses~~measuring fair value. In connection with historical acquisitions, additional consideration may be paid related to ~~generating, filing, and maintaining intellectual property, and other external costs. Because~~ the ~~Company believes that, under its current process~~achievement of certain milestones. The following table provides information for ~~developing its products, the viability of the products is essentially concurrent with the establishment of technological feasibility, no costs have been capitalized to date.~~liabilities measured at fair value on a recurring basis using Level 3 inputs:


	March 31, 2022
	(unaudited)		December 31, 2021
Contingent Consideration:
Current		293,947		—
Noncurrent		2,988,898		3,048,955
Total Contingent Consideration	$	3,282,845	$	3,048,955

Table of Contents

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~

~~2. Summary of Significant Accounting Policies - (continued)~~

~~In-process Research and Development~~

The Company records in-process R&D projects acquired in asset acquisitions that have not reached technological feasibility and which have no alternative future use. For in-process R&D projects acquired in business combinations, the Company capitalizes the in-process R&D project and periodically evaluates this asset for impairment until the R&D process has been completed. Once the R&D process is complete, the Company amortizes the R&D asset over its remaining useful life. At September 30, 2021 and DecemberMarch 31, ~~2020, there was $9.536 million of in-process R&D, as part of intangible assets and in-process R&D on the Condensed Consolidated Balance Sheets.~~

~~Intangible Assets~~

The Company records intangible assets acquired in asset acquisitions of proprietary technology. The Company capitalizes intangible assets, amortizes them over the estimated useful life, and periodically evaluates the assets for impairment. At September 30, 2021 and December 31, 2020, there was $0.175 million and $0.194 million, respectively, of net intangible assets, as part of intangible assets and in-process R&D, net on the Condensed Consolidated Balance Sheets.

~~Accrued Clinical Expenses~~

As part of the Company’s process of preparing the Condensed Consolidated Financial Statements, the Company is required to estimate its accrued expenses. This process includes reviewing open contracts and purchase orders, communicating with its applicable personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated costs incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. The majority of the Company’s service providers invoice monthly in arrears for services performed. The Company makes estimates of its accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at the time. The Company periodically confirms the accuracy of these estimates with the service providers and makes adjustments if necessary.

~~Related Party Transactions~~

During the nine months ended September 30, 2021, the Company entered into certain related-party transactions, making payments for services to 1 vendor and 4 consultants, all of whom also are stockholders of the Company. These transactions generally involve a stockholder or option holder of the Company to whom the Company also makes payments during the year, typically as a consultant or a service provider. Additionally, on January 6, 2021, the Company completed a private placement of 1,531,101 shares of Common Stock and warrants to purchase up to 1,531,101 shares of Common Stock to an affiliate of Armistice Capital, LLC, with a combined purchase price per share and warrant of $5.225. Steven J. Boyd and Keith Maher, each of whom were members of the Company’s board of directors through August 3, 2021, are affiliates of Armistice Capital, LLC, and Mr. Boyd holds voting and investment power over such entity. The total net proceeds from the private placement were approximately $8.0 million. Except for the private placement described above, the transactions with related parties during the nine months ended September 30, 2021 are not material to the accompanying Condensed Consolidated Financial Statements.

During the nine months ended September 30, 2020, the Company entered into certain related-party transactions, making payments for services to 2 vendors, 7 consultants and two public universities, all of whom were also stockholders of the Company. The amounts recorded or paid during the nine months ended September 30, 2020 are not material to the accompanying Condensed Consolidated Financial Statements

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~2022

~~2. Summary of Significant Accounting Policies - (continued)~~

~~Net Loss per Share – Basic and Diluted~~

Basic and diluted net loss per share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding for the period, which for basic net loss per share, does not include the weighted-average unvested restricted common stock that has been issued but is subject to forfeiture of 23,277 and 42,823 shares for the three and nine months ended September 30, 2021, respectively, and 79,231 and 79,223 shares for the three and nine months ended September 30, 2020.

Dilutive common equivalent shares consist of stock options, warrants, and preferred stock and are calculated using the treasury stock method, which assumes the repurchase of common shares at the average market price during the period. Under the treasury stock method, options and warrants will have a dilutive effect when the average price of common stock during the period exceeds the exercise price of options or warrants. Common equivalent shares do not qualify as participating securities. In periods where the Company records a net loss, unvested restricted common stock and potential common stock equivalents are not included in the calculation of diluted net loss per share as their effect would be anti-dilutive. All shares of Common Stock that may potentially be issued in the future are as follows:

September 30, 2021

September 30, 2020

(unaudited)

(unaudited)
Common Stock Warrants

6,815,248

2,772,117
Employee Stock Options

472,049

246,893
Preferred Stock

13,000

852,500
Total Shares of Common Stock Issuable

7,300,297

3,871,510

~~Fair Value of Financial Instruments~~

As of September 30, 2021 and December 31, 2020, the fair value of the Company’s contingent consideration, measured using Level 3 measurements, was $5.343 million. During the year ended December 31, 2020, the Company recorded earn-out payments of $9.500 million at their estimated fair value of $3.633 million as a result of the Panoptes acquisition. During the year ended December 31, 2016, the Company recorded earn-out payments of $2.164 million at their estimated fair value of $1.210 million as a result of the Jade acquisition. During the year ended December 31, 2019, taking into consideration discount factors and the probability of FDA approval of KIO-201, the Company recorded an increase of $500,000 to the present value of contingent consideration related to the Jade acquisition bringing the estimated fair value to $1.710 million. The Company evaluates the fair value of these earn-out payments on a quarterly basis and there were no changes recorded during the three and nine months ended September 30, 2021.

~~At September 30, 2021 and December 31, 2020, the Company had 0 other assets or liabilities that are subject to fair value methodology and estimation in accordance with U.S. GAAP.~~

~~Revenue Recognition~~

The Company’s revenues were generated primarily through arrangements that contained multiple elements, or deliverables, including licenses and R&D activities to be performed by the Company on behalf of the licensor or grantor. Payments to Kiora under these arrangements typically included one or more of the following: (1) nonrefundable, upfront license fees, (2) funding of discovery research efforts on a full-time equivalent basis, (3) reimbursement of research, development, and intellectual property costs, (4) milestone payments, and (5) royalties on future product sales.

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

~~2. Summary of Significant Accounting Policies - (continued)~~

The Company recognizes revenue when its customer obtains control of promised services, in an amount that reflects the consideration which the Company expects to receive in exchange for those services. To determine whether arrangements are within the scope of this new guidance, the Company performs the following five steps: (i) identifies the contract with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the Company satisfies its performance obligation. The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes revenue from the transaction price applied to each single performance obligation over time as milestones are reached for each performance obligation. The Company only recognizes revenue on those milestones that are within the Company’s control and any constrained variable consideration that requires regulatory approval will only be included in the transaction price when performance is complete.

In addition, the Company may receive U.S. and/or foreign government grant funds for specified therapeutic research activities. Revenue under these grants will be recorded when the Company performs the activities specified by the terms of each grant and is entitled to the funds.

~~During the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any revenue.~~

~~Recent Accounting Pronouncements~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. ASU No. 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for smaller reporting companies in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect the adoption of this standard to have a material effect on the Company’s Condensed Consolidated Financial Statements and related disclosures.

~~3. Property and Equipment~~

~~Property and equipment~~The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at ~~September 30, 2021 and December 31, 2020 consists~~rates reflective of the ~~following:~~risks associated with the expected future cash flows for certain milestones. Key assumptions used to estimate the fair value of contingent consideration include projected financial information, market data and the probability and timing of achieving the specific targets as discussed in Note 3. Acquisition. After the initial valuation, the Company generally uses its best estimate to measure contingent consideration at each subsequent reporting period using the following unobservable Level 3 inputs:

Estimated Useful Life

September 30, 2021


(Years)

(unaudited)

December 31, 2020
Laboratory Equipment

3

$
88,400

$
82,653
Office Equipment

3

3,693

3,888
Office Furniture

5

72,549

14,430
Leasehold Improvements

2

22,569

22,569
Total Property and Equipment, Gross

187,211

123,540
Less Accumulated Depreciation

108,378

92,974
Total Property and Equipment, Net

$
78,833

$
30,566


			March 31, 2022		December 31, 2021
	Valuation Technique	Unobservable Inputs	Range		Range
	Discounted cash flow	Payment discount rate	13.5	%	13.1	%
Bayon		Payment period	2023 - 2028		2023 - 2028
Panoptes		Payment period	2024 - 2028		2024 - 2028
Jade		Payment period	2026		2026


Bayon	Probability of Success for payment	17% - 67	%	12% - 72	%
Panoptes	Probability of Success for payment	17% - 36	%	17% - 36	%
Jade	Probability of Success for payment	47	%	47	%

~~Depreciation expense was $4,807 and $2,388~~Significant changes in these assumptions could result in a significantly higher or lower fair value. The contingent consideration reported in the above table resulted is adjusted quarterly based upon the passage of time or the anticipated success or failure of achieving certain milestones. The change in fair value of contingent consideration of $0.234 million for the three months ended ~~September 30, 2021 and 2020, respectively, and $15,510 and $5,593~~March 31, 2022, was primarily driven by changes in estimated probabilities of success related to the orphan drug status designation of the Bayon drug candidate which occurred in March of 2022. The change in fair value of contingent consideration of ($0.507) million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 was primarily driven by changes in the estimated probabilities of success derived from an updated industry study published in the first quarter of 2021. The change in fair value of contingent consideration is recorded within operating expenses on the condensed consolidated statements of operation and ~~2020, respectively.~~comprehensive loss.

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

~~4. Accrued Expenses~~

~~Accrued expenses at September 30, 2021 and December 31, 2020 consist of the following:~~

September 30, 2021

(unaudited)

December 31, 2020
Payroll and Benefits

$
764,306

$
629,465
Professional Fees

138,273

328,420
Clinical Trials

485,733

203,646
Consulting

999

125,913
Interest

—

1,817
Total Accrued Expenses

$
1,389,311

$
1,289,261

5. ~~Debt~~

In May 2020, the Company received loan funds (the “Loan”) from the Paycheck Protection Program (“PPP”) of $0.278 million. In April 2021, the Company was notified by the Small Business Administration (“SBA”) that this Loan was forgiven in full.

