kprx-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2023


o			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.)

332 Encinitas Blvd.

Suite 102

Encinitas, CA 92024

(Address of Principal Executive Offices, including zip code)

(858) 224-9600

(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. x Yes o 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). x Yes o 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

o Yes x No

On August 4, 2023, there were 7,247,050 shares of the registrant’s common stock outstanding.

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KIORA PHARMACEUTICALS, INC.

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QUARTERLY REPORT ON FORM 10-Q

For the Period Ended June 30, 2023

INDEX


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of June 30 , 2023 (unaudited) and December 31, 2022	5

	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the Three and Six Months Ended June 30 , 2023 and 2022	6

	Condensed Consolidated Statement s of Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30 , 2023 and 2022	7

	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended Jun e 30 , 2023 and 2022	10

	Notes to Condensed Consolidated Financial Statements (unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

SIGNATURES		32

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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.

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, as filed with the Securities and Exchange Commission, or the SEC, on March 23, 2023, or the Annual Report. You should carefully review all 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.

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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.”

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2023 (unaudited)		December 31, 2022
ASSETS
Current Assets:
Cash and Cash Equivalents	$	7,951,650	$	5,964,556
Prepaid Expenses and Other Current Assets	266,500		343,069
Tax Receivables	804,511		1,373,041
Total Current Assets	9,022,661		7,680,666
Non-Current Assets:
Property and Equipment, Net	44,883		55,177
Restricted Cash	4,150		49,260
Intangible Assets and In-Process R&D, Net	10,730,664		10,743,164
Operating Lease Assets with Right-of-Use	50,219		116,992
Other Assets	32,366		33,000
Total Assets	$	19,884,943	$	18,678,259
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	131,319	$	1,008,262
Accrued Expenses	1,399,034		1,835,934
Operating Lease Liabilities	39,009		105,782
Contingent Consideration, short-term	313,853		322,385
Total Current Liabilities	1,883,215		3,272,363
Non-Current Liabilities:
Contingent Consideration	3,670,252		3,309,175
Deferred Tax Liability	689,121		689,121
Total Non-Current Liabilities	4,359,373		3,998,296
Total Liabilities	6,242,588		7,270,659
Commitments and Contingencies (Note 8)
Stockholders’ Equity:
Preferred Stock, $0.01 Par Value: 10,000,000 shares authorized at June 30, 2023 and December 31, 2022; 3,750 designated Series A, 0 shares issued and outstanding at June 30, 2023 and December 31, 2022; 10,000 designated Series B, 0 shares issued and outstanding at June 30, 2023 and December 31, 2022; 10,000 shares designated Series C, 0 shares issued and outstanding at June 30, 2023 and December 31, 2022; 20,000 shares designated Series D, 7 shares issued and outstanding at June 30, 2023 and December 31, 2022; 1,280 shares designated Series E, 0 shares issued and outstanding at June 30, 2023 and December 31, 2022; 3,908 shares designated Series F, 950 and 0 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	10		—
Common Stock, $0.01 Par Value: 50,000,000 shares authorized; 6,910,720 and 1,796,472 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	69,129		17,986
Additional Paid-In Capital	152,744,385		146,035,314
Accumulated Deficit	(138,945,308)		(134,462,959)
Accumulated Other Comprehensive Loss	(225,861)		(182,741)
Total Stockholders’ Equity	13,642,355		11,407,600
Total Liabilities and Stockholders’ Equity	$	19,884,943	$	18,678,259

See Accompanying Notes to Condensed Consolidated Financial Statements.

