10KSB: Optional form for annual and transition reports of small business issuers [Section 13 or 15(d), not S-B Item 405]
Published on March 31, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
Fiscal Year Ended December 31, 2005
OR
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
For
the
Transition Period from _________ to _________
Commission
file number: 000-50590
REXAHN
PHARMACEUTICALS, INC.
(Name
of
small business issuer in its charter)
|
Delaware
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11-3516358
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(State
or other jurisdiction of incorporation
or organization)
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(IRS
Employer Identification
No.)
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9620
Medical Center Drive
Rockville,
Maryland 20850
(Address
of principle executive offices)
(240)
268-5300
(Issuer's
telephone number)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $0.0001 per share
(Title
of
class)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 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 x No o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
State
issuer's revenues for its most recent fiscal year: $265,610
As
of
March 27, 2006, the aggregate market value of the voting common equity held
by
non-affiliates of the issuer was approximately $8,038,371 based on the closing
trade reported on the Over-the-Counter Bulletin Board.
As
of
March 27, 2006, the number of shares of the issuer's common stock outstanding
was: 46,415,632
Documents
incorporated by reference: None
Traditional
Small Business Disclosure Format (Check one): Yes o No x
Cautionary
Statement Regarding Forward-Looking Statements.
This
Annual Report on Form 10-KSB contains statements (including certain projections
and business trends) accompanied by such phrases as "believe", "estimate",
"expect", "anticipate", "will", "intend" and other similar expressions, that
are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected
as
a result of certain risks and uncertainties, including but not limited to the
following:
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·
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our
lack of profitability and the need for additional capital to operate
our
business;
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·
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our
ability to obtain the necessary U.S. and worldwide regulatory approvals
for our drug candidates;
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·
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successful
and timely completion of clinical trials for our drug
candidates;
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·
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demand
for and market acceptance of our drug
candidates;
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·
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the
availability of qualified third-party researchers and manufacturers
for
our drug development programs;
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·
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our
ability to develop and obtain protection of our intellectual property;
and
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·
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other
risks and uncertainties, including those set forth herein under the
caption "Risk Factors" and those detailed from time to time in our
filings
with the Securities and Exchange
Commission.
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These
forward-looking statements are made only as of the date hereof, and we undertake
no obligation to update or revise the forward-looking statements, whether as
a
result of new information, future events or otherwise. The safe harbors for
forward-looking statements provided by the Private Securities Litigation Reform
Act are unavailable to issuers of "penny stock". Our shares may be considered
a
penny stock and, as a result, the safe harbors may not be available to
us.
i
REXAHN
PHARMACEUTICALS, INC.
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PART
I
Item
1. Description of Business
Any
references to "we", "us", "our," the "Company" or "Rexahn" shall mean Rexahn
Pharmaceuticals, Inc.
We
are a
clinical stage biopharmaceutical company focused on the development of therapies
for the treatment of cancer and diseases of the central nervous system, or
CNS.
We have one drug candidate that is expected to enter a Phase II clinical
trial later this year, two drug candidates entering into Phase I trials and
three other drug candidates in pre-clinical development. We intend to leverage
our drug-discovery technologies, scientific expertise and developmental know-how
to develop and commercialize signal inhibitor cancer drugs with greater clinical
benefits for patients and new drugs for the treatment of diseases of the central
nervous system. We will continue to identify internally developed compounds
as
potential drug candidates, as well as assess compounds developed by others
and,
if necessary, license the rights to these compounds in order to develop and
commercialize them as drugs. For a description of our pipeline drug candidates,
see "Our Pipeline Drug Candidates" in this Item 1.
Our
principal corporate offices are located at 9620 Medical Center Drive, Rockville,
Maryland 20850 in Maryland's I-270 technology corridor. Our telephone number
is
(240) 268-5300.
Our
current therapeutic focus in the anti-cancer area is on therapies that target
signal transduction molecules of cancer cells. Signal transduction is the
process of transforming external information from the cell surface to a specific
internal response, such as cell growth or cell death. Signals are conveyed
through tightly regulated communication networks. The signaling pathways are
comprised of functionally diverse molecules, including proteins. Most, if not
all, cancer disease states arise from aberrant cell communication. Recent trends
in anti-cancer chemotherapy drug development involve signal transduction
inhibitors that are target-specific. Our signal transduction inhibitors directly
attack these signaling pathways and halt the growth of cancer cells. We believe
this approach will lead to the development of more targeted and less toxic
drugs
than are currently available to help treat cancer and that may also have
potential applications in other disease areas.