~~The Company has no additional indebtedness at September 30, 2021 and December 31, 2020.~~

~~6. Intangible Assets and In-Process R&D~~

Intangible assets at September 30, 2021 consist of the rights to trade-secrets and know-how related to the manufacturing of KIO-201. During the third quarter of 2018, the Company entered into an intellectual property license agreement with SentrX Animal Care, Inc. (“SentrX”) with respect to certain rights relating to the manufacturing of KIO-201. The intangible assets were recorded at $0.250 million, representing the upfront payment paid to SentrX. Additionally, SentrX is eligible to receive milestone payments totaling up to $4.750 million, upon and subject to the achievement of certain specified development and commercial milestones. These future milestone payments to SentrX will increase the carrying value of the intangible assets. The Company’s intangible assets are amortized on a straight-line basis over the estimated useful lives. Additionally, in-process R&D at September 30, 2021 and December 31, 2020 consists of projects acquired from the acquisitions of Jade and Panoptes that have not reached technological feasibility and which have no alternative future use. Once the R&D process is complete, the Company will amortize the R&D asset over its remaining useful life. The Company periodically evaluates these assets for impairment.

~~Intangible assets and in-process R&D at September 30, 2021 and December 31, 2020 consists of the following:~~

September 30,


Estimated Useful

2021

Life (Years)

(unaudited)

December 31, 2020
Trade Secrets

10

$
250,000

$
250,000
Less: Accumulated Amortization



(75,000)

(56,250)
Intangible Assets, Net



175,000

193,750
In-Process R&D



9,536,414

9,536,414
Total Intangible Assets and In-Process R&D, Net



$
9,711,414

$
9,730,164

~~Amortization expense on intangible assets was $6,250 for the three months ended September 30, 2021 and 2020 and $18,750 for the nine months ended September 30, 2021 and 2020.~~

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

7. Capital Stock

On January 3, 2020, the Company completed a registered direct offering with institutional investors for 500,000 shares of Common Stock with a purchase price of $10.00 per share. The total net proceeds to the Company, after deducting the placement agent fees and offering expenses, were approximately $4.5 million.

On June 25, 2020, following the Company's 2020 Annual Meeting of Stockholders, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation that decreased the number of authorized shares of the Company's common stock from 120,000,000 to 50,000,000.

In connection with the Panoptes acquisition, on December 18, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations for up to 20,000 shares of Series D Convertible Preferred Stock with the Delaware Secretary of State. The Series D Convertible Preferred Stock has a stated value of $1,000 per share and a conversion price of $3.5321 per share but may not be converted until stockholder approval is obtained. The Series D Preferred Stock is only entitled to dividends in the event dividends are paid on the Company’s shares of Common Stock and does not have any preferences over the Company's shares of Common Stock or any voting rights, except in limited circumstances.

On January 6, 2021, the Company completed a private placement of 1,531,101 shares of Common Stock and warrants to purchase up to 1,531,101 shares of Common Stock to an affiliate of Armistice Capital, LLC, with a combined purchase price per share and warrant of $5.225. The total net proceeds from the private placement were approximately ~~$8.0~~$8.000 million. ~~The warrants have an exercise price~~Steven J. Boyd and Keith Maher, each of ~~$5.225 per share, subject to adjustments as provided under the terms~~whom were members of the ~~warrants~~Company’s board of directors through August 3, 2021, are affiliates of Armistice Capital, LLC, and ~~will be exercisable on~~Mr. Boyd holds voting and investment power over such entity.

In connection with the ~~six-month anniversary~~Company’s acquisition of ~~their issuance date. The warrants are exercisable for five years from~~Panoptes Pharma Ges.m.b.H in December 2020 (“Panoptes Acquisition”), the ~~issuance date.~~

~~On July 27, 2021, a holder elected to convert 4,092~~Company held back consideration of 1,500 shares of Series ~~C Preferred~~D convertible preferred stock at closing (“Holdback Shares) which was valued at $1.500 million and recorded in Additional Paid-In Capital. These preferred shares are convertible into 403,461 shares of the Company’s common stock. The shares were held back so that if there were any post-closing adjustments or indemnification obligations the number of share issued could have been lower. On the 18-month anniversary of the acquisition or June 2022, the common shares were issued in(see Note 10 for further information).

The following is a ~~public offering on April 17, 2018 into 852,500 shares~~summary of ~~Common Stock.~~

~~On August 11, 2021,~~ the ~~Company completed a registered direct offering priced at-the-market under Nasdaq Rules for 4,668,844 shares~~Company’s reserved common stock as of Common Stock with a purchase price of $2.3025 per share. The Company also completed a concurrent private placement of unregistered warrants to purchase up to an aggregate of 2,334,422 shares of Common Stock at an exercise price of $2.24 per share that are exercisable immediately upon issuance and will expire March 31, 2022:


Common Stock Warrants		6,757,180
Holdback Shares		403,461
Preferred Stock outstanding		2,089
Total		7,162,730

~~five~~ and one-half years following the date of issuance. In addition, the Company issued to the placement agent warrants to purchase up to 233,442 shares of Common Stock at an exercise price of $2.8781 per share, which expire five years following the date of issuance. The total net proceeds to the Company from the offering were approximately $9.8 million.

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KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

8.6. Warrants

The following is a summary of warrant activity for the ~~nine months ended September 30, 2021 and 2020:~~Company’s equity-classified warrants:

Weighted Average

Weighted Average

Number of

Exercise

Remaining


Warrants

Price

Term in Years
Outstanding at December 31, 2020

2,726,700

$
8.41

2.45
Issued

4,098,965

3.39

4.93
Exercised

(10,417)

4.80

1.55
Outstanding at September 30, 2021

6,815,248

$
5.40

3.64




Outstanding at December 31, 2019

2,875,006

$
14.14

3.37
Issued

25,000

12.50

4.26
Expired

(127,889)

139.28

—
Outstanding at September 30, 2020

2,772,117

$
8.35

2.69


		Weighted Average		Weighted Average
	Number of	Exercise		Remaining
	Warrants	Price		Term in Years
Outstanding as of March 31, 2022 and December 31, 2021	6,757,180	$	4.99	3.42

~~All~~NaN warrants were issued or exercised during the three months ended March 31, 2022. The Company received net proceeds of $0.050 million from the warrant agreements provide for a cashless exercise in the event a registration statement covering the issuance of the shares of common stock underlying the warrants is not effective, whereby the number of shares to be issued upon exercise of ~~such~~ warrants ~~will be reduced based on~~during the ~~exercise price and the market value of the shares at the time of exercise. The outstanding warrants expire from 2021 through 2027.~~three months ended March 31, 2021.

~~9. Equity Incentive~~

7. Net Loss per Share

Basic net loss per share, does not include the weighted-average unvested restricted common stock that has been issued and is subject to forfeiture totaling 8,797 and 54,709 shares for the three months ended March 31, 2022 and 2021, respectively. The following is a summary of potential common shares excluded from the calculation of net loss per share because their inclusion would be anti-dilutive as of March 31:


	2022	2021
Common Stock Warrants	6,757,180	4,247,384
Employee Stock Options	678,150	370,359
Preferred Stock	2,089	865,500
Total	7,437,419	5,483,243

8. Stock-Based Compensation

2014 Plan

~~In 2005, the~~The Company ~~approved the 2005 Equity Incentive Plan~~operates an equity-based compensation plan (the ~~“2005~~“2014 Plan”). The ~~2005~~2014 Plan provides for the granting of stock options (incentive and nonqualified), restricted stock or other stock-based awards to employees, officers, directors, consultants, and advisors. During 2010, the maximum number of shares of Common Stock that may be issued pursuant to the 2005 Plan was increased to 59,414 shares. The Board of Directors (the “Board”) is responsible for administration of the 2005 Plan. The Company’s Board determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. Incentive stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of fair value in the case of holders of more than 10% of the Company’s voting stock) and with a term not to exceed ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company’s voting stock). Nonqualified stock options may be granted to any officer, employee, consultant, or director at an exercise price per share of not less than the par value per share. Following adoption of the 2014 Equity Incentive Plan (the “2014 Plan”), no further grants were made under the 2005 Plan. General terms of the 2014 Plan remain the same as that of the 2005 Plan.

~~The Company’s Board adopted the 2014 Plan and the Employee Stock Purchase Plan (the “ESPP”), and the Company’s Stockholders approved the 2014 Plan and the ESPP Plan in February 2015.~~ As of ~~September 30, 2021, the maximum number of shares of Common Stock that may be issued pursuant to the 2014 Plan and the ESPP was 806,005 and 11,371 shares, respectively.~~

~~In January 2021, the number of~~March 31, 2022, 829,339 shares of common stock ~~issuable under~~were authorized to be awarded and 0 shares were available for awards.

Stock-based compensation expense is presented in the ~~2014 Plan automatically increased by 23,333 shares pursuant to~~same expense line items as cash compensation paid and for the ~~terms~~three months ended March 31 are as follows:


	2022		2021
Research and Development	$	32,620	$	71,586
General and Administrative		183,301		145,359
Total Stock-Based Compensation Expense	$	215,921	$	216,945

Stock Options

During the three months ended March 31, 2022 the Company granted time-based stock options which vest one-third of the ~~2014 Plan. Additionally, in June 2021,~~underlying shares on the ~~number~~one-year anniversary of ~~shares~~the grant date and the remainder ratably over a 24-month period. The fair value of ~~common~~time-based stock ~~issuable under~~options is determined using the ~~2014 Plan was increased by 200,000 shares,~~Black-Scholes Option Pricing Model, with such value recognized as ~~approved by~~expense over the ~~Company’s Stockholders. These additional shares are included in the total of 806,005 shares issuable under the 2014 Plan.~~

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KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

~~9. Equity Incentive Plan - (continued)~~service period, which is typically 3 years, net of actual forfeitures. A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the three months ended March 31, 2022 is shown in the following table.


Risk-Free Interest Rate	2.42	%
Expected Life (years)	5.00
Expected Stock Price Volatility	140	%
Expected Dividend Yield	—	%

The ~~following~~weighted-average grant date fair value of options granted during the three months ended March 31, 2022 was $0.68. The expected term of the options granted is based on management estimate. Expected volatility is based on the historical volatility of the Company’s peers common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option. Unamortized compensation expense related to the options amounted to $0.647 million at March 31, and is expected to be recognized over a weighted average period of approximately 2.30 years.