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating Expenses:
General and Administrative	$	1,097,294	$	1,801,878	$	2,366,752	$	3,466,669
Research and Development	1,392,099		567,227		1,830,382		1,275,155
Executive Severance	—		—		—		962,833
Change in Fair Value of Contingent Consideration	143,619		32,943		352,545		266,833
Total Operating Expenses	2,633,012		2,402,048		4,549,679		5,971,490
Operating Loss	(2,633,012)		(2,402,048)		(4,549,679)		(5,971,490)
Other Income, Net:
Gain on Disposal of Fixed Assets	—		—		—		4,211
Interest Income, Net	45,087		1,237		78,552		1,454
Other Expense, Net	(25,888)		—		(11,222)		—
Total Other Income, Net	19,199		1,237		67,330		5,665
Net Loss	$	(2,613,813)	$	(2,400,811)	$	(4,482,349)	$	(5,965,825)
Net Loss per Common Share - Basic and Diluted	$	(0.79)	$	(0.18)	$	(1.74)	$	(0.46)
Weighted Average Shares Outstanding - Basic and Diluted	3,289,774		13,065,714		2,580,560		13,061,281

Other Comprehensive Loss:
Net Loss	$	(2,613,813)	$	(2,400,811)	$	(4,482,349)	$	(5,965,825)
Foreign Currency Translation Adjustments	(10,449)		(166,269)		(43,120)		(138,430)
Comprehensive Loss	$	(2,624,262)	$	(2,567,080)	$	(4,525,469)	$	(6,104,255)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2023 and 2022

(unaudited)


	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2023	7	$	—	1,919,270	$	19,214	$	146,683,202	$	(136,331,495)	$	(215,412)	$	10,155,509

Stock-Based Compensation	—	—		—	—		171,795		—		—		171,795

Issuance of Stock from Public Offering, Net of Offering Costs of $729,038	3,908	39		2,197,628	21,976		5,573,947		—		—		5,595,962

Issuance of Common Stock from ELOC Purchases	—	—		105,000	1,050		342,300		—		—		343,350

Conversion of Series F Preferred Stock into Common Stock	(2,958)	(29)		2,688,822	26,889		(26,859)		—		—		—

Foreign Currency Translation Adjustment	—	—		—	—		—		—		(10,449)		(10,449)

Net Loss	—	—		—	—		—		(2,613,813)		—		(2,613,813)

Balance at June 30, 2023	957	$	10	6,910,720	$	69,129	$	152,744,385	$	(138,945,308)	$	(225,861)	$	13,642,355


	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2022	7	$	—	316,599	$	3,166	$	135,757,583	$	(124,444,363)	$	(58,592)	$	11,257,794

Stock-Based Compensation	—	—		—	—		71,254		—		—		71,254

Issuance of Common Stock from Panoptes Holdback Shares				10,087	100		(100)		—		—		—

Foreign Currency Translation Adjustment	—	—		—	—		—		—		(166,269)		(166,269)

Net Loss	—	—		—	—		—		(2,400,811)		—		(2,400,811)

Balance at June 30, 2022	7	$	—	326,686	$	3,266	$	135,828,737	$	(126,845,174)	$	(224,861)	$	8,761,968

See Accompanying Notes to Condensed Consolidated Financial Statements.

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2023 and 2022

(unaudited)


	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	7	$	—	1,796,472	$	17,986	$	146,035,314	$	(134,462,959)	$	(182,741)	$	11,407,600

Stock-Based Compensation	—	—		—	—		307,736		—		—		307,736

Issuance of Stock from Public Offering, Net of Offering Costs of $729,038	3,908	39		2,197,628	21,976		5,573,947		—		—		5,595,962

Issuance of Common Stock from Private Placement, Net of Offering Costs of $84,285	—	—		52,798	528		115,187		—		—		115,715

Issuance of Common Stock from ELOC Purchases	—	—		125,000	1,250		441,060		—		—		442,310

Issuance of Common Stock from Warrant Exercises	—	—		50,000	500		298,000		—		—		298,500

Conversion of Series F Preferred Stock into Common Stock	(2,958)	(29)		2,688,822	26,889		(26,859)		—		—		—

Foreign Currency Translation Adjustment	—	—		—	—		—		—		(43,120)		(43,120)

Net Loss	—	—		—	—		—		(4,482,349)		—		(4,482,349)

Balance at June 30, 2023	957	$	10	6,910,720	$	69,129	$	152,744,385	$	(138,945,308)	$	(225,861)	$	13,642,355

See Accompanying Notes to Condensed Consolidated Financial Statements.

