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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 10-Q
___________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36751
___________________________________________________________
OCUGEN, INC.
(Exact Name of Registrant as Specified in its Charter)
___________________________________________________________
Delaware
04-3522315
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5 Great Valley Parkway, Suite 160
Malvern, Pennsylvania 19355
(Address of principal executive offices, including zip code)
(484) 328-4701
(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, par value $0.01 per shareOCGN
The Nasdaq Stock Market LLC
(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 such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerAccelerated filer
Non-accelerated FilerSmaller 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 7(a)(2)(B) of the Securities Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  ☒
As of October 30, 2020, there were 162,026,473 outstanding shares of the registrant’s common stock, $0.01 par value per share.



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OCUGEN, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
Page
Unless the context otherwise requires, references to the “Company,” “we,” “our” or “us” in this report refer to Ocugen, Inc. and its subsidiaries, and references to “OpCo” refer to Ocugen OpCo, Inc., the Company’s wholly owned subsidiary.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about Ocugen and its subsidiaries. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”, “potential”, “estimates”, “pro forma”, “seeks”, “intends” or “anticipates” or the negative thereof or comparable terminology. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions, and statements about the future performance, operations, products and services of Ocugen and its subsidiaries. We caution our stockholders and other readers not to place undue reliance on such statements.
You should read this report and the documents filed by the Company with the SEC completely and with the understanding that our actual future results may be materially different from what we currently expect. Our business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to:
the risk that Ocugen continues to incur significant losses from operations and continues to incur net losses;
the risk that Ocugen may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors;
the extent to which health epidemics and other outbreaks of communicable diseases, including the recent outbreak of a novel strain of the coronavirus which causes a serious respiratory condition known as COVID-19 could disrupt Ocugen's business and operations;
the uncertainties associated with the clinical development and regulatory approval of product candidates, including potential delays in the commencement, enrollment and completion of clinical trials;
risks related to the inability of the Company to obtain sufficient additional capital to continue to advance these product candidates and its preclinical programs;
uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom;
risks related to the failure to realize any value from product candidates and preclinical programs being developed and anticipated to be developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market and the risk that products will not achieve broad market acceptance; and
the other risk factors discussed under the heading “Risk Factors” contained in the Annual Report on Form 10-K filed with the SEC on March 27, 2020 (the "2019 Annual Report"), in the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2020, and in any other documents Ocugen files with the SEC.
You should assume that the information appearing in this report is accurate as of its date only. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All written or oral forward-looking statements attributable to us or any person acting on our behalf made after the date of this report are expressly qualified in their entirety by the risk factors and cautionary statements contained in this report. Unless legally required, we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
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OCUGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2020
December 31,
2019
Assets
Current assets
Cash and cash equivalents$19,105,830 $7,444,052 
Prepaid expenses and other current assets652,893 1,322,167 
Asset held for sale 7,000,000 
Total current assets19,758,723 15,766,219 
Property and equipment, net214,100 222,464 
Restricted cash151,196 151,016 
Other assets415,555 667,747 
Total assets$20,539,574 $16,807,446 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$222,340 $1,895,613 
Accrued expenses2,333,733 2,270,045 
Short-term debt, net1,210,645  
Operating lease obligation164,808 172,310 
Other current liabilities199,261 205,991 
Total current liabilities4,130,787 4,543,959 
Non-current liabilities
Operating lease obligation, less current portion42,746 163,198 
Long term debt, net1,944,396 1,072,123 
Other non-current liabilities 9,755 
Total non-current liabilities1,987,142 1,245,076 
Total liabilities6,117,929 5,789,035 
Commitments and contingencies (Note 11)
Stockholders’ equity
Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized; seven issued and outstanding at September 30, 2020 and December 31, 2019
  
Common stock; $0.01 par value; 200,000,000 authorized; 162,147,973 and 52,746,728 shares issued at September 30, 2020 and December 31, 2019, respectively; 162,026,473 and 52,625,228 shares outstanding at September 30, 2020 and December 31, 2019, respectively
1,621,480 527,467 
Treasury Stock, at cost, 121,500 shares at September 30, 2020 and December 31, 2019
(47,864)(47,864)
Additional paid-in capital82,359,494 62,018,632 
Accumulated deficit(69,511,465)(51,479,824)
Total stockholders’ equity14,421,645 11,018,411 
Total liabilities and stockholders’ equity$20,539,574 $16,807,446 
See accompanying notes to condensed consolidated financial statements.
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OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Three months ended September 30,Nine months ended September 30,
2020201920202019
Revenues
Collaboration revenue$ $ $42,620 $ 
Total revenues  42,620  
Operating expenses
Research and development1,477,382 1,305,461 4,759,569 6,338,530 
In-process research and development7,000,000  7,000,000  
General and administrative1,704,598 1,408,350 5,760,398 3,544,847 
Total operating expenses10,181,980 2,713,811 17,519,967 9,883,377 
Loss from operations(10,181,980)(2,713,811)(17,477,347)(9,883,377)
Other income (expense)
Change in fair value of derivative liabilities (18,512,204) (19,896,626)
Loss on debt conversion   (341,136)
Interest income42 136 594 1,107 
Interest expense(291,909)(796,141)(554,801)(1,753,172)
Other income (expense) (751,261)(87)(751,493)
Total other income (expense)(291,867)(20,059,470)(554,294)(22,741,320)
Net loss$(10,473,847)$(22,773,281)$(18,031,641)$(32,624,697)
Deemed dividend related to Warrant Exchange  (12,546,340) 
Net loss to common stockholders$(10,473,847)$(22,773,281)$(30,577,981)$(32,624,697)
Shares used in calculating net loss per common share — basic and diluted141,591,218 6,411,308 92,764,157 5,839,840 
Net loss per share of common stock — basic and diluted$(0.07)$(3.55)$(0.33)$(5.59)
Net loss$(10,473,847)$(22,773,281)$(18,031,641)$(32,624,697)
Other comprehensive income (loss)
Foreign currency translation adjustment   (451)
Comprehensive loss$(10,473,847)$(22,773,281)$(18,031,641)$(32,625,148)
See accompanying notes to condensed consolidated financial statements.
