Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 12, 2022

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Table of Contents

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 June 30, 2022

OR

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 August 10, 2022, there were 36,763,123 shares of the registrant’s common stock outstanding.

Table of Contents

KIORA PHARMACEUTICALS, INC.

Table of Contents

QUARTERLY REPORT ON FORM 10-Q

For the Period Ended June 30, 2022

INDEX

Page

PART I - FINANCIAL INFORMATION

Item 1

Financial Statements

4

Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021

4

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the Three and Six Months Ended June 30, 2022 and 2021

5

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

SIGNATURES

27

1

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.

2

Table of Contents

We discuss many of these risks in detail under the heading “Item 1A. Risk Factors” beginning on page 23 of our Annual Report on Form 10-K/A, as filed with the Securities and Exchange Commission, or the SEC, on 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.”

3

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

    

June 30, 2022

    

   

(unaudited)

   

December 31, 2021

ASSETS

 

  

 

  

Current Assets:

 

  

 

  

Cash and Cash Equivalents

$

2,427,902

$

7,854,690

Prepaid Expenses

 

1,399,190

 

606,520

Tax Receivables

552,951

529,560

Total Current Assets

 

4,380,043

 

8,990,770

Non-Current Assets:

Property and Equipment, Net

 

63,232

 

73,999

Restricted Cash

 

49,307

 

45,000

Intangible Assets and In-Process R&D, Net

 

10,755,664

 

10,768,164

Operating Lease Assets

175,250

209,411

Other Assets

 

39,367

 

42,964

Total Assets

$

15,462,863

$

20,130,308

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

Current Liabilities:

 

 

  

Accounts Payable

$

785,766

$

160,621

Accrued Expenses

 

1,631,400

 

1,330,141

Operating Lease Liabilities

 

137,672

 

118,846

Contingent Consideration

301,808

Total Current Liabilities

 

2,856,646

 

1,609,608

Non-Current Liabilities:

 

 

Contingent Consideration, Non-Current

 

3,013,980

 

3,048,955

Deferred Tax Liability

 

802,131

 

802,131

Operating Lease Liabilities, Non-Current

28,138

90,566

Total Non-Current Liabilities

 

3,844,249

 

3,941,652

Total Liabilities

 

6,700,895

 

5,551,260

Commitments and Contingencies (Note 9)

 

 

  

Stockholders’ Equity:

 

 

  

Preferred Stock, $0.01 Par Value: 10,000,000 shares authorized; 3,750 designated Series A, 0 shares issued and outstanding at June 30, 2022 and December 31, 2021; 10,000 designated Series B, 0 shares issued and outstanding at June 30, 2022 and December 31, 2021; 10,000 shares designated Series C, 0 shares issued and outstanding at June 30, 2022 and December 31, 2021; 20,000 shares designated Series D, 7 shares issued and outstanding at June 30, 2022 and December 31, 2021

 

 

Common Stock, $0.01 Par Value: 50,000,000 shares authorized and 13,067,426 and 12,663,965 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

130,675

 

126,640

Additional Paid-In Capital

 

135,701,328

 

135,418,188

Accumulated Deficit

 

(126,845,174)

 

(120,879,349)

Accumulated Other Comprehensive Loss

 

(224,861)

 

(86,431)

Total Stockholders’ Equity

 

8,761,968

 

14,579,048

Total Liabilities and Stockholders’ Equity

$

15,462,863

$

20,130,308

See Accompanying Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

    

June 30, 

    

June 30, 

   

2022

   

2021

   

2022

   

2021

Operating Expenses:

 

  

 

  

General and Administrative

$

1,801,878

$

1,305,865

$

3,466,669

$

2,606,008

Research and Development

567,227

1,439,922

1,275,155

2,720,164

Executive Severance

962,833

Change in Fair Value of Contingent Consideration

32,943

73,717

266,833

(496,486)

Total Operating Expenses

2,402,048

2,819,504

 

5,971,490

 

4,829,686

Operating Loss Before Other Expense

(2,402,048)

(2,819,504)

 

(5,971,490)