Our
focus
in the CNS area is on products that act on both serotonin and dopamine, which
are major neurotransmitters controlling anxiety and depression. RX-10100, our
lead CNS product is being positioned as a potential treatment for anxiety and
depression. Its active ingredient has been in medical use for more than two
decades and its safety has been well established. In animal studies, it has
shown its efficacy against anxiety and depression in a far lower concentration
than is currently being used in currently prescribed formulations. This
background gives RX-10100 a stronger safety record than an entirely new drug
candidate, alleviating some of the burden of clinical trials and future risk
of
side effects. While all existing anxiety and depression drugs, mostly selective
seretonin reuptake inhibitors (SSRIs), have been developed to work on serotonin,
RX-10100 is believed to modulate both serotonin and dopamine at the same time.
This means that RX-10100 has the potential to be a more efficient treatment
of
both anxiety and depression, since many patients suffer from both at the same
time. In addition to anxiety and depression, we are evaluating the benefits
of
RX-10100 for the treatment of sexual dysfunction. This potential application
of
RX-10100 arises from the observation that SSRIs with short half-lives have
been
studied for the treatment of male sexual dysfunction. Given that RX-10100 has
demonstrated similar effects on serotonin release as SSRIs and with a short
half-life, we believe it has high potential for efficacy in the treatment of
sexual dysfunction.
Company
Background
Our
company resulted from a merger of Corporate Road Show.Com Inc., originally
a New
York corporation ("CPRD"), and Rexahn, Corp, a Maryland corporation, immediately
after giving effect to a 1-for-100 reverse stock split and the reincorporation
of CPRD as a Delaware corporation under the name "Rexahn Pharmaceuticals, Inc."
("Rexahn Pharmaceuticals"), with Rexahn, Corp surviving as a wholly owned
operating subsidiary of ours (the "Merger"). The Merger was effective as of
May 13, 2005. On September 29, 2005, our wholly owned subsidiary, Rexahn,
Corp, was merged with and into us and Rexahn, Corp's separate existence was
terminated.
Rexahn,
Corp was founded in March 2001 and began as a biopharmaceutical company focusing
on oncology drugs. Dr. Chang Ahn, our Chairman, a former Food and Drug
Administration, or FDA, reviewer, and National Cancer Institute, or NCI,
research scientist, helped guide the company's initial research efforts toward
signal inhibitor therapies. Our mission is to discover, develop and market
innovative therapeutics that address unmet medical needs.
Industry
Background
Overview
Our
research and development focuses on two therapeutic areas that affect the lives
of many people—cancer and diseases of the central nervous system, namely
anxiety, depression and sexual dysfunction. All of these disorders can have
a
debilitating effect on the quality of life for patients who suffer from
them.
According
to the American Cancer Society's Cancer Facts & Figures 2006, cancer is
the second leading cause of death among Americans and is responsible for one
of
every four deaths in the United States. In 2006, more than 560,000 Americans
are
expected to die of cancer and close to 1.4
million new cases are expected to be diagnosed.
These
estimates do not include non-invasive cancer or more than 1 million cases
of non-melanoma skin cancer expected to be diagnosed in 2006.
The
National Institute of Mental Health, or NIMH, estimates that 26.2 percent of
adults, or 57.7 million people, suffer from a diagnosable mental disorder in
a
given year. The NIMH also reports that nearly half of those with a mental
disorder suffer from two or more disorders. With this large prevalence and
given
many people suffer from more than one mental disorder at a given time, the
burden of illness is significant and mental disorders are the leading cause
of
disability in the United States.
Current
Cancer
Treatments
Traditional
cancer treatments include surgery, radiation therapy, and chemotherapy. Surgery
is widely used to treat cancer, and in many cases cure cancer, provided the
cancer has not metastasized. However, the complications associated with surgery
are significant. Even if a cure may be achieved through surgery, the costs
to
the patient in terms of health and reduced quality of life often does not
support the surgical option.
Radiation
therapy, or radiotherapy, is the treatment of cancer and other diseases with
ionizing radiation and can be highly effective for treating cancers. Ionizing
radiation deposits energy that injures or destroys cells in the area being
treated by damaging their genetic material, making it impossible for these
cells
to continue to grow. Although radiation damages both cancer cells and normal
cells, the normal cells are generally able to repair themselves and function
properly. In certain cancer tumor types, radiotherapy cure rates are as high
as
for surgery and can be used when surgery would be unable to remove the tumor
completely or is deemed inappropriate.