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OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Common StockTreasury StockAdditional
Paid-in Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total
SharesAmount
Balance at December 31, 201952,746,728 $527,467 $(47,864)$62,018,632 $ $(51,479,824)$11,018,411 
Stock-based compensation expense— — — 222,513 — — 222,513 
Net loss— — — — — (3,943,819)(3,943,819)
Balance at March 31, 202052,746,728 $527,467 $(47,864)$62,241,145 $ $(55,423,643)$7,297,105 
Stock-based compensation expense— — — 149,209 — — 149,209 
Warrant Exchange21,920,820 219,208 — (5,197,084)  (4,977,876)
Issuance of common stock for subscription agreements and warrant exercises1,328,405 13,284 — 318,472   331,756 
At-the-market common stock issuance, net of $0.7 million of commissions and equity issuance costs
59,132,191 591,322 — 14,845,486   15,436,808 
Net loss— — — — — (3,613,975)(3,613,975)
Balance at June 30, 2020135,128,144 $1,351,281 $(47,864)$72,357,228 $ $(59,037,618)$14,623,027 
Stock-based compensation expense— — — 126,290 — — 126,290 
At-the-market common stock issuance, net of $0.4 million of commission and equity issuance costs
27,019,829 270,199 — 9,875,976 — — 10,146,175 
Net loss— — — — — (10,473,847)(10,473,847)
Balance at September 30, 2020162,147,973 $1,621,480 $(47,864)$82,359,494 $ $(69,511,465)$14,421,645 

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OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
(Unaudited)
Common StockTreasury StockAdditional
Paid-in Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total
SharesAmount
Balance at December 31, 20184,960,552 $49,606 $ $18,477,598 $451 $(31,237,194)$(12,709,539)
Stock-based compensation expense— — — 415,202 — — 415,202 
Foreign currency translation adjustment— — — — (282)— (282)
Net loss— — — — — (6,312,606)(6,312,606)
Balance at March 31, 20194,960,552 $49,606 $ $18,892,800 $169 $(37,549,800)$(18,607,225)
Stock-based compensation expense— — — 111,807 — — 111,807 
Foreign currency translation adjustment— — — — (169)— (169)
Conversion of debt1,125,673 11,257 — 13,968,532 — — 13,979,789 
Equity transactions157,743 1,577 — 1,947,308 — — 1,948,885 
Net loss— — — — — (3,538,810)(3,538,810)
Balance at June 30, 20196,243,968 $62,440 $ $34,920,447 $ $(41,088,610)$(6,105,723)
Stock-based compensation expense— — — 193,005 — — 193,005 
Issuance of stock for reverse asset acquisition, net of $5.0 million of costs
1,576,655 15,766 — 2,325,284 — — 2,341,050 
Issuance of common stock under Pre-Merger Financing, net of $1.8 million of costs
2,192,982 21,930 — 13,229,757 — — 13,251,687 
Net loss— — — — — (22,773,281)(22,773,281)
Balance at September 30, 201910,013,605 $100,136 $ $50,668,493 $ $(63,861,891)$(13,093,262)
See accompanying notes to condensed consolidated financial statements.
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OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
20202019
Cash flows from operating activities
Net loss$(18,031,641)$(32,624,697)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense57,565 34,626 
Non-cash interest expense554,801 1,718,546 
Non-cash lease expense142,947 202,665 
In-process research and development expense7,000,000  
Change in fair value of derivative liability 19,896,626 
Stock-based compensation expense498,012 720,014 
Loss on debt conversion 341,136 
Other non-cash(165,609) 
Changes in assets and liabilities:
Prepaid expenses and other assets794,398 (280,838)
Accounts payable and accrued expenses(1,133,092)2,044,901 
Lease obligations(143,834)(202,338)
Net cash used in operating activities(10,426,453)(8,149,359)
Cash flows from investing activities
Purchase of property and equipment(55,488)(2,067)
Payment of reverse asset acquisition costs (2,334,063)
Net cash used in investing activities(55,488)(2,336,130)
Cash flows from financing activities
Financing lease principal payments(17,892)(16,985)
Proceeds from issuance of common stock26,692,377 999,832 
Payment of equity issuance costs(1,083,990)(649,254)
Proceeds from issuance of debt921,415 6,800,000 
Payments of debt issuance costs(5,740)(122,262)
Repayments of debt(4,362,271)(5,290,000)
Proceeds from Pre-Merger Financing 22,437,537 
Net cash provided by financing activities22,143,899 24,158,868 
Effect of changes in exchange rate on cash  
Net increase in cash, cash equivalents and restricted cash11,661,958 13,673,379 
Cash, cash equivalents and restricted cash at beginning of period7,595,068 1,778,613 
Cash, cash equivalents and restricted cash at end of period$19,257,026 $15,451,992 
Supplemental disclosure of non-cash transactions:
Issuance of Warrant Exchange Promissory Notes$5,625,000 $ 
Obligation settled with common stock$331,218 $ 
Conversion of convertible notes$ $13,979,788 
Right-of-use asset related to operating leases$ $470,356 
Equity issuance costs$25,000 $1,150,000 
Reverse asset acquisition costs$ $2,711,431 
See accompanying notes to condensed consolidated financial statements.
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OCUGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    Nature of Business
Ocugen, Inc. (formerly known as Histogenics Corporation), together with its wholly owned subsidiaries (“Ocugen” or the “Company”), is a biopharmaceutical company focused on discovering, developing and commercializing transformative therapies to cure blindness diseases. The Company is located in Malvern, Pennsylvania, and manages its business as one operating segment.
Ocugen is developing a modifier gene therapy platform to generate therapies designed to fulfill unmet medical needs in the area of retinal diseases, including inherited retinal diseases ("IRDs") and dry age-related macular degeneration ("AMD"). Ocugen's modifier gene therapy platform is based on nuclear hormone receptors ("NHRs") which have the potential to restore homeostasis, the basic biological processes in the retina. Unlike single-gene replacement therapies, which only target one genetic mutation, Ocugen believes that its gene therapy platform, through its use of NHRs, represents a novel approach in that it may address multiple retinal diseases with one product.