Following is a summary of stock option activity for the ~~nine~~three months ended ~~September 30, 2021 and 2020:~~March 31, 2022:


				Weighted-Average				Weighted-Average
	Number of	Weighted- Average		Contractual Life	Number of	Weighted- Average		Remaining
	Options	Exercise Price		(In Years)	Options	Exercise Price		Term in Years
Outstanding at December 31, 2020	246,893	$	20.90	7.20
Outstanding at December 31, 2021					515,922	$	10.43	8.30
Granted	265,865		4.80		260,500	$	0.76	9.84
Expired	(13,876)		20.40		(12,662)	$	6.87	—
Forfeited	(26,833)		6.51		(85,610)	$	2.79	—
Outstanding at September 30, 2021	472,049	$	12.66	7.97
Exercisable at September 30, 2021	200,500	$	23.30	5.97
Vested and Expected to Vest at September 30, 2021	472,049	$	12.66	7.97

Outstanding at December 31, 2019	174,175	$	27.42	6.22
Granted	93,165		6.31
Expired	(17,114)		10.59
Forfeited	(3,333)		7.20
Outstanding at September 30, 2020	246,893	$	20.90	7.46
Exercisable at September 30, 2020	138,317	$	32.22	6.05
Vested and Expected to Vest at September 30, 2020	246,893	$	20.90	7.46
Outstanding at March 31, 2022					678,150	$	7.85	8.55
Exercisable and vested at March 31, 2022					241,683	$	18.57	2.30

~~During~~The stock options outstanding and exercisable at March 31, 2022 had no aggregate intrinsic value. The aggregate intrinsic value is calculated as the ~~nine~~difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices lower than $0.62, the closing price of the Company’s stock on March 31, 2022.

Restricted Stock Units

There were no grants of time-based restricted stock units during the three months ended ~~September 30, 2021 and 2020,~~March 31, 2022. Restricted stock options compensation expense is recognized over the Board approved the grant of options to purchase 265,865 and 93,165 shares of Common Stock, respectively. All option grants were pursuant to the 2014 Plan. In general, options granted under the 2014 Plan vest with respect tovesting period, which is typically ~~one~~one-third~~-third~~ of the underlying shares on the one-year anniversary of the grant date and the remainder ratably over a 24-month period.

~~For~~ Unamortized expense is nominal. The following is a summary of restricted stock activity for the ~~nine~~three months ended ~~September 30, 2021 and 2020, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:~~March 31, 2022:

2021

2020

Risk-Free Interest Rate

1.82
%
1.82
%
Expected Life

5.00
years
5.00
years
Expected Volatility

140
%
153
%
Expected Dividend Yield

0
%
0
%


	Number of	Weighted- Average
	Units	Grant Date Fair Value
Non-vested at December 31, 2021	15,012	$	6.55
Vested	(9,079)	$	6.55
Forfeited	(3,350)	$	6.55
Non-vested at March 31, 2022	2,583	$	6.55

~~Using~~Employee Stock Purchase Plan

The Company has a non-qualified Employee Stock Purchase Plan (ESPP), which provides for the ~~Black-Scholes Option Pricing Model,~~issuance of shares of the ~~estimated weighted average fair value~~Company’s common stock to eligible employees of ~~an option~~the Company that elect to participate in the plan and purchase ~~one share~~shares of common stock ~~granted during~~through payroll deductions at a discounted price. Six month offering periods are made at the ~~nine months ended September 30, 2021 and 2020 was $5.27 and $6.26, respectively.~~Board’s discretion. The ESPP provides for 11,371 aggregate shares of the Company’s common stock for participants to purchase. As of March 31, 2022, the remaining 7,806 shares are reserved for future offerings.

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KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

9. ~~Equity Incentive Plan - (continued)~~

~~The following is a summary of restricted stock activity for the nine months ended September 30, 2021 and 2020:~~

Weighted- Average

Number of

Weighted- Average

Remaining


Shares

Grant Date Fair Value

Recognition Period
Non-vested Outstanding at December 31, 2020

67,420

$
7.10

1.66
Vested

(43,222)

7.39

Forfeited

(5,971)

6.66

Non-vested Outstanding at September 30, 2021

18,227

$
6.55

1.35
Non-vested Outstanding at December 31, 2019

50,187

$
8.64

1.49
Awarded

49,000

6.55

Vested

(23,889)

8.73

Non-vested Outstanding at September 30, 2020

75,298

$
7.25

1.78

During the nine months ended September 30, 2021, 5,971 shares of restricted stock, which had not vested, were forfeited and returned to the Company. During the nine months ended September 30, 2021 and 2020, the Board approved the grant of 0 and 49,000 restricted shares of Common Stock, respectively. All grants of restricted shares were pursuant to the 2014 Plan. These vest with respect to ~~one-third of the underlying shares on the one-year anniversary of the grant date and the remainder~~ ~~ratably~~ ~~over a 24-month period.~~

~~The total stock-based compensation expense for employees and non-employees is included in the accompanying Condensed Consolidated Statements of Operations and as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020
Research and Development

$
35,552

$
49,267

$
176,357

$
148,588
General and Administrative

113,917

138,466

452,949

382,116
Total Stock-Based Compensation Expense

$
149,469

$
187,733

$
629,306

$
530,704

The fair value of options granted for the nine months ended September 30, 2021 and 2020 was $1.181 million and $0.580 million, respectively. As of September 30, 2021 and 2020, there was $1.184 million and $0.973 million of total unrecognized compensation expense related to unvested stock-based compensation arrangements granted, which cost is expected to be recognized over a weighted-average period of 3.64 and 2.12 years, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at September 30, 2021 and 2020 was $0.

~~At September 30, 2021, there were 173,146 shares available for grant under the 2014 Plan and 7,806 shares available under the Company’s ESPP.~~

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

~~10.~~ Commitments and Contingencies

Leases

The Company leases its office facilities as well as other property under operating leases.The Company’s Waltham, Massachusetts lease ended March 31, 2022. In February 2022, the Company entered into a lease for an office facility in Encinitas, California and took possession of the space May 1, 2022. The Company recorded an ROU asset and lease liability upon lease commencement in May 2022. Additionally, lease terms may include options to extend or terminate the lease when it is ~~a party~~reasonably certain that the Company will exercise the option. The remaining lease terms range from 1.6 to 1.7 years.

Total operating lease cost for the three ~~real property~~months ended March 31, 2022 and 2021 was $0.055 million and $0.051 million, respectively, and includes variable lease cost which are immaterial. As of March 31, 2022, the Company has 0 short-term leases.

Supplemental cash flow information and non-cash activity related to operating leases for the ~~rental of office or lab space. The Company has office space in Waltham, Massachusetts of up to 4,516 square feet that is used for its corporate headquarters with a term through~~three months ended March 31 2022. The Company also has office and laboratory space of approximately 3,540 square feet in Salt Lake City, Utah with a term through November 30, 2023. The Company has office space in Vienna, Austria of approximately 1,555 square feet with a term through October 31, 2023 as a result of the Panoptes acquisition effective December 18, 2020.

~~Additional right-of-use assets and lease liabilities were recorded upon the new lease agreements or extensions that were effective as of September 30, 2021.~~

Operating lease assets and liabilities are recognized at the lease commencement date at the present value of lease payments to be paid. Operating lease assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments. To determine the present value of lease payments to be paid, the Company estimated incremental secured borrowing rates corresponding to the maturities of the leases. The Company estimated a rate of 10% based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. The Company recognizes expense for its leases on a straight-line basis over the lease term. Operating lease expense, consisting of the reduction of the right-of-use asset and the imputed interest on the lease liability, totaled $54,841 and $160,881 for the three and nine months ended September 30, 2021, respectively, and $43,195 and $129,585 and for the three and nine months ended September 30, 2020, respectively.

~~Maturities of lease liabilities~~ were as ~~follows as of September 30, 2021:~~follows:

Year Ended December 31,

Operating Leases
2021 (remainder of year)

$
55,131
2022

133,788
2023

95,461
Less: Imputed Interest

(25,163)
Lease Liabilities

$
259,217


	2022		2021
Operating Cash Flow From Operating Leases	$	55,779	$	55,738

Supplemental balance sheet and other information related to operating leases were as follows:


	2022		2021
Weighted Average Discount Rate	4.66	%	5.32	%
Weighted Average Remaining Lease Term (years)	1.7		2.1

License and Exclusive Rights Agreements

~~The Company is~~We are a party to ~~four~~seven license agreements as described below. These license agreements require ~~the Company~~us to ~~receive~~pay or ~~pay~~receive royalties or fees to or from the licensor based on revenue or milestones related to the licensed technology.

On July 2, 2013, ~~Panoptes~~we (through our subsidiary, Kiora Pharmaceuticals, GmbH) entered into a patent and know-how assignment agreement with 4SC Discovery GmbH (“4SC”) transferring to ~~Panoptes~~us all patent rights and know-how to the compound KIO-101. ~~The Company (through its Panoptes subsidiary) is~~We are responsible for paying royalties ~~based~~of 3.25% on ~~a specified percentage of~~ net sales of ~~KIO-101.~~KIO- 101.

On July 2, 2013, ~~Panoptes~~we (through our subsidiary, Kiora Pharmaceuticals, GmbH) entered into an out-license agreement with 4SC ~~Discovery GmbH (“4SC”)~~ granting 4SC the exclusive worldwide right to commercialize the compound KIO-101 for rheumatoid arthritis and inflammatory bowel disease, including Crohn’s Disease and Ulcerative Colitis. ~~The Company (through its Panoptes subsidiary) is~~We are eligible to receive milestone payments totaling up to 155 million euros, upon and subject to the achievement of certain specified developmental and commercial milestones. We have not received any milestones from 4SC. In addition, ~~the Company (through its Panoptes subsidiary) is~~we are eligible to receive royalties ~~based~~of 3.25% on ~~a specified percentage of~~ net sales of KIO-101.

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

~~10. Commitments and Contingencies - (continued)~~

On September 12, 2013, we (through our subsidiary, Jade Therapeutics, Inc.) entered into an agreement with Lineage Cell Therapeutics, Inc. (“Lineage”), formerly known as BioTime, Inc., granting to itus the exclusive worldwide right to commercialize cross-linked thiolated carboxymethyl hyaluronic acid (“modified HA”) for ophthalmic treatments in humans. The agreement ~~provides for a license issue fee paid to Lineage of $50,000 and~~ requires ~~the Company (through its Jade subsidiary)~~us to pay an annual fee of $30,000 and ~~royalties~~a royalty of 6% on net sales of KIO-201 to Lineage based on revenue relating to any product incorporating the modified HA technology. The agreement expires when patent protection for the modified HA technology lapses ~~which~~in August 2027.