Chemotherapy
destroys cancer tumor cells by interfering with various stages of the cell
division process. Chemotherapy is used as a primary treatment for leukemia,
other blood cancers, and inoperable or metastatic solid cancer tumors. However,
many current chemotherapy drugs have limited efficacy and debilitating adverse
side effects and may result in the development of multi-drug resistance.
Unmet
Needs
in Cancer Therapies
While
surgery remains the best available treatment for long-term survival provided
the
cancer is still localized and radiation and chemotherapy offer more limited
benefits for those whose disease is more widespread at the time of diagnosis,
nonetheless, a considerable number of unmet needs remain in the treatment of
cancer.
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·
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Long-term
control of advanced tumors:
For advanced cancer (particularly stage IV disease in which the cancer
has
spread through the body), surgery cannot eliminate the tumor and
the
patient becomes reliant on chemotherapy or radiation. However, current
chemotherapy, in the majority of cases, fails to eliminate the tumor,
tending to, at best, shrink the tumor. These limitations translate
into a
need for better, advanced cancer therapies offering a significant
improvement in survival time or long-term chronic disease control.
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·
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Decreased
relapse for early-stage patients:
Early-stage disease can often be effectively treated with surgery
and
radiotherapy. While many early-stage patients will enter remission,
the
rate of relapse is high, as small numbers of tumor cells remain despite
standard surgical and radiation therapies. Upon recurrence, the tumor
is
often more aggressive than the initial occurrence, and unresponsive
to
standard first-line therapies. The development of therapies that
can
maintain a patient in remission following treatment for the initial
tumor,
rather than permitting relapse, is a significant unmet
need.
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Less
toxic therapies:
Current cytotoxic drugs are associated with a high level of toxicity,
due
to their nonspecific mechanism of targeting all rapidly dividing
cells,
rather than cancer tumor cells in particular. For patients with terminal
disease, the maintenance of quality of life, in addition to extending
survival, is of prime importance, and such drug toxicities can often
reduce quality of life more than the tumor itself.
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Current
CNS Treatments
The
anxiety and depression markets are dominated by a few classes of products.
Selective serotonin reuptake inhibitors (SSRIs) and serotonin norepinephrine
reuptake inhibitors (SNRIs) are the two major classes of anti-depressants.
SSRIs
and benzodiazepines are the most frequently used products to treat anxiety.
While many of these products help to control anxiety and depression for some
patients, they have significant drawbacks that limit patient use, such as being
potentially habit-forming, causing drowsiness, limitations on use with certain
pre-existing medical conditions, slow onset of action, causing sexual
dysfunction, insomnia and interacting with certain food or drugs. The marketing
exclusivity period of many currently marketed drugs for the treatment of anxiety
and depression are close to ending, resulting in fierce competition from generic
drug makers. While major pharmaceutical companies are trying to extend the
protection of their blockbuster drugs, they also want to develop new classes
of
drugs that will give another decade of exclusivity with better efficacy.
RX-10100, as a dual action drug, has a potential to address the new
market.
RX-10100
has also shown potential in the functional therapy for male sexual dysfunction
(i.e.,
erectile dysfunction and premature ejaculation). There are currently only three
oral drugs approved on the market to treat erectile dysfunction. All three
products are selective inhibitors of phosphodiesterase type 5 (PDE5). These
drugs may result in numerous adverse reactions, including cardiovascular effects
and death. RX-10100 is not a PDE inhibitor, but works through a brain mediated
mechanism that produces release of serotonin and dopamine. There are currently
no products on the market to treat premature ejaculation, although a few
products are in development.
Unmet
Needs in CNS Therapies
The
current treatments for anxiety and depression that are offered by the SSRIs
have
offered significant improvement over the tricylic antidepressants and monamine
oxidase inhibitors, both of which have serious side effects profiles.
Nonetheless, there remain opportunities to improve treatment in regards to
onset
and side effects.
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·
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Decreased
side-effect profile: Side
effects associated with current SSRI anxiolytics and antidepressants
include nausea, sexual dysfunction, insomnia and weight gain. The
occurrence of one or more of these side effects in patients is the
primary
reason that patients discontinue use of these
treatments.