Ocugen's first gene therapy candidate, OCU400, is being developed to treat retinitis pigmentosa ("RP"), a group of rare genetic disorders that involves a breakdown and loss of cells in the retina and can lead to visual impairment and blindness. Ocugen has received four Orphan Drug Designations ("ODDs") from the Food and Drug Administration ("FDA") for the treatment of certain disease genotypes: nuclear receptor subfamily 2 group E member 3 ("NR2E3"), centrosomal protein 290 ("CEP290"), rhodopsin ("RHO"), and phosphodiesterase 6B ("PDE6B") mutation-associated RP. Ocugen is planning to initiate two Phase 1/2a clinical trials for OCU400 in the second half of 2021. Ocugen's second gene therapy candidate, OCU410, is being developed to utilize the nuclear receptor genes RAR-related orphan receptor A ("RORA") for the treatment of dry AMD. This candidate is currently in preclinical development. Ocugen is planning to initiate a Phase 1/2a clinical trial for OCU410 in 2022.
Ocugen is also conducting preclinical development for its biologic product candidate, OCU200. OCU200 is a novel fusion protein designed to treat diabetic macular edema ("DME"), diabetic retinopathy ("DR") and wet AMD. Ocugen plans to expand the therapeutic applications of OCU200 beyond DME, DR and wet AMD to potentially include macular edema following retinal vein occlusion and myopic choroidal neovascularization. Ocugen expects to initiate Investigational New Drug ("IND") enabling preclinical studies for OCU200 in 2021 and a Phase 1/2a clinical trial for OCU200 in the first half of 2022.
Ocugen was developing OCU300, a small molecule therapeutic for the treatment of symptoms associated with ocular graft versus-host disease ("oGVHD"). On June 1, 2020, Ocugen announced that it had discontinued the Phase 3 trial of OCU300 based on results of a pre-planned interim sample size analysis conducted by an independent Data Monitoring Committee, which indicated the trial was unlikely to meet its co-primary endpoints upon completion. The trial was not stopped based on safety concerns. Ocugen is no longer pursuing the development of this product candidate.
Merger with Histogenics
On September 27, 2019, the Company completed its reverse merger with Ocugen OpCo, Inc. (“OpCo”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of April 5, 2019, by and among Histogenics Corporation ("Histogenics"), OpCo and Restore Merger Sub, Inc., a wholly owned subsidiary of Histogenics (“Merger Sub”), as amended (the “Merger Agreement”), pursuant to which Merger Sub merged with and into OpCo, with OpCo surviving as a wholly owned subsidiary of Histogenics (the “Merger”). Immediately after completion of the Merger, Histogenics changed its name to Ocugen, Inc. and the business conducted by Ocugen, Inc. became the business conducted by OpCo. OpCo is deemed to be the accounting acquirer. Accordingly, the historical financial statements of OpCo became the Company’s historical financial statements, including the comparative prior periods. See Note 3 for additional information.
Reverse Stock Split
In connection with, and immediately prior to the completion of the Merger, Histogenics effected a reverse stock split of the common stock, at a ratio of 1-for-60 (the ‘‘Reverse Stock Split’’). Under the terms of the Merger Agreement, the Company issued common stock to OpCo’s stockholders at an exchange rate of 0.4794 shares of common stock, after taking into account the Reverse Stock Split, for each share of OpCo’s common stock outstanding immediately prior to the Merger.
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The capital structure, including the number of shares of common stock issued appearing in the condensed consolidated balance sheets for the periods presented, reflects that of Ocugen. All references in the condensed consolidated financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect the exchange rate.
Going Concern
The Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of common stock, warrants to purchase common stock, the issuance of convertible notes, debt, and grant proceeds. The Company incurred net losses of approximately $18.0 million and $32.6 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the Company had an accumulated deficit of $69.5 million and cash, cash equivalents and restricted cash totaling $19.3 million.
The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in its industry. The Company intends to continue its research and development efforts for its product candidates, which will require significant funding. If the Company is unable to obtain additional financing in the future or research and development efforts require higher than anticipated capital, there may be a negative impact on the financial viability of the Company. The Company plans to increase working capital by raising additional capital through public and private placements of equity and/or debt, payments from potential strategic research and development arrangements, sale of assets, and licensing and/or collaboration arrangements with pharmaceutical companies or other institutions. Such financing may not be available at all, or on terms that are favorable to the Company. While management of the Company believes that it has a plan to fund ongoing operations, its plan may not be successfully implemented. Failure to generate sufficient cash flows from operations, raise additional capital through one or more financings, or appropriately manage certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives.
As a result of these factors, together with the anticipated increase in spending that will be necessary to continue to develop the Company’s product candidates, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.
2.    Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements included herein have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim reporting. The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that are necessary to present fairly the Company’s financial position, results of operations, and cash flows. The condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosures of the Company normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted under the SEC’s rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, 2019, included in the Company's 2019 Annual Report.
The condensed consolidated financial statements include the accounts of Ocugen, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with current period presentation.
Use of Estimates
In preparing the condensed consolidated financial statements in conformity with GAAP, management is required 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, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions primarily include those used in the accounting for clinical trial accruals, warrant transactions, asset held for sale, and the valuation of debt and equity instruments, including embedded derivatives and stock-based compensation.
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Collaboration Arrangements
The Company assesses whether collaboration agreements are subject to the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 808, Collaborative Arrangements (“ASC 808”), based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and the collaboration partner are subject to other accounting literature. If payments from the collaboration partner represent consideration from a customer, the Company accounts for those payments within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). However, if the Company concludes that its collaboration partner is not a customer, the Company will determine if analogy to other authoritative literature is appropriate.
In April 2020, the Company entered into a collaboration agreement subject to ASC 808. Under this arrangement, the Company records cost reimbursements received as a reduction of research and development expense in the period incurred and royalty payments received as collaboration revenue in the period in which the underlying sale occurs. See Note 5 for additional information.
Exit and Disposal Activities
The Company records liabilities for one-time termination benefits in accordance with ASC Topic 420, Exit and Disposal Cost Obligations ("ASC 420"). In accordance with ASC 420, an arrangement for one-time termination benefits exists at the date the plan of the termination meets the following criteria: (i) management commits to a plan of termination, (ii) the plan identifies the impacted employees and expected completion date, (iii) the plan identifies the terms of the benefits arrangement, (iv) it is unlikely significant changes to the plan will be made or the plan will be withdrawn and (v) the plan has been communicated to employees. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits, are recognized ratably over the future service period.