On November 17, 2014, we (through our subsidiary Kiora Pharmaceuticals GmbH) entered into an intellectual property and know-how licensing agreement with Laboratoires Leurquin Mediolanum S.A.S. (“Mediolanum”) for the commercialization of KIO-101 (the “Mediolanum agreement”) in specific territories. Under the Mediolanum agreement, we out-licensed rights to commercialize KIO-101 for uveitis, dry eye and viral conjunctivitis in Italy, and France. This Agreement was amended on December 10, 2015 to also include

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

Belgium and The Netherlands. Under the Mediolanum Agreement, Mediolanum is ~~expected~~obligated to ~~occur~~pay up to approximately 20.0 million EUROs in development and commercial milestones and a 7% royalty on net sales of KIO-101 in the ~~U.S. in 2028.~~territories through the longer of the expiry of the valid patents covering KIO- 101 or 10 years from the first commercial sale. The royalty is reduced to 5% after patent expiry.

On September 26, 2018, ~~the Company~~we entered into an intellectual property licensing agreement (the “SentrX Agreement”) with SentrX, a veterinary medical device company that develops and manufactures veterinary wound care products. Under the SentrX Agreement, ~~the Company will in-license~~we in-licensed the rights to ~~trade-secrets~~trade secrets and ~~know-how~~know- how related to the manufacturing of KIO-201. The SentrX Agreement ~~will enable the Company~~enables us to pursue a different vendor with a larger capacity for manufacturing and an FDA-inspected facility for commercialization of a product for human use. Under the SentrX Agreement, ~~the Company paid SentrX an upfront payment of $0.250 million recorded as intangible assets on the Consolidated Balance Sheets.~~ SentrX is eligible to receive milestone payments totaling up to ~~$4.750~~$4.75 million, upon and subject to the achievement of certain specified developmental and commercial milestones. ~~These future milestone~~The term of the agreement is until the Product is no longer in the commercial marketplace.

On May 1, 2020, we (through our subsidiary, Kiora Pharmaceuticals Pty Ltd) entered into an agreement with the University of California (“UC”) granting to us the exclusive rights to its pipeline of photoswitch molecules. The agreement requires us to pay an annual fee to UC of $5,000, as well as payments to ~~SentrX will increase~~UC upon the ~~carrying value~~achievement of certain development milestone and royalties based on revenue relating to any product incorporating KIO-301. The Company is obligated to pay royalties on net sales of two percent (2%) of the ~~intangible assets.~~

~~COVID-19~~

first $250 million of net sales, one and a quarter percent (1.25%) of net sales between $250 million and $500 million, and one half of one percent (0.5%) of net sales over $500 million. The continued spread of the COVID-19 pandemic could adversely impact the Company’s clinical studies. In addition, COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, and business shutdowns. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which could negatively affect the Company’s ability to raise additional capitalagreement expires on attractive terms or at all. The extent to which COVID-19 may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the emergence of new variants, and the effectiveness of actions to contain and treat COVID-19. The Company cannot presently predict the scope and severity of any potential disruptions to its business, including to ongoing and planned clinical studies. Any such shutdowns or other business interruptions could result in material and negative effects to the Company’s ability to conduct its business in the manner and on the timelines presently planned, which could have a material adverse impact on its business, results of operation, and financial condition. As of the date of ~~this report, there have been no material adverse effects~~the last-to-expire patent included in the licensed patent portfolio which is January 2030.

On May 1, 2020, we (through our subsidiary, Kiora Pharmaceuticals Pty Ltd) entered into an agreement with Photoswitch Therapeutics, Inc. (“Photoswitch”) granting to us access to certain patent applications and IP rights with last-to-expire patent terms of January 2030. The agreement calls for payments to Photoswitch upon the ~~Company’s ongoing business operations from COVID-19.~~achievement of certain development milestones and upon first commercial sale of the product.

Contingent Consideration

The purchase price of various acquisitions in prior periods included contingent consideration, which consisted of various cash earn-out payments upon the achievement of certain milestones. Below are the maximum obligation payments per the respective agreements and estimated fair value of contingent consideration payments remaining as of March 31, 2022.


	Maximum Obligation		Current Fair
	per Agreements		Value Estimated
Bayon	$	7,135,000	$	1,068,833
Panoptes		9,500,000		1,624,621
Jade		2,164,451		589,391
	$	18,799,451	$	3,282,845

~~11. Employee Benefit Plans~~

Other

In the normal course of business, the Company periodically becomes involved in various claims and lawsuits, as well as governmental proceedings and investigations that are incidental to the business. The Company ~~has an employee benefit plan for its United States-based employees under Section 401(k)~~accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and amount of the ~~Internal Revenue Code. The Plan allows all eligible employees~~claim, and an estimate of the possible loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. With respect to ~~make contributions up to a specified percentage of their compensation. Under~~governmental proceedings and investigations, like other companies in the ~~Plan,~~industry, the Company ~~may, but~~ is ~~not obligated~~subject to ~~match a portion of~~extensive regulation by national, state and local governmental agencies in the ~~employee contribution up to a defined maximum. The~~U.S. and in other jurisdictions in which the Company ~~made no matching contribution for each of the three~~ and ~~nine months ended September 30, 2021 and 2020.~~

its affiliates operate. As a result, ~~of the 401(k) plan compliance review for the year ended December 31, 2020, the Company contributed $25,905~~interaction with governmental agencies is ongoing. The Company’s standard practice is to eligible participants during the third quarter of 2021. As of September 30, 2021, the Company has accrued an additional estimate of $15,251 for contributions likely due as a result of the 401(k) plan compliance reviewcooperate with regulators and investigators in responding to ~~be performed for the year ended December 31, 2021.~~

inquiries.

2015

Table of Contents

KIORA PHARMACEUTICALS, INC.

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

~~12. Acquisition~~The Company currently maintains insurance for risks associated with the operation of its business, provision of professional services and ownership of property. These policies provide coverage for a variety of potential losses, including loss or damage to property, bodily injury, general commercial liability, professional errors and omissions and medical malpractice.

~~Panoptes Pharma Ges.m.b.H. Acquisition~~

~~Effective December~~10. Subsequent Events

On February 1, 2022, Kiora Pharmaceuticals, Inc. entered into a 18 ~~2020,~~month lease agreement commencing on May 1, 2022 for approximately 1,100 square feet located at 332 Encinitas Blvd., Encinitas, California.. The lease costs $38,700 per annum, paid in equal monthly payments. The purpose of the facility is for general office use for Brian Strem, President and Chief Executive Officer.

On May 3, 2022, the Company ~~acquired all~~filed a Registration Statement on Form S-1 registering a proposed offering of shares of common stock (or common stock equivalent), warrants and shares underlying such warrants. The Form S-1 has not yet been declared effective by the Securities and Exchange Commission. The Company can provide no assurance that it will consummate an offering under the Form S-1. The foregoing does not constitute an offer of any securities for sale.

On May 13, 2022, Kiora Pharmaceuticals Pty Ltd entered into a 12 month lease agreement commencing May 16, 2022 for approximately 100 square meters located at 11 North Terrace, Adelaide SA 5000 Australia. The lease costs Kiora AUD25,000 per annum, broken into equal monthly payments. The purpose of this facility is to house specific clinical assessment as part of the ~~capital~~ABACUS Phase 1b clinical trial for KIO-301.

On May 25, 2022, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Company had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, the Company was no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission. The Notice stated that the Company had 60 calendar days from May 25, 2022, or until July 25, 2022, to regain compliance by filing the late Form 10-Q or to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. As a result of the filing of this Quarterly Report on Form 10-Q, the Company has regained compliance with Nasdaq Listing Rule 5250(c)(1).

On June 18, 2022, the Company issued an aggregate of 403,461 shares of common stock to former shareholders of Panoptes, ~~Pharma Ges.m.b.H. (“Panoptes”),~~which had been held back for a ~~privately held clinical stage biotech company focused on developing a novel proprietary small molecule for~~period of eighteen months following the ~~treatment~~closing of ~~severe eye diseases with a high unmet medical need, as well as for conditions outside the ocular space. With~~ the Panoptes acquisition Panoptes became a wholly owned subsidiary of Kiora. The acquisition has been accounted for in accordance with FASB's Accounting Standards Codification (“ASC”) 805, “Business Combinations”, with the assets acquiredto satisfy post-closing adjustment and liabilities assumed recorded at fair value on the date of the acquisition. The excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill, which is not expectedindemnification obligations pursuant to ~~be deductible for tax purposes.~~

~~Under~~ the terms of the ~~Panoptes acquisition agreement, in consideration for 100% of the outstanding equity interests in Panoptes,~~Share Purchase Agreement between the Company paid cash in the amount of $0.445 million to certain founders and creditors, issued 884,222 shares of Kiora common stock, and issued 45.893 shares (convertible into 13,000 shares of common stock) of Kiora Series D Convertible Preferred Stock. An additional cash payment is due to a creditor in December 2021 and is recorded at a fair value of $0.212 million at the acquisition date.

Additionally, up to 1,500 shares of Series D Convertible Preferred Stock (convertible into 424,685 shares of common stock) will be issued after a period of 18 months from closing, subject to post-closing adjustments or indemnification obligations, and are recorded as contingent consideration and fair valued at $1.353 million at the acquisition date.

The Panoptes acquisition also includes two cash or stock earn-out provisions providing for an additional cash or stock payment of $4.750 million per milestone contingent upon (1) the enrollment and randomization of a first patient into the first FDA Phase III pivotal study of a Panoptes product and (2) the FDA approval of the first New Drug Application of a Panoptes product. The cash or stock earn-out payments were recorded as contingent consideration and fair valued at $2.067 million at the acquisition date.

The fair value of the shares issued in the Panoptes acquisition was approximately $3.169 million based on the 30-day volume weighted average price of the Company’s Common Stock as reported by Bloomberg on the closing date of the acquisition, or $3.5321 per share.

~~The following table summarizes the purchase price allocation~~ and the ~~estimated fair value~~former shareholders of ~~the net assets acquired and liabilities assumed in the Panoptes acquisition at the date of acquisition.~~

Panoptes
Current Assets

$
410,863
In-Process R&D

5,624,100
Goodwill

1,958,711
Property, Plant and Equipment

2,042
Accounts Payable and Other Liabilities

(87,777)
Deferred Tax Liability

(351,507)
Contingent Consideration

(3,632,950)
Assumed Liabilities

(312,852)
Total Purchase Price

$
3,610,630

~~(1)~~

~~Current Assets include cash, receivables, and prepaid expenses of $333,860, $73,368, and $3,635, respectively~~.