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Early
therapeutic onset with immediate results:
Onset
of therapeutic action within the first week of use has been one of
the key
goals for all drug discovery programs in anxiety and depression.
All
current medications require a few weeks for therapeutic onset.
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Broad
spectrum of activity:
The
vast majority of patients who suffer from anxiety also display symptoms
of
depression and vice versa. In the past, each disorder was treated
with
separate medications. Recent clinical studies have demonstrated the
ability of SSRIs to address both disorders. Newer drugs should be
able to
address both symptoms of anxiety and depression without the unwanted
side
effects.
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Treatment
of sexual dysfunction:
There are few options available for treatment of sexual dysfunction.
While
current drugs for the treatment of erectile dysfunction improve the
quality of lives of many people, they also exhibit side effects.
Also as
of March 2006, we believe that there are no drugs approved for treatment
of premature ejaculation, which is more prevalent and under-reported
than
erectile dysfunction.
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Market
Opportunity
We
believe that several factors make drug development for cancer and diseases
of
the central nervous system attractive to large pharmaceutical companies,
including:
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·
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Favorable
Environment for Formulary Access and Reimbursement.
Given the alarming death rate, the relatively poor performance of
existing
drugs, and the life threatening nature of cancer, decisions by medical
providers and health insurance companies are more heavily focused
on
outcomes than product cost for cancer drugs compared to drugs from
other
therapeutic classes. As a result cancer drugs with proven efficacy
are
expected to gain rapid formulary listing and patient reimbursement,
and in
addition, drugs that have orphan designations are generally reimbursed
by
insurance companies given that there are few, if any, alternatives.
Since
mental disorders affect an estimated 57.7 million people in the United
States, the burden of illness is significant for insurance companies
as
well as for employers. Given the significant cost of treating behavioral
health problems, there is a favorable environment for formulary access
and
reimbursement for effective products that treat multiple
disorders.
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Focus
on Specialty Markets.
Cancer patients are treated by oncologists, a group of physician
specialists who are early adopters of new therapies. Marketing products
to
this physician group can be accomplished with a specialty sales force
that
requires less investment than a typical product sales force that
markets
to primary care physicians and general practitioners.
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Lower
Development Expenses/Shorter Development Time.
Drugs for life-threatening diseases such as cancer are often treated
by
the Food and Drug Administration (FDA) as candidates for fast track,
priority and accelerated reviews. Clinical studies for cancer require
fewer patients than those for non-life threatening diseases. This
results
in reduced cost and shorter clinical trials. Our lead CNS product,
RX-10100, is also expected to have lower development expenses as
well as
shorter development time given the drug has been on the market for
20
years; thus safety of the product is already
established.
|
Our
therapeutic areas focus on large markets with significant unmet needs. Business
Insights' CNS Market Outlook to 2010 valued the anti-depressant market at close
to $18 billion in 2004 with an annual growth rate of 3.4%. The high rate of
cancer prevalence and the inadequacy of available treatments justify continued
investment in new therapies. Datamonitor estimates that in 2004, drugs for
the
treatment of cancer represented a $40 billion market. In the United States
alone, over $25 billion in cancer therapeutics are sold annually. Sales of
cancer drugs are predicted to grow annually reaching $55 billion globally in
2009. Datamonitor attributes the sales growth will be driven mainly by
innovative drugs, increasing the market share of innovative cancer therapy
from
18% presently to 33% of total cancer sales by 2009.
Our
Strategy
Our
goal
is to build value through a strong drug pipeline and marketed products; however,
to date, we have no marketed products. To achieve these goals, our strategy
has
several key components:
Target
Signal Transducer Molecules With Multiple Drug
Candidates
We
plan
to expand drug candidate pipeline and introduce several new signal inhibitor
drugs into clinical trials over the next five years. By identifying and
characterizing the genes and proteins that control the signaling pathways and
gene expression of cancer cells, we seek to develop DNA/RNA-based and
small-molecule drugs to treat a broad range of diseases caused by abnormal
expression or functions of those genes and proteins. In addition to developing
our own signal transduction inhibitors, we will use our technology platforms
to
screen and identify compounds developed by other companies, either on their
own
or in collaboration with us, which could be effective signal transduction
inhibitors for anti-cancer applications.