The Company records liabilities for employee termination benefits covered by ongoing benefit arrangements in accordance with ASC Topic 712, CompensationNonretirement Postemployment Benefits ("ASC 712"). In accordance with ASC 712, costs for termination benefits under ongoing benefits arrangements are recognized when management has committed to a plan of termination and the costs are probable and estimable.
Severance-related charges, once incurred, are recognized as either research and development expense or general and administrative expense within the condensed consolidated statements of operations and comprehensive loss depending on the job function of the employee.
Asset Held for Sale
An asset is considered to be held for sale when all of the following criteria are met: (i) management commits to a plan to sell the asset; (ii) it is unlikely that the disposal plan will be significantly modified or discontinued; (iii) the asset is available for immediate sale in its present condition; (iv) actions required to complete the sale of the asset have been initiated; (v) sale of the asset is probable and the completed sale is expected to occur within one year; and (vi) the asset is actively being marketed for sale at a price that is reasonable given its current market value.
A long-lived asset classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell. If the long-lived asset is newly acquired, the carrying amount of the long-lived asset is established based on its fair value less cost to sell at the acquisition date. A long-lived asset is not depreciated or amortized while it is classified as held for sale, and an impairment loss would be recognized to the extent the carrying amount exceeds the asset's fair value less cost to sell.
As of December 31, 2019, the Company had an intangible asset held for sale, which it held prior to the Merger. The intangible asset qualified and was recorded as held for sale as of the date of the reverse asset acquisition and was carried at its original fair value less cost to sell of $7.0 million. The Company concluded during the three months ended September 30, 2020, that a sale of the intangible asset held for sale was no longer probable to be completed within one year from the date the intangible asset was initially recorded as held for sale. As such, the carrying value of the intangible asset was reduced to zero with the corresponding charge of $7.0 million recognized as in-process research and development expense during the three and nine months ended September 30, 2020 as the in-process research and development does not have an alternative future use.
Although the Company has concluded that a sale of the intangible asset is no longer probable to be completed within one year from the date the intangible asset was initially recorded as held for sale, the Company is party to an Asset Purchase Agreement
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(as defined within Note 3) related to the intangible asset as of September 30, 2020, and continues to market the asset for sale. In the event of a sale of the intangible asset under the Asset Purchase Agreement or to another party, the Company will account for the sale in the period in which the sale occurs.
Fair Value Measurements
The company follows the provisions of the ASC Topic 820, Fair Value Measurements (“ASC 820”), which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair measurements.
The carrying value of certain financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses approximates their fair values due to the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

The Company had derivative instruments that were fair valued on a recurring basis using Level 3 inputs during the three and nine months ended September 30, 2019. There were no derivative instruments fair valued on a recurring basis using Level 3 inputs during the three and nine months ended September 30, 2020. As of September 30, 2020, the Company estimates the fair value of the note with EB5 Life Sciences, L.P. was $1.0 million using Level 2 inputs. As of September 30, 2020, the Company believes the fair values using Level 2 inputs of both the Warrant Exchange Promissory Notes (as defined in Note 9) and the loan received under the PPP of the CARES Act (as defined in Note 9) approximate their carrying values. See Note 9 for additional information.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and United States government and United States government agency obligations. The Company’s restricted cash balance consists of cash held to collateralize a corporate credit card account.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of cash flows:
As of September 30,
20202019
Cash and cash equivalents$19,105,830 $15,301,082 
Restricted cash151,196 150,910 
Total cash, cash equivalents and restricted cash$19,257,026 $15,451,992 
Leases
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.
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Operating leases are included in other assets and lease obligations on the Company’s condensed consolidated balance sheets. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases real estate, and leases for real estate are classified as operating leases. ASC Topic 842, Leases ("ASC 842") requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments include the Company's proportionate share of utilities and other operating expenses and are presented as operating expenses in the Company’s condensed consolidated statements of operations and comprehensive loss in the same line item as expense arising from fixed lease payments.
Stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock units and modifications to existing agreements, to be recognized in the condensed consolidated statements of operations and comprehensive loss based on their fair values. The Company uses the Black-Scholes option-pricing model to determine the fair value of options granted. The Company recognizes forfeitures as they occur.
The Company’s stock-based awards are subject to service-based vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Stock-based awards generally vest over a one to three year requisite service period and have a contractual term of 10 years.
Estimating the fair value of options requires the input of subjective assumptions, including expected life of the option, stock price volatility, the risk-free interest rate and expected dividends. The assumptions used in the Company’s Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are inherently subjective. If any assumptions change, the Company’s stock-based compensation expense could be materially different in the future.
Recently Adopted Accounting Standards
In August 2018, the FASB issued Accounting Standards Update ("ASU") No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements and was effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company's disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, ASC 606 guidance should be applied, including recognition, measurement, presentation and disclosure requirements. The standard adds unit-of-account guidance to ASC 808 to align with the guidance in ASC 606 when an entity is assessing whether the collaborative arrangement or a part of the collaborative arrangement is within the scope of ASC 606. The standard also precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue from contracts with customers recognized under ASC 606 if the collaborative arrangement participant is not a customer. This standard was effective for the Company on
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January 1, 2020. Consistent with the guidance in this standard, the Company assesses whether collaboration arrangements are within the scope of ASC 606. For collaboration arrangements that are not within the scope of ASC 606, applicable transactions with collaborative arrangement participants are presented as collaboration revenue rather than revenue from contracts with customers. See above and Note 5 for additional information.
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. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The Company does not currently expect the adoption of these standards to have a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard will have an effective date and transition date of January 1, 2021. This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocations and calculating income taxes in interim periods. This standard also adds guidance to reduce complexity in certain areas, including recognizing franchise tax, recognizing deferred taxes for tax goodwill, allocating taxes to the members of a consolidated group and recognizing the effect of enacted changes in tax laws or rates during an interim period. The Company does not currently expect the adoption of this standard to have a material impact on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU No. 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). This standard will have an effective and transition date of January 1, 2024. Early adoption is permitted beginning January 1, 2021. This standard simplifies an issuer's accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features as well as simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. This standard also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement (if the effect is more dilutive) for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. The standard requires new disclosures about events that occur during the reporting period and cause conversion contingencies to be met and about the fair value of a public business entity's convertible debt at the instrument level, among other things. The Company does not currently expect the adoption of this standard to have a material impact on its condensed consolidated financial statements.