~~Table of Contents~~

~~KIORA PHARMACEUTICALS, INC.~~

~~(formerly EyeGate Pharmaceuticals, Inc.)~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2021~~

~~12. Acquisition (continued)~~

Net loss in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2021 includes net losses of Panoptes of $2.551 million. The Company’s intangible assets, which consist solely of in-process research and development, will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval, the intangible assets are then accounted for as finite-lived intangible assets and amortized on a straight-line basis over its estimated useful life.

The Company recognized approximately $0.050 million of acquisition-related costs for the Panoptes acquisition that were expensed in the first quarter of 2021 as a component of general and administrative expense.

~~Pro forma disclosure for Panoptes acquisition~~

The following tables includes the pro forma results for Panoptes the three and nine months ended September 30, 2020 of the combined companies as though the Panoptes Acquisition had been completed as of the beginning of the period presented.

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2020

(unaudited)

(unaudited)
Revenues

$
754,282

$
866,823
Operating Expenses

2,978,679

7,115,696
Net Loss

$
(2,219,020)

$
(6,225,758)

The pro forma financial information is presented for information purposes only. The unaudited pro forma financial information may not necessarily reflect the Company’s future results of operations or what the results of operations would have been had the Company owned and operated Panoptes as of the beginning of the period presented.

~~13. Subsequent Events~~

On October 21, 2021, the Company closed on the acquisition of Bayon Therapeutics, Inc. (“Bayon”) adding to its pipeline a potential vision-restoring small molecule, which acts as a “photoswitch” specifically designed to restore vision in patients with inherited and age-related degenerative retinal diseases. Under the terms of the agreement, Bayon became a wholly-owned subsidiary of Kiora. The consideration from Kiora (subject to certain adjustments) is $0.097 million at close for paying off indebtedness and transaction expenses of Bayon and 33,798 shares of the Company’s common stock.The former stockholders of Bayon are eligible to receive potential earnout consideration of up to approximately $7.1 million and/or, at the Company’s discretion, up to approximately 2.2 million shares of the Company’s common stock subject to certain limitations, based on the achievement of successive milestones based on clinical trial data and regulatory approval of Bayon products. Kiora’s CEO, Brian Strem, was a Co-Founder and Managing Director of Bayon, and thus a related party.Panoptes.

2216

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following section of this Quarterly Report on Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in “Item 1A. Risk Factors” beginning on page 2423 of our Annual Report on Form ~~10-K~~10-K/A as filed with the Securities and Exchange Commission on ~~March 25, 2021.~~July 7, 2022. You should carefully review all of these factors, as well as the comprehensive discussion of forward-looking statements on page 1 of this Quarterly Report on Form 10-Q.

Kiora Pharmaceuticals, Inc. is referred to herein as “Kiora”, “we,” “our,” “us,” and “the Company”. Jade Therapeutics, Inc., a wholly-owned subsidiary of the Company, is referred to herein as “Jade”; Panoptes Pharma Ges.m.b.H., a wholly-owned subsidiary of the Company, is referred to herein as “Panoptes”; and Bayon Therapeutics, Inc., a wholly-owned subsidiary of the Company, is referred to herein as “Bayon.”

~~Business Overview~~Executive Summary

We are a specialty clinical-stage pharmaceutical company developing and commercializing products for ~~treating~~the treatment of ophthalmic diseases.

~~On October 21, 2021, we acquired Bayon, adding to our pipeline a potential vision-restoring small molecule,~~

Our lead product is KIO-301 (formerly known as B-203), which acts as a “photoswitch” specifically designed to restore vision in patients with inherited and age-related degenerative retinal diseases. The molecule was specifically designed to restore the eyes’ ability to perceive and interpret vision in visually impaired patients. It selectively enters viable downstream retinal ganglion cells (no longer receiving electrical input due to degenerated rods and cones) and turns them into light sensing cells, capable of signaling the brain as to the presence or absence of light. KIO-301 is expected to enter the clinic in 2022 with an initial focus on patients with later stages of disease progression due to Retinitis Pigmentosa (any and all sub-forms). ~~We plan~~KIO-301 is a potential vision-restoring small molecule that acts as a “photoswitch” specifically designed to ~~further develop the platform for use~~restore vision in patients with ~~Geographic Atrophy,~~inherited and age-related degenerative retinal diseases. We expect to initiate a Phase 1b clinical trial in the ~~later stages of Age-Related Macular Degeneration (dry AMD).~~

~~In the fourth~~third quarter of ~~2020,~~2022. On March 17, 2022, we ~~acquired Panoptes, adding to our pipeline KIO-101~~were granted Orphan Drug Designation by the United States (“U.S.”) Food and Drug Administration (“FDA”) for the Active Pharmaceutical Ingredient (“API”) in KIO-301. KIO-301 (formerly known as ~~PP-001),~~B-203) was acquired through the Bayon transaction which closed October 21, 2021.

KIO-101 is a ~~next-generation,~~product that focuses on patients with Ocular Presentation of Rheumatoid Arthritis (“OPRA”). KIO-101 is a next generation, non-steroidal, immuno-modulatory, ~~and~~ small-molecule inhibitor of Dihydroorotate Dehydrogenase (“DHODH”) with what we believe to be best-in-class picomolar potency and a validated immune modulating mechanism designed to overcome the off-target side effects and safety issues associated with commercially available DHODH inhibitors. We expect to initiate a Phase 2 clinical trial in the second half of 2022. KIO-101 ~~has been developed in two clinical-stage ophthalmic formulations: an intravitreal injection for inflammatory diseases~~(formerly known as PP-001) was acquired through the acquisition of the eye including posterior uveitis, and a novel nano carrier technology eye drop for ocular surface diseases such as dry eye disease. Other administration routes are also in development. Top line data in a phase 2 proof-of-concept (“POC”) study evaluating KIO-101 in patients with ocular surface inflammation due to ocular surface diseases, including dry eye, is expectedPanoptes in the fourth quarter of ~~2021.~~2020.

In addition, we are developing KIO-201 ~~(formerly known as Ocular Bandage Gel or “OBG”),~~for patients with corneal wounds to accelerate healing, including patience undergoing laser vision correction surgery. KIO-201 is a modified form of the natural polymer hyaluronic acid, designed to protect the ocular surface to permit re-epithelialization of the cornea and improve and maintain ocular surface integrity. KIO-201 ~~with~~has unique properties that help hydrate and protect the ocular surface, is in clinical evaluation for patients undergoing PRK surgery for corneal wound repair after refractive surgery and patients with PE as a result of dry eye. A type-B meeting was held with the U.S. Food and Drug Administration’s (“FDA”) Center for Drug Evaluation and Research (“CDER”) division during the first quarter of 2021 to discuss eligibility of continuing KIO-201 clinical studies as a drug. As a result, development of KIO-201 has shifted from a medical device to a drug, which allows for reimbursement under Medicare Part D.surface.

~~Table of Contents~~

In May 2020, we were granted a loan (the “Loan”) from Silicon Valley Bank in the amount of $0.278 million pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted in March 2020. The Loan could have been prepaid by us at any time prior to maturity with no prepayment penalties. Funds from the Loan were only permitted to be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020 (“Qualifying Expenses”). We used the entire Loan amount for Qualifying Expenses. Under the terms of the PPP, certain amounts of the Loan could be forgiven if they are used for Qualifying Expenses as described in the CARES Act. In April of 2021, we were notified by the Small Business Administration (“SBA”) that this Loan was forgiven in full.

Throughout our history, we have not generated significant revenue. We have never been profitable and from inception through ~~September 30, 2021,~~March 31, 2022, our losses from operations have aggregated ~~$116.356~~$124.4 million. Our Net Loss was ~~$8.017~~$3.565 million and ~~$5.676~~$2.011 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. We expect to incur significant expenses and increasing operating losses for the foreseeable future as we continue the development and clinical trials of and seek regulatory approval for our ~~KIO-301, KIO-101 and KIO-201~~ product ~~candidates, and any other product candidates we advance to clinical development.~~candidates. If we obtain regulatory approval for our ~~KIO-301, KIO-101 and KIO-201~~ product candidates, we expect to incur significant expenses in order to create an infrastructure to support their commercialization including sales, marketing, and distribution functions.

The continued spread of the COVID-19 pandemic could adversely impact our clinical studies. In addition, COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, and business shutdowns. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which could negatively affect our ability to raise additional capital on attractive terms or at all. See “Item 1A. Risk Factors” beginning on page 24 of our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on March 25, 2021. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the emergence of new variants, and the effectiveness of actions to contain and treat COVID-19. We cannot presently predict the scope and severity of any potential disruptions to our business, including to our ongoing and planned clinical studies. Any such shutdowns or other business interruptions could result in material and negative effects to our ability to conduct our business in the manner and on the timelines presently planned, which could have a material adverse impact on our business, results of operation, and financial condition. As of the date of this report, there have been no material adverse effects to our ongoing business operations from COVID-19.

We will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity, debt financings, license and development agreements, or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. These conditions raise substantial doubt about our ability to continue as a going concern. We will need to generate significant revenue to achieve profitability, and we may never do so.

Kiora Pharmaceuticals, Inc. was formed in Delaware on December 26, 2004, and completed a name change from EyeGate Pharmaceuticals, Inc. to Kiora Pharmaceuticals, Inc. on November 8, 2021. We were originally incorporated in 1998 under the name of Optis France S.A. in Paris, France. At that time, the name of the French corporation was changed to EyeGate Pharma S.A.S. and became a subsidiary of EyeGate Pharmaceuticals, Inc. EyeGate Pharma S.A.S. was dissolved effective December 30, 2020. Bayon, Jade and Panoptes are wholly-owned subsidiaries of Kiora Pharmaceuticals, Inc.

~~Financial Overview~~

~~Revenues~~

To date, we have recognized collaboration revenue from U.S. and foreign government grants made to Jade and Panoptes, as well as from license agreements as performance obligations toward milestones were met. ~~See~~ Note 2 to our financial statements, “Summary of Significant Accounting Policies”. We expect to continue to incur significant operating losses as we fund research and clinical trial activities relating to our therapeutic assets, consisting of our photoswitch, DHODH and modified HA-based products, or any other product candidate that we may develop. There can be no guarantee that the losses incurred to fund these activities will succeed in generating revenue.