Establish
Partnerships With Large Pharmaceutical Companies
We
will
seek to establish partnerships with large pharmaceutical companies in order
to
reduce drug development costs and to expand the disease treatment indications
of
the drug candidates and access to markets. We plan to market products for which
we obtain regulatory approval either directly or through co-marketing
arrangements or other licensing arrangements with large pharmaceutical
companies. To market those drug candidates with disease treatment indications
that are larger or geographically diverse, we expect to enter into licensing,
distribution or partnering agreements with pharmaceutical companies that have
large established sales organizations; however, to date, we have not entered
into such agreements with any large pharmaceutical companies.
Clinically
Develop Drug Candidates as Orphan Drugs to Reduce
Time-to-Market
Under
the
Orphan Drug Act, the FDA may expedite approval of new drugs that treat diseases
affecting less than 200,000 patients each year. This category of diseases is
called an "orphan indication." Incentives in the Orphan Drug Act include a
faster time-to-market of the drug (with FDA approval possible after
Phase II trials instead of Phase III trials) and seven years of drug
marketing exclusivity for the sponsor. In addition, the FDA sometimes provides
orphan research grants to aid in the costs of developing an orphan drug. Once
the drug candidate has received orphan drug approval, the sponsor may conduct
larger, more extensive clinical trials seeking approval for other, more
widespread diseases. We plan to develop drug candidates initially for orphan
category cancers in order to reduce the time-to-market for these potential
products. Our drug candidates may also be effective against non-orphan category
cancers, providing additional market opportunities for off-label use. This
would
enable us to either license these drugs for further development by major
pharmaceutical companies or conduct the necessary studies to seek FDA approval
for additional disease treatment indications. In the future, we may develop
drug
candidates for other orphan category diseases to take advantage of our expertise
with the orphan drug development process.
In-License
Unique Technology
We
seek
to keep abreast of emerging technologies and development stage drugs. We seek
to
proactively review opportunities to in-license and advance compounds in oncology
and other therapeutic areas that are strategic and have value creating potential
to take advantage of our development know-how. For example, in February 2005,
we
licensed the intellectual property of Revaax Pharmaceuticals LLC ("Revaax")
for
development as potential drug candidates for the treatment of neurological
diseases. Through licensing arrangements, we seek to strengthen our pipeline
of
drug candidates.
Capitalize
on Our Management Team's Expertise for Drug Development and Product
Commercialization
Commercializing
drugs requires regulatory, clinical development, and marketing skill sets that
our management team possesses. Our regulatory knowledge comes from team members
who have either been regulatory reviewers at the FDA or regulatory consultants
who have prepared and filed regulatory documents in the U.S. and worldwide.
Our
management team also possesses clinical development experience in oncology
and
several other therapeutic areas. We believe that this knowledge and experience
with the FDA drug approval process permits us to develop strategies that take
advantage of the FDA's fast track policies. Where possible, our management
will
seek to use their experience to design and implement drug development programs
that minimize the time for clinical trials, while maximizing success rates
for
approval of our drug candidates. Members of our management team also have prior
experience in pharmaceutical product launch and marketing.
Our
Pipeline Drug Candidates
Our
anti-cancer therapeutic technology consists of both proprietary RNA/DNA-based
signal transduction inhibitors and small molecule candidate compounds believed
to be effective for treating a large number of human cancers. The following
description of our pipeline drug candidates is based on pre-clinical trials
and
studies.
RX-0201:
Akt Inhibitor
Akt
is a
protein kinase that plays a key role in cancer progression by stimulating cell
proliferation, promoting angiogenesis and inhibiting apoptosis. Akt is
over-activated in a significant number of human cancers (e.g.,
breast,
colorectal, gastric, head and neck, ovarian, pancreatic, prostate and thyroid
cancers and melanoma). Over-expression of Akt mutants in many cell types also
promotes cellular transformation by promoting proliferation and enhancing
survival. We believe that Akt's transformation ability, as well as its ability
to promote cancer cell survival, make it an attractive signal protein for our
drug candidates to target in the treatment of cancer.
We
have
targeted regulation of Akt-1 activity as an effective way to control
proliferation and survival of cancer cells. One approach to regulating Akt-1
is
to use antisense oligonucleotides, or ASOs, to modify and regulate the gene
that
controls the expression and production of Akt-1. ASOs are chemically modified,
single-strand DNA molecules designed to bind unique sequences within targeted
messenger RNA, or mRNA, a specialized information-packed RNA molecule which
translates the cell DNA's genetic message into production of a specific protein.
By binding with the mRNA, ASOs block delivery of the genetic message, preventing
translation and thereby halting disease-associated protein
production.