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

Six Months Ended June 30, 2023 and 2022


	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	7	$	—	316,599	$	3,166	$	135,541,662	$	(120,879,349)	$	(86,431)	$	14,579,048

Stock-Based Compensation	—	—		—	—		287,175		—		—		287,175

Issuance of Common Stock from Panoptes Holdback Shares	—	—		10,087	100		(100)		—		—		—

Foreign Currency Translation Adjustment	—	—		—	—		—		—		(138,430)		(138,430)

Net Loss	—	—		—	—		—		(5,965,825)		—		(5,965,825)

Balance at June 30, 2022	7	$	—	326,686	$	3,266	$	135,828,737	$	(126,845,174)	$	(224,861)	$	8,761,968

See Accompanying Notes to Condensed Consolidated Financial Statements.

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KIORA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30,
	2023		2022
Operating Activities:
Net Loss	$	(4,482,349)	$	(5,965,825)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization of Intangible Assets	32,555		21,054
Reduction of Right-of-Use Assets	66,999		87,242
Stock-Based Compensation	307,736		287,175
Change in Fair Value of Contingent Consideration	352,545		266,833
Gain on Disposal of Equipment	—		(4,211)
Changes in Operating Assets and Liabilities:
Prepaid Expenses and Other Current Assets	74,544		(838,528)
Tax Receivables	556,178		(68,046)
Other Assets	714		(3,397)
Accounts Payable	(863,663)		641,443
Operating Lease Liabilities	(66,999)		(96,682)
Accrued Expenses	(432,773)		341,616
Net Cash Used in Operating Activities	(4,454,513)		(5,331,326)
Investing Activities:
Proceeds on Sale of Equipment	—		6,375
Net Cash Provided by Investing Activities	—		6,375
Financing Activities:
Proceeds from Public Offering	6,325,000		—
Public Offering Costs	(729,038)		—
Proceeds from Private Placement, Net of Offering Costs	200,000		—
Private Placement Offering Costs	(84,285)		—
Proceeds from ELOC Purchases	442,310		—
Exercise of Warrants	298,500		—
Net Cash Provided by Financing Activities	6,452,487		—
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(55,990)		(97,530)
Net Change in Cash, Cash Equivalents and Restricted Cash	1,941,984		(5,422,481)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period	6,013,816		7,899,690
Cash, Cash Equivalents and Restricted Cash, End of Period	$	7,955,800	$	2,477,209

Supplemental Disclosures of Noncash Operating and Financing Activities
Creation of Right-of-Use Assets and Related Lease Liabilities	$	—	$	55,415
Conversion of Preferred Stock into Common Stock	$	26,889	$	—

See Accompanying Notes to Condensed Consolidated Financial Statements.

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

1. Business, Presentation and Recent Accounting Pronouncements

Overview

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

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

Unaudited Interim Financial Information

The accompanying unaudited condensed 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 consolidated 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 consolidated financial statements and notes previously distributed in the Company’s 2022 Annual Report on Form 10-K dated March 23, 2023. The balance sheet as of December 31, 2022 was derived from audited consolidated financial statements of the Company but does not include all the disclosures required by U.S. GAAP.

Reverse Stock Split

On September 23, 2022, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect a one-for-forty ("1-for-40") reverse stock split of its outstanding common stock. The Amendment was approved by the Company’s stockholders at the Company’s 2022 Annual Meeting of Stockholders held on September 23, 2022, and by the Company’s board of directors. The amendment became effective on September 27, 2022.