 

(4,829,686)

Other Expenses, Net:

 

 

Gain on Forgiveness of Loan

278,190

278,190

Gain on Disposal

4,211

Interest Income

1,237

332

 

1,454

 

582

Interest Expense

(2,033)

 

 

(2,719)

Total Other Expenses, Net

1,237

276,489

 

5,666

 

276,053

Net Loss

$

(2,400,811)

$

(2,543,015)

$

(5,965,825)

$

(4,553,633)

Net Loss per Common Share - Basic and Diluted

$

(0.18)

$

(0.34)

$

(0.46)

$

(0.61)

Weighted Average Shares Outstanding - Basic and Diluted

13,065,714

7,466,211

13,061,281

7,409,363

Other Comprehensive Loss:

 

 

Net Loss

$

(2,400,811)

$

(2,543,015)

$

(5,965,825)

$

(4,553,633)

Foreign Currency Translation Adjustments

(166,269)

(24,807)

 

(138,430)

 

(14,334)

Comprehensive Loss

$

(2,567,080)

$

(2,567,822)

$

(6,104,255)

$

(4,567,967)

See Accompanying Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2022 and 2021

(unaudited)

Accumulated

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Loss

   

Equity

Balance at March 31, 2022

 

7

$

 

12,663,965

$

126,640

$

135,634,109

$

(124,444,363)

$

(58,592)

$

11,257,794

 

  

 

  

 

  

 

  

 

 

  

 

  

 

Stock-Based Compensation

 

 

 

 

 

71,254

 

 

 

71,254

Issuance of Common Stock from Panoptes Holdback Shares

403,461

4,035

(4,035)

Foreign Currency Translation Adjustment

(166,269)

(166,269)

Net Loss

 

 

 

 

 

 

(2,400,811)

 

 

(2,400,811)

 

  

 

  

 

 

  

 

  

 

  

 

  

 

  

Balance at June 30, 2022

 

7

$

13,067,426

$

130,675

$

135,701,328

(126,845,174)

$

(224,861)

$

8,761,968

Accumulated

 

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Loss

    

Equity

Balance at March 31, 2021

 

4,138

$

41

 

7,097,912

$

70,979

$

125,023,994

$

(109,119,282)

$

9,671

$

15,985,403

Stock-Based Compensation

 

 

 

 

 

262,892

 

 

 

262,892

Foreign Currency Translation Adjustment

 

 

 

 

 

 

 

(24,807)

 

(24,807)

Net Loss

 

 

 

 

 

 

(2,543,015)

 

 

(2,543,015)

Balance at June 30, 2021

 

4,138

$

41

 

7,097,912

$

70,979

$

125,286,886

$

(111,662,297)

$

(15,136)

$

13,680,473

6

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2022 and 2021

(unaudited)

Accumulated

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Loss

   

Equity

Balance at December 31, 2021

 

7

$

 

12,663,965

$

126,640

$

135,418,188

$

(120,879,349)

$

(86,431)

$

14,579,048

 

  

 

  

 

 

 

 

  

 

  

 

Stock-Based Compensation

 

 

 

287,175

 

 

 

287,175

Issuance of Common Stock from Panoptes Holdback Shares

403,461

4,035

(4,035)

Foreign Currency Translation Adjustment

 

 

 

 

 

 

(138,430)

 

(138,430)

Net Loss

 

 

 

 

 

(5,965,825)

 

 

(5,965,825)

 

  

 

  

 

  

 

  

 

  

 

 

  

 

Balance at June 30, 2022

 

7

$

 

13,067,426

$

130,675

$

135,701,328

(126,845,174)

$

(224,861)

$

8,761,968

Accumulated

 

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Loss

    

Equity

Balance at December 31, 2020

 

4,138

$

41

 

5,556,394

$

55,564

$

116,783,602

$

(107,108,664)

$

(802)

$

9,729,741

Stock-Based Compensation

 

 

 

 

 

479,837

 

 

 

479,837

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

 

 

 

 

 

 

 

(14,334)

 

(14,334)

Net Loss

 

 

 

 

 

 

(4,553,633)

 

 

(4,553,633)

Balance at June 30, 2021

 

4,138

$

41

 

7,097,912

$

70,979

$

125,286,886

$

(111,662,297)

$

(15,136)

$

13,680,473

See Accompanying Notes to Condensed Consolidated Financial Statements.