2417

Table of Contents

COVID-19 pandemic impact

~~Research~~

Our business, results of operations and ~~Development Expenses~~

~~We expense all research and development expenses as they are incurred. Research and development expenses primarily include:~~

●

~~non-clinical development, preclinical research, and clinical trial and regulatory-related costs;~~

●

~~expenses incurred under agreements with sites and consultants that conduct our clinical trials;~~

●

~~expenses related to generating, filing, and maintaining intellectual property; and~~

●

~~employee-related expenses, including salaries, bonuses, benefits, travel, and stock-based compensation expense.~~

~~Substantially all of our research and development expenses to date~~financial condition have been ~~incurred in connection with KIO-201~~ and ~~our former legacy products. We expect our research~~may continue to be impacted by the COVID-19 pandemic and ~~development expenses to increase for the near future as we advance KIO-301, KIO-101, KIO-201, and any~~could be further impacted by supply chain interruptions, extended "shelter-in-place" orders or advisories, facility closures or other product candidate through clinical development, including the conduct of our planned clinical trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We are unable to estimate with any certainty the costs we will incur in the continued development of our KIO-301, KIO-101, KIO-201, and any other product candidate that we may develop. Clinical development timelines, the probability of success and development costs can differ materially from expectations.

~~We may never succeed in achieving marketing approval for our product candidate.~~

~~The costs of clinical trials may vary significantly over the life of a project owing to, but not limited~~reasons related to the ~~following:~~

●

~~per patient trial costs;~~

●

~~the number of sites included in the trials;~~

●

~~the countries in which the trials are conducted;~~

●

~~the length of time required to enroll eligible patients;~~

●

~~the number of patients that participate in the trials;~~

●

~~the number of doses that patients receive;~~

●

~~the cost of comparative agents used in trials;~~

●

~~the drop-out or discontinuation rates of patients;~~

●

~~potential additional safety monitoring or other studies requested by regulatory agencies;~~

●

~~the duration of patient follow-up; and~~

●

~~the efficacy and safety profile of the product candidate.~~

~~We do not expect our product candidates~~pandemic. As of the date of this Quarterly Report on Form 10-Q, the extent to ~~be commercially available, if at all, for the next several years.~~

~~General and Administrative Expenses~~

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation. Our general and administrative expenses consisted primarily of payroll expenses for our full-time employees. Other general and administrative expenses include professional fees for auditing, tax, patent costs and legal services.

~~We expect that general and administrative expenses will remain consistent for the near future until commercialization of our photoswitch, DHODH and modified HA-based products,~~ which COVID-19 could ~~lead to an increase in these expenses.~~

~~Total Other Income (Expense)~~

~~Total other income (expense) consists primarily of interest income we earn on interest-bearing accounts, and interest expense incurred on our outstanding financing arrangements.~~

~~Table of Contents~~

~~Critical Accounting Policies and Significant Judgments and Estimates~~

~~Our management’s discussion and analysis of~~materially impact our financial ~~condition and~~conditions, liquidity or results of operations is ~~based on~~uncertain.

To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial ~~statements, which~~condition, it may also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products, consolidation in the healthcare industry, and maintenance of our contractual relationships.

Recent Developments

On February 23, 2022, we received a written notification (the “Notice Letter”) from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1), as the closing bid price for our common stock was below the $1.00 per share requirement for the last 30 consecutive business days. The Notice Letter stated that we have ~~prepared in~~180 calendar days, or until August 22, 2022 (the “Initial Compliance Period”), to regain compliance with the minimum bid price requirement. In accordance with ~~accounting principles generally accepted~~Nasdaq Listing Rule 5810(c)(3)(A), we can regain compliance if the closing bid price of our common stock is at least $1.00 for a minimum of 10 consecutive business days.

In the event that we do not regain compliance with Listing Rule 5450(a)(1) prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a hearings panel pursuant to the procedures set forth in the ~~United States, or U.S. GAAP. The preparation~~applicable Nasdaq Listing Rules. A delisting of ~~these financial statements requires~~our common stock would have an adverse effect on the market liquidity of our common stock and, as a result, the market price for our common stock could become more volatile. Further, a delisting also could make it more difficult for us to ~~make estimates~~raise additional capital. We intend to monitor the closing bid price of our common stock and ~~assumptions~~may conduct a reverse stock split, if necessary, to regain compliance with the Nasdaq bid price rule.

On May 25, 2022, we received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that ~~affect~~because we had not yet filed its Quarterly Report on Form 10-Q for the ~~reported amounts of assets~~fiscal quarter ended March 31, 2022, we were no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and ~~liabilities and~~Exchange Commission. The Notice stated that we had 60 calendar days from May 25, 2022, or until July 25, 2022, to regain compliance by filing the ~~disclosure of contingent assets and liabilities at~~late Form 10-Q or to submit to Nasdaq a plan to regain compliance with the ~~date~~Nasdaq Listing Rules. As a result of the financial statements, as well as the expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the resultsfiling of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.

~~While our significant accounting policies are discussed in more detail in Note 2 to our financial statements appearing elsewhere in~~ this Quarterly Report on Form 10-Q, we ~~believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.~~have regained compliance with Nasdaq Listing Rule 5250(c)(1).

~~Business Combinations~~

We applied the provisions of Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” in the accounting for our acquisitions of Bayon and Panoptes. It required us to recognize the assets acquired and the liabilities assumed at their acquisition date fair values, which were determined using market, income, and cost approaches, or a combination. Goodwill as of the respective acquisition date was measured as the excess of consideration transferred over the net of the acquisition date fair value of the assets acquired and the liabilities assumed. Goodwill is generally the result of expected synergies of the combined company or an assembled workforce. Indefinite-lived intangible assets acquired were in-process research and development. The fair value for these intangible assets was determined using the income approach. Under the income approach, fair value reflects the present value of the projected cash flows that are expected to be generated by the products incorporating the in-process research and development, if successful.

~~Accrued Research and Development Expenses~~

~~As part of the process of preparing financial statements, we are required to estimate and accrue research and development expenses. This process involves the following:~~

●

communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost;

●

~~estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time; and~~

●

~~periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.~~

~~Examples of estimated research and development expenses that we accrue include:~~

●

~~fees paid to contract research organizations and investigative sites in connection with clinical studies;~~

●

~~fees paid to contract manufacturing organizations in connection with non-clinical development, preclinical research, and the production of clinical study materials; and~~

●

~~professional service fees for consulting and related services.~~

~~Table of Contents~~

We base our expense accruals related to non-clinical development, preclinical studies, and clinical trials on our estimates of the services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts may depend on many factors, such as the successful enrollment of patients, site initiation and the completion of clinical study milestones. Our service providers invoice us as milestones are achieved and monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period.

However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

~~Stock-Based Compensation~~

We have issued options to purchase our common stock and restricted stock. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service/vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility.

We estimate the grant date fair value of stock options and the related compensation expense, using the Black-Scholes option valuation model. This option valuation model requires the input of subjective assumptions including: (1) expected life (estimated period of time outstanding) of the options granted, (2) volatility, (3) risk-free rate and (4) dividends. In general, the assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

~~Revenue Recognition~~

Our revenues are generated primarily through arrangements which generally contain multiple elements, or deliverables, including licenses and R&D activities to be performed by us on behalf of the licensor or grantor. Payments to us under these arrangements typically include one or more of the following: (1) nonrefundable, upfront license fees, (2) funding of discovery research efforts on a full-time equivalent basis, (3) reimbursement of research, development and intellectual property costs, (4) milestone payments, and (5) royalties on future product sales.

We recognize revenue when our customer obtains control of promised services, in an amount that reflects the consideration which we expect to receive in exchange for those services. To determine whether arrangements are within the scope of this new guidance, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligation. We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. We recognize revenue from the transaction price applied to each single performance obligation over time as milestones are reached for each performance obligation. We only recognize revenue on those milestones that are within our control and any constrained variable consideration that requires regulatory approval will only be included in the transaction price when performance is complete.

In addition, we may receive government grant funds for specified ocular therapeutic research activities. Revenue under these grants will be recorded when we perform the activities specified by the terms of each grant and are entitled to the funds.

~~Table of Contents~~

~~Recent Accounting Pronouncements~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. ASU No. 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for smaller reporting companies in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the adoption of this standard to have a material effect on our Condensed Consolidated Financial Statements and related disclosures.

~~Other Information~~

~~JOBS Act~~

~~Effective December 31, 2020, we are no longer considered an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012.~~

Results of Operations

Comparison of Three Months ended, ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

The following table summarizes the results of our operations for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended September 30,


2021

2020

Change
Operating Expenses:






Research and Development

$
1,628,467

$
985,880

$
642,587
General and Administrative

1,338,616

1,021,325

317,291
Total Operating Expenses

2,967,083

2,007,205

959,878
Other Income, Net

259

331

(72)
Net Loss

$
(2,966,824)

$
(2,006,874)

$
(959,950)


	Three Months Ended March 31,
	2022		2021		Change
Operating Expenses:
General and Administrative	$	1,664,791	$	1,300,143	$	364,648
Research and Development		707,928		1,280,242		(572,314)
Executive Severance		962,833		—		962,833
Change in Fair Value in Contingent Consideration		233,890		(570,203)		804,093
Total Operating Expenses		3,569,442		2,010,182		1,559,260
Other Expense, Net		4,428		(436)		4,864
Net Loss	$	(3,565,014)	$	(2,010,618)	$	1,554,396

~~Research and Development Expenses.~~ Research and Development Expenses were $1.628 million for the three months ended September 30, 2021, compared to $0.986 million for the three months ended September 30, 2020. The increase of $0.643 million was primarily due to development costs for KIO-101, as well as personnel related costs from the Panoptes acquisition. These increases were partially offset by decreases in costs related to KIO-201.

General and Administrative Expenses. ~~General and Administrative Expenses were $1.339 million for the three months ended September 30, 2021, compared to $1.021 million for the three months ended September 30, 2020.~~ The increase of ~~$0.317~~$0.365 million was primarily due to increases in professional fees of $0.151 million for consulting and audit, personnel related ~~costs.~~

~~Comparison~~expenses of ~~Nine Months ended September 30, 2021~~$0.156 million, travel and ~~2020~~

~~The following table summarizes the results~~other office expenses of ~~our operations for the nine months ended September 30, 2021 and 2020:~~$0.123 million offset by a decrease in legal related costs of $0.058 million.

Nine Months Ended September 30,



2021

2020

Change
Operating Expenses:






Research and Development

$
4,348,631

$
2,555,035

$
1,793,596
General and Administrative

3,944,624

3,144,255

800,369
Total Operating Expenses

8,293,255

5,699,290

2,593,965
Other Income, Net

276,312

23,115

253,197
Net Loss

$
(8,016,943)

$
(5,676,175)

$
(2,340,768)

2818

Table of Contents

Research and Development Expenses. ~~Research and Development Expenses were $4.349 million for the nine months ended September 30, 2021, compared to $2.555 million for the nine months ended September 30, 2020.~~ The ~~increase~~decrease of ~~$1.794~~$0.572 million was primarily ~~due to~~ development costs for KIO-101 ~~as well as~~of $0.501 million and personnel related costs ~~from~~of $0.149 million.