The reverse stock split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the Amendment. As a result of the reverse stock split, proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, and restricted stock awards issued by the Company and outstanding immediately prior to the effective time of the Amendment, which resulted in a proportionate decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, and restricted stock awards, and, in the case of stock options, a proportionate increase in the exercise price of all such stock options. In addition, the number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective time of the Amendment was reduced proportionately. The reverse stock split did not affect the number of shares or par value of common stock authorized for issuance under the Company’s Amended and Restated Certificate of Incorporation, which remained at 50,000,000 shares.

No fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise have been entitled to receive a fractional share received a cash payment in lieu thereof. The reverse stock split affected all stockholders proportionately and did not affect any stockholder’s percentage ownership of the Company’s common stock (except to the extent that the reverse stock split results in any stockholder owning only a fractional share). As a result of the reverse stock split, the number of the Company’s outstanding shares of common stock as of September 27, 2022 decreased from 43,163,123 (pre-split) shares to 1,079,045 (post-split) shares.

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

All share and per share amounts in the accompanying condensed consolidated financial statements, related footnotes, and management’s discussion and analysis have been adjusted retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented. While the number of warrants outstanding did not change, the underlying shares did and are presented reflecting the split. The Company’s common stock began trading on The Nasdaq Capital Market on a split-adjusted basis when the market opened on September 27, 2022.

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. As of June 30, 2023, Kiora had unrestricted Cash and Cash Equivalents of $8.0 million, and an Accumulated Deficit of $138.9 million. Kiora has incurred losses and negative cash flows since inception, and future losses are anticipated. Based on the cash on hand as of June 30, 2023, the Company anticipates having sufficient cash to fund planned operations into May 2024, 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 grants. Although historically the Company has been successful at raising capital, most recently raising net proceeds of approximately $5.6 million in a public offering that closed on June 6, 2023, as well as an equity line of credit that provides an additional $9.6 million (subject to certain limitations), 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 factors described above have caused management to determine there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying 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.

Significant Accounting Policies

Refunds for Research and Development

Kiora, through its Kiora Pharmaceuticals GmbH and Kiora Pharmaceuticals Pty Ltd subsidiaries, is entitled to receive certain refundable tax incentives associated with eligible research and development expenses in Austria and Australia, respectively. These refunds are realized in the form of a cash payment in the year following the incurred research and development expenses. The Company records estimates of the refundable payment as a tax receivable and a reduction in expense in the period in which the research and development expenses are incurred.

Related-Party Transactions

For the six months ended June 30, 2023, the Company made payments totaling approximately $0.1 million for services to a related party vendor, Ora, Inc., who is providing the Company with clinical study services for KIO-301. One of the Company’s directors is an executive at Ora, Inc.

Adoption of Accounting Standards

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This guidance removes the liability and equity separation models for convertible instruments with a cash conversion feature or beneficial conversion feature. As a result, companies will more likely account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account). In addition, the guidance simplifies the settlement assessment that issuers perform to determine whether a contract in their own equity qualifies for equity

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

classification. Finally, the guidance requires entities to use the if-converted method to calculate earnings per share for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted ASU 2020-06 on January 1, 2022. The adoption of ASU 2020-06 did not have a material effect for the Company.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) to clarify an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. Specifically, the ASU provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense. The guidance is effective for annual reporting periods beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted ASU 2021-04 on January 1, 2022. The adoption of ASU 2021-04 did not have a material effect for the Company.

In November 2021, the FASB issued ASU 2021-10, which requires business entities to disclose information about certain government assistance they receive. Such disclosure requirements include the nature of the transactions and the related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item and significant terms and conditions of the transactions. ASU 2021-10 was effective for the Company January 1, 2022. The adoption of ASU 2021-10 did not have a material effect for the Company.