7

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Six Months Ended June 30,

   

2022

   

2021

Operating Activities:

 

  

 

  

Net Loss

$

(5,965,825)

$

(4,553,633)

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

 

 

Depreciation and Amortization

 

21,054

 

23,203

Reduction of Right-of-Use Assets

 

87,242

 

86,387

Stock-Based Compensation

 

287,175

 

479,837

Change in Fair Value of Contingent Consideration

266,833

(496,486)

Paycheck Protection Program Loan Forgiveness

(278,190)

Gain on Disposal of Equipment

(4,211)

Changes in Operating Assets and Liabilities:

 

 

Prepaid Expenses

 

(838,528)

 

8,786

Tax Receivable

 

(68,046)

 

(222,645)

Other Assets

 

(3,397)

 

11,153

Accounts Payable

 

641,443

 

(142,444)

Lease Liabilities

 

(96,682)

 

(86,387)

Accrued Expenses

 

341,616

 

(315,196)

Net Cash Used in Operating Activities

 

(5,331,325)

 

(5,485,615)

Investing Activities:

Purchases of Property and Equipment

(63,865)

Proceeds on Sale of Equipment

6,375

Net Cash Provided by (Used in) Investing Activities

6,375

(63,865)

Financing Activities:

 

 

Proceeds from Stock Offerings, Net of Offering Costs

 

 

7,988,861

Exercise of Warrants

50,001

Net Cash Provided by Financing Activities

 

 

8,038,862

Effect of Exchange Rate Changes on Cash

 

(97,530)

 

(11,835)

Net (Decrease) Increase in Cash

 

(5,422,481)

 

2,477,547

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

 

7,899,690

 

1,230,677

Cash, Cash Equivalents and Restricted Cash, End of Period

$

2,477,209

$

3,708,224

Supplemental Disclosures of Noncash Operating and Financing Activities

 

 

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

$

55,415

$

201,089

See Accompanying Notes to Condensed Consolidated Financial Statements.

8

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

1. Business, Presentation and Recent Accounting Pronouncements

Overview

Kiora Pharmaceuticals, Inc. (“Kiora” or the “Company”) was formed as a Delaware corporation December 28, 2004, as amended. Kiora is a clinical-stage specialty pharmaceutical company developing and commercializing therapies for the treatment of ophthalmic diseases.

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 June 30, 2022, Kiora had unrestricted Cash and Cash Equivalents of $2.428 million, and an Accumulated Deficit of $126.845 million. Kiora has incurred losses and negative cash flows since inception, and future losses are anticipated. Based on the cash on hand at June 30, 2022, and the $5.297 million net cash raised in the underwritten public offering that closed on July 26, 2022 (Note 10), the Company anticipates having sufficient cash to fund planned operations through March 2023, 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 $5.297 million in a registered direct offering that closed on July 26, 2022, additional capital may not be available on terms favorable to Kiora, if at all. The Company does not know if any future offerings 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.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, they do not include all information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full 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 7, 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

We have evaluated all issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our condensed consolidated statements of operations and comprehensive loss, balance sheets or cash flows.

9

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

2. Balance Sheet Information

Cash, Cash Equivalents and Restricted Cash

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

June 30, 2022

    

(unaudited)

    

December 31, 2021

Cash and Cash Equivalents

$

2,427,902

$

7,854,690

Restricted Cash, Non-current

 

49,307

 

45,000

Total Cash, Cash Equivalents and Restricted Cash

$

2,477,209

$

7,899,690

Non-current restricted cash consists of deposits with financial institutions for corporate credit cards.