3.    Merger and Financing
Pre-Merger Financing
In June 2019, OpCo and Histogenics entered into a Securities Purchase Agreement (as amended, the "Financing SPA") with certain accredited investors (the "Investors"). Pursuant to the Financing SPA, among other things, (i) immediately prior to the Merger, OpCo issued 2.2 million shares of common stock to the Investors, (ii) on October 4, 2019, the Company issued 2.2 million shares of the Company's common stock to the Investors and (iii) on October 4, 2019, the Company issued three series of warrants to purchase shares of the Company’s common stock (the “Series A Warrants,” the “Series B Warrants” and the “Series C Warrants” and collectively, the “Pre-Merger Financing Warrants”) in exchange for an aggregate purchase price of $25.0 million (the "Pre-Merger Financing"). See Note 12 for additional information.
Merger with Histogenics
On September 27, 2019, the Company completed the Merger in accordance with the terms of the Merger Agreement. The Merger was structured as a stock-for-stock transaction whereby all of OpCo’s outstanding shares of common stock and securities convertible into or exercisable for OpCo’s common stock were converted into the right to receive Histogenics’ common stock and securities convertible into or exercisable for Histogenics’ common stock.
In accordance with ASC Topic 805, Business Combinations (“ASC 805”), the Company concluded that, while Histogenics was the legal acquirer, OpCo was the accounting acquirer due to the fact that (i) OpCo’s shareholders had the majority of the voting
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rights in Ocugen, (ii) OpCo held all of the board seats of the combined company and (iii) OpCo management held all key positions in the management of the combined company. The Company further concluded that Histogenics did not meet the definition of a business under ASC 805 due to the fact that substantially all of the fair value of the gross assets disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets. Therefore, the Merger was accounted for as a reverse asset acquisition.
In connection with the Merger, on May 8, 2019, Histogenics entered into an asset purchase agreement (the "Asset Purchase Agreement") with Medavate Corp., pursuant to which Histogenics agreed to sell substantially all of its assets relating to its NeoCart® program for $6.5 million. The parties subsequently amended the Asset Purchase Agreement to increase the purchase price to $7.0 million with the purchase price increasing 10% per month (or any portion thereof) starting October 31, 2019 if the closing date of the Asset Purchase Agreement did not occur prior to October 31, 2019. The Company may terminate the Asset Purchase Agreement at any time without recourse. The Asset Purchase Agreement closing date did not occur as of September 30, 2020 and the Company has not terminated the Asset Purchase Agreement as of September 30, 2020.
The NeoCart® asset was held for sale as of December 31, 2019. The NeoCart® asset qualified as held for sale as of the date of the reverse asset acquisition and was carried at its original fair value less cost to sell valued at the acquisition date based on a quoted price of $7.0 million, which was an observable Level 2 fair value input. The NeoCart® asset did not qualify as held for sale as of September 30, 2020. See Note 2 for additional information.
4.    Net Loss Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Net loss—basic and diluted$(10,473,847)$(22,773,281)$(18,031,641)$(32,624,697)
Deemed dividend related to Warrant Exchange (Note 12)
  (12,546,340) 
Net loss to common stockholders$(10,473,847)$(22,773,281)$(30,577,981)$(32,624,697)
Shares used in calculating net loss per common share—basic and diluted141,591,218 6,411,308 92,764,157 5,839,840 
Net loss per common share—basic and diluted$(0.07)$(3.55)$(0.33)$(5.59)
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as their inclusion would have been antidilutive:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Options to purchase common stock4,268,277 500,933 4,268,277 500,933 
Warrants870,017 870,017 870,017 870,017 
Series A Warrants 8,771,928  8,771,928 
Series B Warrants (1) 8,007,461  8,007,461 
Series C Warrants 50,000,000  50,000,000 
Total5,138,294 68,150,339 5,138,294 68,150,339 
_______________________
(1) Series B Warrants do not include the additional Series B Warrants that were contingent upon the reset pricing as discussed in Note 12.
5.    Collaboration Agreements
In April 2020, the Company entered into a collaboration agreement (the “Advaite Agreement”) with Advaite, Inc. (“Advaite”) with respect to the development of Advaite’s RapCov COVID-19 Testing Kit (the “COVID-19 Test”). Advaite was co-founded and is being managed by Mr. Karthik Musunuri, the son of the Company's Chief Executive Officer, Chairman of the Board and co-founder, Dr. Shankar Musunuri. Pursuant to the Advaite Agreement, the Company will provide certain production, research and development, technical, regulatory and quality support services to Advaite in connection with the development and
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commercialization of the COVID-19 Test (the “Ocugen Services”). Advaite will research, develop, and seek to obtain regulatory approval of the COVID-19 Test, and where regulatory approval is obtained, commercialize the COVID-19 Test.
Advaite will solely own all data and materials, including the COVID-19 Test, generated by the Company and its representatives solely in the course of the performance of the Ocugen Services. Advaite is responsible for all preparation and submission of regulatory materials for the COVID-19 Test to regulatory authorities, and Advaite will hold all regulatory approvals of the COVID-19 Test in its name and own all related submissions.
The Company is entitled to receive cost reimbursements from Advaite, beginning as of April 1, 2020, for (a) costs incurred by the Company related to its personnel who are subject matter experts involved in providing the Ocugen Services ("SME Costs") and (b) Advaite's pro-rata share of all costs (other than SME Costs) incurred by the Company in providing the Ocugen Services. As partial consideration for the Company's performance of the Ocugen Services, Advaite will pay to the Company a quarterly royalty in the range of mid to high single digits based on net sales of the COVID-19 Tests.
The Advaite Agreement expires on April 29, 2021, unless extended upon mutual agreement of both the Company and Advaite. Except as otherwise specified in the terms of the Advaite Agreement, Advaite’s obligation to make royalty payments to the Company will survive expiration of the Advaite Agreement.