Executive Severance. The increase was due primarily to an accrual for the ~~Panoptes acquisition. These increases were partially offset by a decrease in costs related to KIO-201, as well as costs related to the expiration of a prepaid~~severance agreement with ~~a research vendor~~the Company’s former Chief Executive Officer.

Change in ~~the first quarter~~Fair Value of ~~2020.~~

~~General and Administrative Expenses.~~Contingent Consideration. ~~General and Administrative Expenses were $3.945 million for the nine months ended September 30, 2021, compared to $3.144 million for the nine months ended September 30, 2020.~~Contingent consideration increased by $0.804 million. The ~~increase of $0.800 million was~~change in contingent consideration is primarily due to ~~increases~~a change in ~~professional fees~~the probability of success primarily due to the designation of orphan drug status for KIO-301 which occurred in March of 2022, and ~~personnel related costs.~~discount rate for the calculation of fair value of the contingent consideration.

Other ~~Income,~~Expense, Net~~Net.~~ ~~Other Income, Net~~. The increase was ~~$0.276 million for the nine months ended September 30, 2021, compared to $0.023 million for the nine months ended September 30, 2020 mainly~~ due to ~~recording~~ a ~~gain as a result~~sale of office furniture in connection with the closure of the ~~full forgiveness of the Loan under the PPP~~Waltham, MA office in ~~the second quarter of 2021.~~March 2022.

Liquidity and Capital Resources

~~Since becoming a public company in 2015,~~

Our principal liquidity needs have historically been for acquisitions, working capital, research and development, and capital expenditures. We expect these needs to continue as we ~~have financed~~develop and work toward commercialize new products. We will need additional financing to support our continuing operations. We will seek to fund our operations ~~from several registered offerings~~through public or private equity, debt financings, license and ~~private placements of~~development agreements, or other sources, which may include collaborations with third parties.

If we raise additional funds by issuing equity securities or convertible debt, our ~~securities, payments from license~~stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, or making capital expenditures. If we raise additional funds through collaboration and ~~U.S.~~licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates, or to grant licenses on terms that may not be favorable to us. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and ~~foreign government grants. From inception through November 15, 2021, we~~when needed would have ~~raised~~ a ~~total of approximately $118.6 million from such sales of~~negative impact on our ~~equity~~financial condition and ~~debt securities, both~~our ability to pursue our business strategy. These conditions raise substantial doubt about our ability to continue as a ~~public company~~going concern. We will need to generate significant revenue to achieve profitability, and prior to our IPO, as well as approximately $14.9 million in payments received under our license agreements and government grants and $0.278 million received pursuant to the Loan under the PPP, which was fully forgiven in Aprilwe may never do so.

Table of ~~2021.~~Contents

Information regarding cash flows

~~On January 3, 2020, we completed a registered direct offering for 500,000 shares~~As of ~~Common Stock with a purchase price of $10.00 per share. Our total net proceeds from the offering were approximately $4.5 million.~~

On January 6, 2021, we completed a private placement of 1,531,101 shares of Common Stock and warrants to purchase up to 1,531,101 shares of Common Stock to an affiliate of Armistice Capital, LLC, with a combined purchase price per share and warrant of $5.225. The total net proceeds from the private placement were approximately $8.0 million. The warrants have an exercise price of $5.225 per share, subject to adjustments as provided under the terms of the warrants, and will be exercisable on the six-month anniversary of their issuance date. The warrants are exercisable for five years from the issuance date.

On August 11, 2021, we completed a registered direct offering priced at-the-market under Nasdaq Rules for 4,668,844 shares of Common Stock with a purchase price of $2.3025 per share. We also completed a concurrent private placement of unregistered warrants to purchase up to an aggregate of 2,334,422 shares of Common Stock at an exercise price of $2.24 per share that are exercisable immediately upon issuance and will expire five and one-half years following the date of issuance. The total net proceeds to us from the offering were approximately $9.8 million.

~~At September 30, 2021,~~March 31, 2022, we had unrestricted cash and cash equivalents totaling ~~$11.107 million.~~

$5.067 million and restricted cash totaling $0.045 million for a total of $5.112 million compared to $7.900 million at December 31, 2021. The following table sets forth the primary uses of cash for the ~~nine~~three months ended ~~September 30, 2021 and 2020:~~March 31,:


	Nine Months Ended September 30,
	2021		2020		2022		2021
Net Cash Used in Operating Activities	$	(7,477,532)	$	(5,607,702)	$	(2,832,386)	$	(2,570,051)
Net Cash Used in Investing Activities	$	(63,865)	$	—
Net Cash Provided By (Used in) Investing Activities					$	6,375	$	(58,119)
Net Cash Provided by Financing Activities	$	17,517,018	$	4,779,503	$	—	$	8,038,862

~~Table of Contents~~

~~Comparison of Nine Months Ended September 30, 2021 and 2020~~

Operating Activities. Net cash used in operating activities ~~was $7.478~~increased $0.262 million, ~~for~~primarily due to the ~~nine months ended September 30,~~Bayon acquisitions in October 2021 compared to $5.608 million for the nine months ended September 30, 2020. During the first nine months of 2021, we recorded a net loss of $8.017 million, an increase in tax credits receivable of $0.335 million, which was partially offset by stock-based compensation expense of $0.629 million, and an increase in accrued and prepaid expenses of $0.208 million. During the first nine months of 2020, we recorded a net loss of $5.676 million, decreases in accounts payable and accrued expenses of $0.462 million, and a decrease in prepaid expenses and other current assets of $0.203 million. These decreases were partially offset by stock-based compensation expense of $0.531 million and the ~~expiration of a prepaid agreement of $0.160 million.~~resulting integration costs, higher employee compensation and increased operating costs.

Investing Activities. ~~Net~~There was a nominal change in net cash ~~used in~~provided by (used in) investing ~~activities was $0.064 million for the nine months ended September 30, 2021, as a result of the purchases of property and equipment related to our lab space.~~activities.

Financing Activities. ~~Net cash provided by financing activities was $17.517 million for~~During the ~~nine~~three months ended ~~September 30, 2021, compared to $4.780 million for the nine months ended September 30, 2020. During the nine months ended September 30,~~March 31, 2021, we received net proceeds of ~~$9.756 million from the completion of a registered direct offering, as well as net proceeds of $7.989~~$8.000 million from the completion of a private placement. These proceeds were partially offset by full forgiveness of the Loan under the PPP in the amount of $0.278 million. During the nine months ended September 30, 2020, we received net proceeds of $4.501 million from the completion of a registered direct stock offering and $0.278 million of Loan funds from the PPP.

Funding Requirements and Other Liquidity Matters

Our KIO-301, KIO-101 and KIO-201 product pipeline is still in various stages of preclinical and clinical development. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

●

seek marketing approval for our KIO-301, KIO-101 or KIO-201 products or any other products that we successfully develop;

●

establish a sales and marketing infrastructure to commercialize our KIO-301, KIO-101 or KIO-201 products in the United States, if approved; and

●

add operational, financial and management information systems and personnel, including personnel to support our product development and future commercialization efforts.

Table of Contents

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our ~~Stockholders~~stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of ~~a Common Stockholder.~~holders of common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, including our KIO-301, KIO-101 and KIO-201 products, on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market KIO-301, KIO-101 and KIO-201 products, or any other products that we would otherwise prefer to develop and market ourselves.

~~Table of Contents~~

Based on our cash on hand at ~~September 30, 2021,~~March 31, 2022, we believe we will have sufficient cash to fund planned operations ~~into the second half of~~through July 2022. However, the acceleration or reduction of cash outflows by management can significantly impact the timing for raising additional capital to complete development of its products. To continue development, we will need to raise additional capital through debt and/or equity financing, or access additional funding through grants. Although we successfully completed our IPO and several subsequent registered offerings and private placements of our securities, additional capital may not be available on terms favorable to us, if at all. On May 13, 2019, the SEC declared effective our registration statement on Form S-3, registering a total of $50,000,000 of our securities for sale to the public from time to time in what is known as a “shelf offering”. We do not know if our future offerings ~~including offerings pursuant to our shelf registration statement,~~ will succeed. Accordingly, no assurances can be given that management will be successful in these endeavors. Our recurring losses from operations have caused management to determine there is substantial doubt about our ability to continue as a going concern. Our Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern.

~~Off-Balance Sheet Arrangements~~Other

~~We do not~~For information regarding Commitments and Contingencies, refer to Note 9. Commitments and contingencies and Note 3. Acquisitions to the Notes to the Unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q.

Critical Accounting Estimates

Our discussion of operating results is based upon the unaudited condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are detailed in Item 7 of our 2021 10-K/A and we have ~~any~~no material ~~off-balance sheet arrangements as~~changes from such disclosures.

Recently Issued Accounting Pronouncements

Refer to Note 1. Business, Presentation and Recent Accounting Pronouncements, in the Notes to the Unaudited condensed consolidated financial statements of ~~September 30, 2021.~~

Part 1, Item 1. Financial Statements of this Form 10-Q for detailed information regarding the status of recently issued accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.

Item 4. Controls and Procedures.
This Report includes the certifications of our Chief Executive Officer (who is our principal executive ~~officer)~~ and ~~our Chief Financial Officer (who is our principal~~ financial ~~and~~/ accounting officer) required by Rule 13a-14 of the Exchange Act. See ~~Exhibits 31.1 and 31.2.~~Exhibit 31.1. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Table of Contents

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Quarterly Report on the Form 10-Q, the Company’s Management, under the supervision of, and with the participation of, our Chief Executive Officer, ~~and our Chief Financial Officer,~~ conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 30, 2021.~~March 31, 2022. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and our management necessarily was required to apply its judgment in evaluating and implementing our disclosure controls and procedures. Based upon the evaluation described above and material weaknesses identified in our Form 10-K as of December 31, 2021, our Chief Executive Officer ~~and our Chief Financial Officer have~~has concluded that they believe that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Accounting and Reporting

Our management, with the participation of the Chief Executive Officer, ~~and the Chief Financial Officer,~~ has evaluated whether any change in our internal control over financial accounting and reporting occurred during the ~~quarter~~3 months ended ~~September 30, 2021.~~March 31, 2022. Management concluded that no changes to our internal control over financial accounting and reporting ~~occurred~~did occur during the ~~quarter~~3 months ended ~~September 30, 2021 that~~March 31, 2022. These changes were made to address the material weaknesses identified in the Form 10-K as of December 31, 2021. We have ~~materially affected, or are reasonably likely~~identified and implemented and continue to ~~materially affect,~~implement, certain remediation efforts to improve the effectiveness of our internal control over financial ~~accounting~~reporting and ~~reporting.~~disclosure controls and procedures. The following changes are underway.