Prepaid Expenses

Prepaid expenses consist of the following:

    

June 30, 2022

    

(unaudited)

December 31, 2021

Research and Development

$

1,117,475

$

319,208

Insurance

 

109,439

 

130,765

Other

 

172,276

 

156,547

Total Prepaid Expenses

$

1,399,190

$

606,520

Accrued Expenses

Accrued expenses consist of the following:

June 30, 2022

   

(unaudited)

   

December 31, 2021

Executive Severance

$

896,524

$

200,605

Payroll and Benefits

362,736

737,365

Professional Fees

 

313,853

 

194,425

Clinical Trials

 

58,287

 

168,785

Other

28,961

Total Accrued Expenses

$

1,631,400

$

1,330,141

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.

10

Table of Contents

KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

The fair value of the consideration for the Bayon acquisition as of the acquisition date 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.

The former stockholders of Bayon are eligible to receive up to $7.135 million in 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 receive up to approximately $7.135 million in milestone payments, which the Company 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 intangible assets acquired and liabilities assumed based on respective fair values. The following table summarizes the preliminary fair value of 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 June 30, 2022, the purchase price allocation for the Bayon acquisition was preliminary in nature and subject to completion. Adjustments to the 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 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 unit, goodwill was considered impaired at December 31, 2021.

The acquired intangible assets, which consist solely of in-process R&D, 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.

Consolidated Pro Forma Results

Net loss in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022 includes net losses of Bayon of $0.270 million and $0.449 million, respectively.

11

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

4. Fair Value Disclosures

Fair value is the price that 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 measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value. In connection with historical acquisitions, additional consideration may be paid related to the achievement of certain milestones. The following table provides information for liabilities measured at fair value on a recurring basis using Level 3 inputs:

June 30, 2022

    

(unaudited)

    

December 31, 2021

Contingent Consideration:

Current

 

301,808

 

Noncurrent

 

3,013,980

 

3,048,955

Total Contingent Consideration

$

3,315,788

$

3,048,955

The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the 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:

    

Valuation Technique

    

Unobservable Inputs

    

June 30, 2022

December 31, 2021

 

 

Discounted cash flow

 

Payment discount rate

 

14.3

%

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

%

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. There was a nominal change in fair value of contingent consideration for the three months ended June 30, 2022 and 2021 of $0.033 million and $0.074 million, respectively. The change in fair value of contingent consideration of $0.267 million for the six months ended June 30, 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 $(0.496) million for the six months ended June 30, 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 comprehensive loss.

5. Capital Stock

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 at an exercise price of $5.225 per share 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 $8.000 million. 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.

12

Table of Contents

KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

In connection with the Company’s acquisition of Panoptes Pharma Ges.m.b.H in December 2020 (“Panoptes Acquisition”), on June 18, 2022, the Company issued an aggregate of 403,461 shares of common stock to former shareholders of Panoptes, which had been held back for a period of eighteen months following the closing of the Panoptes acquisition to satisfy post-closing adjustment and indemnification obligations pursuant to the terms of the Share Purchase Agreement between the Company and the former shareholders of Panoptes.

The following is a summary of the Company’s reserved common stock as of June 30, 2022:

Common Stock Warrants

    

6,312,721

Preferred Stock outstanding

 

2,089

Total

 

6,314,810

6. Warrants

The following is a summary of warrant activity for the Company’s equity-classified warrants for the six months ended June 30, 2022 and 2021:

Weighted Average

Weighted Average

Number of

Exercise

Remaining

    

Warrants

    

Price

    

Term in Years

Outstanding at December 31, 2021

6,757,180

$

4.99

 

3.42

Expired

(444,459)

$

22.50

Outstanding at June 30, 2022

6,312,721

$

3.76

3.14

Outstanding at December 31, 2020

2,726,700

$

8.41

2.45

Issued

1,531,101

$

5.23

4.52

Exercised

(10,417)

$

4.80

1.80

Outstanding at June 30, 2021

 

4,247,384

$

7.27

2.88

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 1,712 and 35,162 shares for the three months ended June 30, 2022 and 2021, respectively and 6,145 and 47,873 shares for the six months ended June 30, 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 June 30:

    

2022

    

2021

Common Stock Warrants