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, 2023		December 31, 2022
Cash and Cash Equivalents	$	7,951,650	$	5,964,556
Restricted Cash, Non-current	4,150		49,260
Total Cash, Cash Equivalents and Restricted Cash	$	7,955,800	$	6,013,816

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

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


	June 30, 2023		December 31, 2022
Prepaid Insurance	$	112,307	$	117,315
Prepaid Research and Development	86,352		128,429
Other	67,841		97,325
Total Prepaid Expenses and Other Current Assets	$	266,500	$	343,069

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

Accrued Expenses

Accrued expenses consist of the following:


	June 30, 2023		December 31, 2022
Payroll and Benefits	$	1,051,087	$	1,312,443
Professional Fees	93,684		282,721
Clinical Trials	209,653		57,020
Other	44,610		183,750
Total Accrued Expenses	$	1,399,034	$	1,835,934

3. 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 and such contingent consideration is required by U.S. GAAP to be presented at fair value. The following table provides information for liabilities measured at fair value on a recurring basis using Level 3 inputs:


	June 30, 2023		December 31, 2022
Contingent Consideration:
Current	$	313,853	$	322,385
Non-current	3,670,252		3,309,175
Total Contingent Consideration	$	3,984,105	$	3,631,560

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 milestones. 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, 2023		December 31, 2022
	Discounted cash flow	Payment discount rate	12.8	%	14.7	%
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%		17% - 67%
Panoptes		Probability of success for payment	17% - 36%		17% - 36%
Jade		Probability of success for payment	56	%	56	%

Significant changes in these assumptions could result in a significantly higher or lower fair value. The contingent consideration reported in the above table 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 $0.4 million for the six months ended June 30, 2023, was primarily driven by a decreased

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

discount rate. The change in fair value of contingent consideration of $0.3 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 2022. The change in fair value of contingent consideration is recorded within operating expenses on the accompanying condensed consolidated statements of operation and comprehensive loss.

4. Capital Stock

In connection with the Company’s acquisition of Panoptes Pharma GmbH (“Panoptes”) in December 2020, on June 18, 2022, the Company issued an aggregate of 10,086 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.

On July 22, 2022, the Company entered into an underwriting agreement to issue and sell stock and warrants in a public offering. On July 25, 2022, the underwriter fully exercised the over-allotment option granted by the Company to purchase stock and warrants. On July 26, 2022, the public offering closed, and the Company issued and sold (i) 592,392 shares of common stock (including 98,138 shares of common stock sold pursuant to the exercise of the over-allotment option), (ii) 1,280 shares of Series E Convertible Preferred Stock convertible into up to 160,000 shares of common stock, (iii) 30,095,697 Class A Warrants (including 3,925,525 Class A Warrants sold pursuant to the exercise of the over-allotment option), and (iv) 30,095,697 Class B Warrants (including 3,925,525 Class B Warrants sold pursuant to the exercise of the over-allotment option). Upon exercise, the warrants will convert on a 40 for 1 basis into a total of 1,504,785 common shares. The public offering price of $8.00 per share of common stock, Class A Warrant and Class B Warrant or $1,000 per share of Series E Convertible Preferred Stock, 5,000 Class A Warrants and 5,000 Class B Warrants resulted in net proceeds to the Company of approximately $5.3 million net of underwriting discount and commissions of $0.4 million and expense of $0.3 million.

Each warrant is exercisable at a price per share of common stock of $8.00. The Class A Warrants will expire on September 23, 2023 and the Class B Warrants will expire on September 23, 2027. The exercise prices of the warrants are subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock.

During August 2022, all holders of the Series E Preferred Shares issued in the July 2022 public offering elected to convert their Series E Preferred Shares into 160,000 shares of common stock.

On November 17, 2022, the Company entered into warrant exercise inducement offer letters with some of the Class A Warrant holders who agreed to exercise for cash all of their Class A Warrants to purchase 654,609 shares of common stock originally issued in the July 2022 public offering in exchange for the Company's agreement to issue new warrants (the “Inducement Warrants”) on substantially the same terms as the Class A Warrants to purchase up to 654,609 shares of common stock. Each Inducement Warrant is exercisable at a price per share of common stock of $5.97. Each Inducement Warrant became initially exercisable six months following its date of issuance, and will expire on the eighteen month anniversary of their initial exercise date. The Company received aggregate gross proceeds of approximately $3.1 million from the exercise of the Class A Warrants by the selling stockholders and the sale of the Inducement Warrants. The Company paid its placement agent in connection with the inducement transactions a fee equal to 8% of gross proceeds from the exercise of the Class A Warrants.