We hired consultants who began working with the company in March 2022 and we hired additonal full time resources with the appropriate levels of experience and reallocated responsibilities across the team.

We are in the process of performing a detailed financial reporting risk assessment to identify areas that require improvement and are currently implementing changes to address these areas.

While progress has been made to enhance our internal control over financial reporting, we are still in the process of implementing, documenting and testing these processes, procedures and controls. Additional time is required to complete implementation and to assess and ensure the sustainability of these procedures. We will continue to devote significant time and attention to these remedial efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

3122

Table of Contents

PART II - OTHER INFORMATION
Item 1.    Legal Proceedings.
While we are not currently a party to any legal proceedings as of ~~September 30, 2021,~~March 31, 2022, from time to time we may be a party to a variety of legal proceedings that arise in the normal course of our business.

Item 1A.    Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2020,~~2021, which is incorporated herein by reference and which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. We do not believe that there have been any material changes from the risk factors previously disclosed in our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2020.~~2021.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Purchase of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.

Item 3.    Defaults Upon Senior Securities.
Not applicable.

Item 4.    Mine Safety Disclosure.
Not applicable.

Item 5.    Other Information.
None.

Item 6.    Exhibits.
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index immediately preceding such exhibits and are incorporated herein by reference.

3223

Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 15, 2021~~July 8, 2022
By:
/s/ Brian M. Strem, Ph.D.

President and Chief Executive Officer

(Principal executive ~~officer)~~

~~Date: November 15, 2021~~
~~By:~~
~~/s/ Sarah Romano~~
~~Chief Financial Officer~~
(officer and Principal financial and accounting ~~officer)~~sofficer)

3324

Table of Contents

EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q. Where such filing is made by incorporation by reference to a previously filed document, such document is identified.

Exhibit

Number

Description of Exhibit
~~2.1* (1)~~10.1#

~~Stock Purchase~~Separation Agreement by and between the Registrant and Stephen From, dated January 31, 2022 (filed as Exhibit 10.1 to the ~~Sellers listed therein, dated October 21, 2021.~~

~~4.1 (2)~~

Registrant’s Current Report on Form ~~of Common Stock Purchase Warrant dated August 11, 2021.~~8-K with the SEC on February 1, 2022 and incorporated herein by reference).

~~4.2 (2)~~10.2#

Consulting Agreement by and between the Registrant and Danforth Advisors, LLC, dated March 9, 2022 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form ~~of Placement Agent Purchase Warrant dated August 11, 2021.~~8-K filed with the SEC on April 26, 2022 and incorporated herein by reference).

~~10.1# (3)~~

~~Employment Agreement by and between the Registrant and Brian M. Strem, dated as of July 22, 2021.~~

~~10.2* (2)~~

~~Form of Securities Purchase Agreement dated August 11, 2021.~~

~~10.3 (2)~~

~~Engagement Letter by and between the Registrant and H.C. Wainwright & Co., LLC, dated as of August 5, 2021.~~

~~10.4# (1)~~

~~Employment Agreement by and between the Registrant and Eric J. Daniels, dated as of October 21, 2021.~~

31.1

Certification of principal executive officer ~~pursuant to Rules 13a-15(e)~~ and ~~15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~

~~Certification of~~ principal financial and accounting officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of principal executive officer ~~pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

32.2**

~~Certification of~~and principal financial and accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document (embedded within the Inline XBRL document)

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

1. ~~Previously filed as an exhibit to the Company’s Current Report on Form 8-K (filed October 26, 2021) and incorporated by reference thereto.~~
2. ~~Previously filed as an exhibit to the Company’s Current Report on Form 8-K (filed August 10, 2021) and incorporated by reference thereto.~~
3. ~~Previously filed as an exhibit to the Company’s Current Report on Form 8-K (filed July 26, 2021) and incorporated by reference thereto.~~

~~Table of Contents~~

#	Management contract or compensatory plan or arrangement.

*	Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish to the Securities and Exchange Commission a copy of such schedules and exhibits, or any section thereof, upon request.

**	This certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act.

3525


	September 30, 2021
	(unaudited)		December 31, 2020
ASSETS
Current Assets:
Cash and Cash Equivalents	$	11,106,927	$	1,185,677
Prepaid Expenses and Other Current Assets		341,629		449,569
Other Receivables		421,463		90,975
Total Current Assets		11,870,019		1,726,221
Property and Equipment, Net		78,833		30,566
Restricted Cash		45,000		45,000
Goodwill		3,484,607		3,484,607
Intangible Assets and In-Process R&D, Net		9,711,414		9,730,164
Operating Lease Assets with Right-of-Use		259,217		83,928
Other Assets		44,249		57,073
Total Assets	$	25,493,339	$	15,157,559
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	424,889	$	434,763
Accrued Expenses		1,389,311		1,289,261
Operating Lease Liabilities		144,742		48,303
Total Current Liabilities		1,958,942		1,772,327
Non-Current Liabilities:
Contingent Consideration		5,342,950		5,342,950
Deferred Tax Liability		728,926		728,926
Paycheck Protection Program Loan		—		278,190
Non-Current Operating Lease Liabilities		114,475		35,625
Total Non-Current Liabilities		6,186,351		6,385,691
Total Liabilities		8,145,293		8,158,018
Commitments and Contingencies (Note 10)
Stockholders’ Equity:
Preferred Stock, $0.01 Par Value: 10,000,000 shares authorized; 3,750 designated Series A, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020; 10,000 designated Series B, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020; 10,000 shares designated Series C, 0 and 4,092 shares issued and outstanding at September 30, 2021 and December 31, 2020; 20,000 shares designated Series D, 46 shares issued and outstanding at September 30, 2021 and December 31, 2020		—		41
Common Stock, $0.01 Par Value: 50,000,000 shares authorized; 12,619,256 and 5,556,394 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		126,193		55,564
Additional Paid-In Capital		133,637,500		115,283,572
Accumulated Deficit		(116,355,777)		(108,338,834)
Accumulated Other Comprehensive Loss		(59,870)		(802)
Total Stockholders’ Equity		17,348,046		6,999,541
Total Liabilities and Stockholders’ Equity	$	25,493,339	$	15,157,559


	September 30, 2021	September 30, 2020
	(unaudited)	(unaudited)
Common Stock Warrants	6,815,248	2,772,117
Employee Stock Options	472,049	246,893
Preferred Stock	13,000	852,500
Total Shares of Common Stock Issuable	7,300,297	3,871,510


	Estimated Useful Life	September 30, 2021
	(Years)	(unaudited)		December 31, 2020
Laboratory Equipment	3	$	88,400	$	82,653
Office Equipment	3		3,693		3,888
Office Furniture	5		72,549		14,430
Leasehold Improvements	2		22,569		22,569
Total Property and Equipment, Gross			187,211		123,540
Less Accumulated Depreciation			108,378		92,974
Total Property and Equipment, Net		$	78,833	$	30,566


		September 30,
	Estimated Useful	2021
	Life (Years)	(unaudited)		December 31, 2020
Trade Secrets	10	$	250,000	$	250,000
Less: Accumulated Amortization			(75,000)		(56,250)
Intangible Assets, Net			175,000		193,750
In-Process R&D			9,536,414		9,536,414
Total Intangible Assets and In-Process R&D, Net		$	9,711,414	$	9,730,164


Year Ended December 31,	Operating Leases
2021 (remainder of year)	$	55,131
2022		133,788
2023		95,461
Less: Imputed Interest		(25,163)
Lease Liabilities	$	259,217


	Panoptes
Current Assets	$	410,863
In-Process R&D		5,624,100
Goodwill		1,958,711
Property, Plant and Equipment		2,042
Accounts Payable and Other Liabilities		(87,777)
Deferred Tax Liability		(351,507)
Contingent Consideration		(3,632,950)
Assumed Liabilities		(312,852)
Total Purchase Price	$	3,610,630


	Three Months Ended September 30,
	2021		2020		Change
Operating Expenses:
Research and Development	$	1,628,467	$	985,880	$	642,587
General and Administrative		1,338,616		1,021,325		317,291
Total Operating Expenses		2,967,083		2,007,205		959,878
Other Income, Net		259		331		(72)
Net Loss	$	(2,966,824)	$	(2,006,874)	$	(959,950)


Date: ~~November 15, 2021~~July 8, 2022	By:	/s/ Brian M. Strem, Ph.D.
		President and Chief Executive Officer
		(Principal executive ~~officer)~~


~~Date: November 15, 2021~~	~~By:~~	~~/s/ Sarah Romano~~
		~~Chief Financial Officer~~
		(officer and Principal financial and accounting ~~officer)~~sofficer)

Exhibit
Number		Description of Exhibit
~~2.1* (1)~~10.1#		~~Stock Purchase~~Separation Agreement by and between the Registrant and Stephen From, dated January 31, 2022 (filed as Exhibit 10.1 to the ~~Sellers listed therein, dated October 21, 2021.~~

~~4.1 (2)~~		Registrant’s Current Report on Form ~~of Common Stock Purchase Warrant dated August 11, 2021.~~8-K with the SEC on February 1, 2022 and incorporated herein by reference).

~~4.2 (2)~~10.2#		Consulting Agreement by and between the Registrant and Danforth Advisors, LLC, dated March 9, 2022 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form ~~of Placement Agent Purchase Warrant dated August 11, 2021.~~8-K filed with the SEC on April 26, 2022 and incorporated herein by reference).

~~10.1# (3)~~		~~Employment Agreement by and between the Registrant and Brian M. Strem, dated as of July 22, 2021.~~

~~10.2* (2)~~		~~Form of Securities Purchase Agreement dated August 11, 2021.~~

~~10.3 (2)~~		~~Engagement Letter by and between the Registrant and H.C. Wainwright & Co., LLC, dated as of August 5, 2021.~~

~~10.4# (1)~~		~~Employment Agreement by and between the Registrant and Eric J. Daniels, dated as of October 21, 2021.~~

31.1		Certification of principal executive officer ~~pursuant to Rules 13a-15(e)~~ and ~~15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification of~~ principal financial and accounting officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of principal executive officer ~~pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

32.2**		~~Certification of~~and principal financial and accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document (embedded within the Inline XBRL document)

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)