The Advaite Agreement is considered to be within the scope of ASC 808 as the Advaite Agreement represents a joint operating activity and both Advaite and the Company are active participants and exposed to the risks and rewards. The Company has evaluated the Advaite Agreement and determined it is not within the scope of ASC 606 as Advaite does not meet the definition of a customer.
Cost reimbursements are recorded as a reduction in research and development expense in the period incurred. Royalty payments are recorded as collaboration revenue in the period in which the underlying sale occurs. For the three and nine months ended September 30, 2020, the Company recorded $0.1 million and $0.3 million as a reduction of research and development expense, respectively. For the three months ended September 30, 2020, the Company recorded no collaboration revenue in connection with the Advaite Agreement. For the nine months ended September 30, 2020, the Company recorded $42,620 as collaboration revenue in connection with the Advaite Agreement.
6.    Accrued Expenses
Accrued Expenses are as follows:
September 30,
2020
December 31,
2019
Accrued expenses:
Research and development$177,802 $271,322 
Clinical125,463 421,788 
Professional fees396,914 917,568 
Employee-related688,251 624,420 
Severance-related (1)888,096  
Other57,207 34,947 
Total accrued expenses$2,333,733 $2,270,045 
_______________________
(1) See Note 7 for additional information regarding severance-related accrued expenses.
7.    Exit and Disposal Activities
On June 15, 2020, the Company, as part of its recent shift in focus toward its gene therapy platform and novel biologics program aimed at curing blindness diseases, communicated notice to five employees of termination of their employment. This reduction represents one-third of the Company’s workforce. All terminations were “without cause” and each employee is
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entitled to receive termination benefits upon departure. The termination dates vary for each employee and range from June 30, 2020 to December 31, 2020.
As a result of the workforce reduction, the Company recognized severance-related charges of $0.4 million and $1.1 million during the three and nine months ended September 30, 2020, respectively. The Company expects to pay severance benefits of $0.4 million during 2020 and $0.7 million during 2021. For the three months ended September 30, 2020, the Company recognized a de minimis amount of severance-related charges within general and administrative expense and $0.4 million of severance-related charges within research and development expense. For the nine months ended September 30, 2020, the Company recognized $0.2 million of severance-related charges within general and administrative expense and $0.9 million of severance-related charges within research and development expense.
The following table outlines the components of the severance-related charges:
Amount
Accrued Severance at December 31, 2019$ 
Severance-related charges1,093,255 
Severance-related payments(205,159)
Accrued Severance at September 30, 2020$888,096 

8.    Equity Transactions
At-the-Market Offerings
During the three and nine months ended September 30, 2020, the Company sold an aggregate of 27.0 million and 86.2 million shares of common stock, respectively, in separate at-the-market offerings (“ATMs”) commenced in May 2020, June 2020 and August 2020. The Company sold 34.4 million shares under the May 2020 ATM, 24.8 million shares under the June 2020 ATM and 27.0 million shares under the August 2020 ATM. During the three months ended September 30, 2020, the Company received net proceeds of $10.1 million, after deducting commissions, fees and expenses of $0.4 million. During the nine months ended September 30, 2020, the Company received net proceeds of $25.6 million, after deducting commissions, fees and expenses of $1.1 million.
The offerings were made pursuant to the Company's effective "shelf" registration statement on Form S-3 filed with the SEC on March 27, 2020, the base prospectus contained therein dated May 5, 2020, and the prospectus supplements related to the offerings dated May 8, 2020, June 12, 2020 and August 17, 2020. As of September 30, 2020, the Company had sold all of the shares of common stock available for issuance under the prospectus supplements filed on May 8, 2020 and June 12, 2020 in connection with the May 2020 and June 2020 ATMs. As of September 30, 2020, the Company had remaining capacity to issue up to $19.5 million of common stock under the prospectus supplement filed on August 17, 2020 in connection with the August 2020 ATM.
Subscription Agreements
On April 22, 2020, the Company entered into a subscription agreement with an accredited investor for the sale of 1,000 shares of the Company's common stock in a private placement for an aggregate offering price of $395. This private placement constituted a Dilutive Issuance (as defined in Note 12) and resulted in adjustments to the Series A Warrants.
On June 6, 2020, the Company entered into a subscription agreement with an accredited investor for the issuance of 1.3 million shares of the Company's common stock in a private placement. The shares of common stock were issued as part of a transaction in settlement of an outstanding obligation of the Company to the accredited investor, in which (i) the Company agreed to make certain cash payments, (ii) the Company issued the 1.3 million shares of common stock in exchange for the accredited investor's agreement to cancel $0.3 million of the outstanding obligation and (iii) the accredited investor agreed to cancel an additional portion of the amount owed by the Company representing a discount of $0.2 million.
On April 5, 2019, OpCo entered into a subscription agreement (the "April 2019 Subscription Agreement") with existing investors for the sale of 0.1 million shares of common stock for $1.0 million. This capital raise triggered the conversion features on the convertible debt described in Note 9 below.
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9.    Debt
The following table provides a summary of the carrying values for the components of debt as reflected on the condensed consolidated balance sheets:
September 30,
2020
December 31,
2019
PPP Note$421,415 $ 
Warrant Exchange Promissory Notes1,116,997  
EB-5 Loan Agreement borrowings1,616,629 1,072,123 
Total carrying value of debt, net$3,155,041 $1,072,123 
PPP Note
On April 30, 2020, the Company was granted a loan from Silicon Valley Bank ("SVB"), in the aggregate amount of $0.4 million, pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”). On June 5, 2020, the PPP Flexibility Act of 2020 (the "PPPFA") was signed into law amending the original terms of the PPP. Among other things, the PPPFA extends the deferral period for monthly principal and interest payments from six months to the time when the Small Business Administration (the "SBA") compensates the lender for amounts forgiven as well as extending the covered period for qualifying expenses from eight weeks to the earlier of 24 weeks or December 31, 2020. Certain amounts of the loan may be forgiven if they are used for qualifying expenses as described by the CARES Act.