On February 3, 2023, the Company completed a private placement with Lincoln Park Capital, LLC ("Lincoln Park") for 52,798 shares of common stock and warrants to purchase up to 105,596 shares of common stock. The total net proceeds from the private placement were approximately $0.1 million. The warrants have an exercise price of $3.538 per share, subject to adjustments as provided under the terms of the warrants, and will be exercisable on the six-month anniversary of the closing date. The warrants are exercisable for five years from the issuance date.

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KIORA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

On February 3, 2023, the Company also entered into a purchase agreement with Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from the Company up to an aggregate of $10.0 million of common stock (subject to certain limitations), from time to time and at the Company's sole discretion over the term of the purchase agreement. On February 22, 2023, the Company completed its first issuance under this agreement for a total of 20,000 shares sold to Lincoln Park for proceeds of $0.1 million. In April 2023, the Company completed additional issuances for a total of 105,000 shares sold to Lincoln Park for proceeds of $0.3 million.

On March 30, 2023, the Company entered into an underwriting agreement to issue and sell stock and warrants in a public offering. On June 6, 2023, the underwriter fully exercised the over-allotment option granted by the Company to purchase stock and warrants. On June 6, 2023, the public offering closed, and the Company issued and sold (i) 2,197,628 shares of common stock (including 750,000 shares of common stock sold pursuant to the exercise of the over-allotment option), (ii) 3,908 shares of Series F Convertible Preferred Stock convertible into up to 3,552,372 shares of common stock, (iii) 5,750,000 Class C Warrants (including 750,000 Class C Warrants sold pursuant to the exercise of the over-allotment option), and (iv) 5,750,000 Class D Warrants (including 750,000 Class D Warrants sold pursuant to the exercise of the over-allotment option). The public offering price of $1.10 per share of common stock, Class C Warrant and Class D Warrant, and $999.90 per share of Series F Convertible Preferred Stock, 909 Class C Warrants and 909 Class D Warrants, resulted in net proceeds to the Company of approximately $5.6 million net of underwriting discount and commissions of $0.5 million and other expenses of $0.2 million.

Each Warrant is exercisable at a price per share of common stock of $1.10. The Class C Warrants will expire on June 6, 2028 and the Class D Warrants will expire on June 6, 2024. The exercise prices of the warrants are subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. In addition, on August 5th, the 60th calendar day immediately following the initial exercise day, the exercise price of the warrants will be reduced to the lesser of (i) the exercise price then in effect and (ii) 90% of the average of the volume weighted average price of the Company's common stock for the five (5) trading day period immediately prior to the reset date.

During June 2023, 2,958 shares of Series F Convertible Preferred Stock were converted into 2,688,822 shares of common stock.

5. Warrants

The following is a summary of warrant activity for the Company’s equity-classified warrants for the six months ended June 30, 2023 and 2022:


	Number of Common Shares Issuable Upon Exercise of Outstanding Warrants	Weighted Average Exercise Price		Weighted Average Remaining Term in Years
Outstanding at December 31, 2022	1,597,606	$	21.22	3.07
Issued	11,605,596	$	1.12	2.61
Exercised	(50,000)	$	5.97
Expired	(39,719)	$	192.00
Outstanding at June 30, 2023	13,113,483	$	2.97	2.95

Outstanding at December 31, 2021	168,932	$	199.65	3.42


Expired	(11,112)	$	900.00
Outstanding at June 30, 2022	157,820	$

SEC Form 10-Q filed by Kiora Pharmaceuticals Inc.