The loan was in the form of a promissory note dated April 30, 2020 in favor of SVB (the "PPP Note"). The PPP Note matures on April 30, 2022 and bears interest at a rate of 1.0% per annum. Principal and interest payments are payable monthly commencing on the date the SBA compensates SVB for forgiven amounts or within 10 months following the expiration of the covered period if the Company has not applied for forgiveness. The Company did not provide any collateral or guarantees for the loan, nor did the Company pay any facility charge to obtain the loan. The PPP Note provides for customary events of default, including, among others, failure to make payment, bankruptcy, breaches of representations and material adverse events.
At September 30, 2020, the carrying value of the PPP Loan was $0.4 million.
Warrant Exchange Promissory Notes
On April 22, 2020, in connection with the Warrant Exchange as defined in Note 12, the Company issued to Investors certain promissory notes (the "Warrant Exchange Promissory Notes") with an aggregate principal amount of $5.6 million. The Warrant Exchange Promissory Notes have a maturity date of April 21, 2021 and do not bear interest. The Company may prepay the Warrant Exchange Promissory Notes in whole or in part at any time without penalty or premium. In the event that the Company consummates a financing transaction that generates cash to the Company, the Company is required to use 20% of the net proceeds of such transaction to prepay a portion of the outstanding amount under each Warrant Exchange Promissory Note if the transaction occurs on or prior to August 22, 2020, and 30% of the net proceeds to prepay a portion of the outstanding amount under each Warrant Exchange Promissory Note if that transaction occurs after August 22, 2020.
On April 22, 2020, the Warrant Exchange Promissory Notes were recorded at a fair value of $5.0 million. The difference of $0.6 million between the fair value and the aggregate principal amount of $5.6 million was recorded as a debt discount to be accreted to interest expense over the life of the Warrant Exchange Promissory Notes. The accretion amounted to $0.3 million and $0.5 million for the three and nine months ended September 30, 2020, respectively.
The Company is required to use a percentage of the net proceeds of the ATMs discussed in Note 8 to redeem the outstanding amount under the Warrant Exchange Promissory Notes. During the three and nine months ended September 30, 2020, the Company made payments to the Warrant Exchange Promissory Note holders of $3.2 million and $4.4 million, respectively. Subsequent to September 30, 2020, the Company made payments to the Warrant Exchange Promissory Note holders of $1.3 million, causing the Warrant Exchange Promissory Notes to be repaid in full and no longer outstanding.
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The carrying values of the Warrant Exchange Promissory Notes at September 30, 2020 and December 31, 2019 are summarized below:
September 30,
2020
December 31,
2019
Principal outstanding$1,262,729 $ 
Less: unamortized debt discount(145,732) 
Carrying value$1,116,997 $ 

EB-5 Loan Agreement Borrowings
In September 2016, pursuant to the U.S. government’s Immigrant Investor Program, commonly known as the EB-5 program (the “EB-5 Program”), the Company entered into an arrangement (the “EB-5 Loan Agreement”) to borrow up to $10.0 million from EB5 Life Sciences, L.P. (“EB-5 Life Sciences”) in $0.5 million increments. Borrowing may be limited by the amount of funds raised by the EB-5 Life Sciences and are subject to certain job creation requirements by the Company. Borrowings are at a fixed interest rate of 4.0% per annum and are to be utilized in the clinical development, manufacturing, and commercialization of the Company’s products and for the general working capital needs of the Company. Outstanding borrowings pursuant to the EB-5 Program, including accrued interest, become due upon the seventh anniversary of the final disbursement. Amounts repaid cannot be re-borrowed. The EB-5 Program borrowings are secured by substantially all assets of the Company, except for any patents, patent applications, pending patents, patent license, patent sublicense, trademarks, and other intellectual property rights.
Under the terms and conditions of the EB-5 Loan Agreement, the Company borrowed $1.0 million in 2016 and an additional $0.5 million on March 26, 2020. Issuance costs were recognized as a reduction to the loan balance and are amortized to interest expense over the term of the loan.
The carrying values of the EB-5 Loan Agreement borrowings as of September 30, 2020 and December 31, 2019 are summarized below:
September 30,
2020
December 31,
2019
Principal outstanding$1,500,000 $1,000,000 
Plus: accrued interest166,053 127,777 
Less: unamortized debt issuance costs(49,424)(55,654)
Carrying value$1,616,629 $1,072,123 
Senior Secured Convertible Notes
On May 21, 2019, the Company issued senior secured convertible notes to certain investors for $2.4 million at an original issue discount of $0.5 million, and on June 28, 2019, the Company entered into an agreement to issue additional senior secured convertible notes to the investors for $2.9 million with an original issue discount of $0.4 million (together the "Senior Secured Convertible Notes"). Immediately prior to the Merger completed on September 27, 2019, the Investors offset $5.3 million from the amount to be received under the Pre-Merger Financing and the Senior Secured Convertible Notes were deemed to have been repaid and cancelled. The accretion of the original issue discount to interest expense amounted to $0.7 million and $0.8 million during three and nine months ended September 30, 2019, respectively.
Convertible Promissory Note
On April 4, 2019, the Company issued a convertible promissory note (the "Convertible Promissory Note") to an existing stockholder for $0.9 million at an interest rate of 5% per annum. On May 16, 2019, the Convertible Promissory Note was converted into equity. OpCo issued 0.1 million shares of common stock at the conversion date to extinguish the debt at $12.41 per share. This non-cash transaction resulted in an increase of $0.9 million in additional paid-in capital, which was based on the principal balance outstanding and the unpaid interest upon conversion.
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Convertible Notes
During the years ended December 31, 2019 and 2018, the Company issued convertible notes (the “Convertible Notes”) to new and existing stockholders in the Company, including Convertible Notes in the aggregate principal amount of $3.5 million to members of the Board of Directors. As of December 31, 2019, all Notes had been converted and were no longer outstanding.
At issuance, the following amounts were recorded:
Convertible Note Issuance DateConvertible Note
Principal
Amount
Fair Value of Embedded DerivativesDebt
Issuance
Costs
Carrying
Value upon Issuance
January 2018$5,000,000 $(2,657,711)$(35,969)$2,306,320 
June 20181,000,000 (724,216)(3,000)272,784 
November 20181,150,400 (21,127)(50,646)1,078,627 
December 2018150,000 (2,857)(14,310)132,833 
January 2019450,000 (182,882)(29,358)237,760 
February 20191,000,000 (302,379)(55,875)641,746 
Total$8,750,400 $(3,891,172)$(189,158)$4,670,070 
All Convertible Notes accrued interest at a rate of 5% per annum and had scheduled maturity dates on the eighteen month anniversary of the date of the issuance of the Convertible Notes (the “Maturity Date”). If prior to the Maturity Date, there was a consummation of the sale of all or substantially all of the assets of the Company, change in control or event of default, the Convertible Notes would become due and payable at an amount equal to 1.5 times the principal amount of the Convertible Notes together with all accrued interest (the “Change in Control Feature”).
If the Company received equity financing from the issuance of stock of the Company from an investor or group of investors in a transaction or series of related transactions above a certain amount of gross proceeds, the principal amount and all interest accrued but not paid through the closing date of the qualified equity financing was to automatically convert into the same class of equity securities as those issued in the qualified equity financing ("Conversion Feature"). The price per share varied among the Convertible Notes ranging from a 0% to 30% discount to the lowest price per share being paid by investors in the qualified equity financing.
The Company bifurcated the Conversion Feature for the January 2018, June 2018, January 2019, and February 2019 Convertible Notes and classified it as a derivative liability because the conversion feature did not have a fixed conversion price and conversion would be settled in a variable number of shares of common stock. There was no bifurcated conversion feature for the November 2018 and December 2018 Convertible Notes as there is no discount to the lowest equity price triggering conversion. The Company also bifurcated the Change in Control Feature for all of the Convertible Notes because it was determined to be a redemption feature not clearly and closely related to the debt host.
The fair value of both of the embedded features was accounted for as a derivative liability and was recorded as a discount on the Convertible Notes. Inputs used in valuation were unobservable and therefore considered Level 3 in the fair value hierarchy. The debt discount was accreted into interest expense over the expected time until conversion of the Convertible Notes. The accretion amounted to zero and $0.5 million for the three and nine months ended September 30, 2019, respectively. There was no accretion during the three and nine months ended September 30, 2020 as all Convertible Notes had been converted and were no longer outstanding as of December 31, 2019.
The fair value of the embedded features was classified as a liability in the Company’s condensed consolidated balance sheets at issuance, with subsequent changes in fair value recorded on the Company’s condensed consolidated statements of operations and comprehensive loss as a change in fair value of derivative liabilities.
As a result of the April 2019 Subscription Agreement as described and defined within Note 8, the triggers for conversion were met on the Convertible Notes. On April 5, 2019, the Convertible Notes were modified to change the discount percentage from the 0% discount per the terms of the November 2018 and December 2018 Convertible Notes and the 15% discount per the terms of the January 2019 and February 2019 Convertible Notes to 30% at the time of conversion. The Company issued 1.1 million shares of common stock at $8.69 per share on the date of conversion to extinguish the debt, which resulted in a loss of $0.3 million. This non-cash conversion also resulted in an increase of $13.0 million in additional paid-in capital, which was based on the principal balance outstanding and the unpaid interest upon conversion.
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Principal Maturities
Debt maturities (excluding interest) are summarized below:
Twelve months ending September 30,
20212022202320242025ThereafterTotal
Principal Maturities$1,356,377 $327,767 $ $ $ $1,500,000 $3,184,144 

10.    Stock-based Compensation
Stock-based compensation expense for options granted is reflected in the condensed consolidated statements of operations and comprehensive loss as follows:
Three months ended September 30,Nine months ended September 30,
2020201920202019
General and administrative$100,903 $48,226 $248,942 $298,621 
Research and development25,387 144,779 249,070 421,393 
Total$126,290 $193,005 $498,012 $720,014 
As of September 30, 2020, the Company had $1.3 million of unrecognized compensation expense related to options outstanding under its equity plans. This expense is expected to be recognized over a weighted average period of 2.2 years as of September 30, 2020.
Equity Plans
The Company maintains two equity compensation plans, the 2014 Ocugen OpCo, Inc. Stock Option Plan (the “2014 Plan”) and the Ocugen, Inc. 2019 Equity Incentive Plan (the “2019 Plan”, collectively with the 2014 Plan, the "Plans"), which replaced the Histogenics Corporation 2013 Equity Incentive Plan (the "2013 Plan").
In 2019, Ocugen’s stockholders approved the adoption of the 2019 Plan and the 2013 Plan was frozen. No additional awards have been or will be made under the 2013 Plan and any remaining authorized shares under the 2013 Plan were recycled into the 2019 Plan. On the first business day of each fiscal year, pursuant to the "Evergreen" provision of the 2019 Plan, the aggregate number of shares that may be issued under the 2019 Plan will automatically increase by a number equal to the lesser of 4% of the total number of shares of Company common stock outstanding on December 31st of the prior year, or a number of shares of Company common stock determined by the Board.
As of September 30, 2020, the 2014 Plan provides for the granting of up to 0.8 million equity awards in respect to Ocugen's common stock. As of September 30, 2020, the 2019 Plan provides for the granting of up to 4.2 million equity awards in respect of Ocugen's common stock, inclusive of equity awards that were previously available for issuance under the 2013 Plan and the additional shares authorized for issuance pursuant to the 2019 Plan's "Evergreen" provision on January 1, 2020.
As of September 30, 2020, an aggregate of 0.5 million and 3.8 million shares of Company common stock were issuable upon the exercise of outstanding stock options under the 2014 Plan and 2019 Plan, respectively.
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Options to Purchase Common Stock
The following table summarizes the stock option activity under the Plans:
Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value
Options outstanding at December 31, 2019
731,189 $4.59 8.0$24,028 
Granted4,064,950 $0.41 
Forfeited(527,862)$1.96 
Options outstanding at September 30, 2020
4,268,277 $0.94 9.1$7,072 
Options exercisable at September 30, 2020
450,405 $4.34 6.6$450 
The weighted average grant date fair value of stock options granted during both the three and nine months ended September 30, 2020 was $0.34 per share.
11.    Commitments
Operating Leases
The Company has commitments under operating leases for certain facilities used in its operations. The Company’s leases have initial lease terms ranging from one to five years. Certain lease agreements contain provisions for future rent increases.
The components of lease expense were as follows:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Operating lease cost$47,696 $47,696 $142,947 $