Our
RX-0201 drug candidate is an ASO that is an inhibitor of Akt-1 mRNA. RX-0201
is
able to induce marked reduction in Akt-1 mRNA and protein expressions in cells
from human carcinomas. RX-0201 strongly inhibits proliferation of various types
of human cancer cells and growth of human tumors in mice. We believe that
RX-0201 is an excellent candidate for orphan cancers, while at the same time
covering a broad spectrum of human cancers. RX-0201 currently holds orphan
designations by the FDA for five orphan cancers (i.e.,
renal
cell carcinoma, pancreatic cancer, stomach cancer, brain cancer and ovarian
cancer).
Phase I
clinical trials of RX-0201 have been ongoing at the Lombardi Comprehensive
Cancer Center of Georgetown Medical Center in Washington, D.C. since September
2004 and at the University of Alabama at Birmingham since August 2005. The
Phase I clinical trial of RX-0201 will characterize the safety and
pharmacokinetics profile, determine dose levels and describe any anti-tumor
activity observed. We currently estimate that the Phase I clinical trial
will be completed in the second quarter of 2006; however, completion of the
Phase I clinical trial will depend on the number of subject test doses
required to determine the maximum tolerated dose. If more doses are needed
than
we originally estimated, then the completion of the Phase I clinical trial
may be delayed. The clinical trial will involve up to 40 participants.
RX-0047:
HIF Transcription Factor Inhibitor
Tumors
cannot grow without blood vessels that supply cancer cells with oxygen and
nutrients. HIF-1 transcription factor is a major regulating mechanism of cancer
cell growth, invasion and angiogenesis. HIF is over-activated in a broad range
of human cancers, such as brain, breast, cervix, colon, kidney, liver, lung,
ovarian, pancreatic, prostate, skin and stomach cancers. HIF-1 alpha
over-expression is associated with cell proliferation and disease progression,
as well as resistance to radiation therapy. As a result, we believe that HIF-1
alpha is a potentially important signal transduction mechanism for our drug
candidates to target in the treatment of cancer.
Our
RX-0047 drug candidate is an ASO that is an extremely potent inhibitor of HIF-1
alpha. RX-0047 directly inhibits HIF-1 alpha by reducing expressions of its
mRNA
and protein, resulting in the arrest of tumor growth and tumor metastasis,
while
reversing radiation resistance and inducing apoptosis. RX-0047 also inhibits
proliferation of various types of human cancer cells. While it will be developed
initially as an orphan drug, RX-0047 may also be developed to target a broad
spectrum of human cancers, which will significantly expand its potential
market.
RX-0047
is in the pre-clinical development stage and a pre-clinical toxicology study
is
planned in the third quarter of 2006. Phase I clinical trials of RX-0047
are expected to begin in 2007.
RX-5902:
G2/M-Specific
Cell Cycle Inhibitor
RX-5902,
a piperazine analogue, is a G2/M-specific
cell cycle inhibitor. In preclinical studies, it strongly induced apoptosis
(cell death) and inhibited proliferation of various human cancer cells at
nanomolar concentrations. We expect RX-5902 to enter pre-clinical toxicology
studies in the third quarter of 2006 and enter into Phase I clinical trials
in
late 2006 or early 2007. RX-5902 may be developed both in intravenous and oral
forms.
RX-10100:
Dual Action Anti-anxiety and Antidepression Agent.
RX-10100
acts on the paths of serotonin and dopamine, which are major neurotransmitters
controlling anxiety and depression. RX-10100 is expected to be superior to
current SSRIs in efficacy and adverse reactions. As a repositioned product
originally used in an adjunct of antibiotics, RX-10100 has established its
safety in more than two decades of use. The proven safety of RX-10100 is key
to
our strategy for the development of this drug compound as a potential drug
candidate for the treatment of anxiety and depression. It is also expected
to
treat male sexual dysfunction such as erectile dysfunction and premature
ejaculation. We are preparing to initiate a Phase I clinical trial of RX-10100
during 2006.
Nucleic
Acid Analogs as Antimetabolites and Quinazoline Analogs as AP-1/Akt
Inhibitors
Nucleic
acid analogs, such as RX-3117, and quinazoline analogs, such as RX-0183 and
RX-1792, are still in pre-clinical development, but development of these
candidates has been delayed due to our focus on development of our other drug
candidates that address unmet medical needs within the oncology and CNS markets.
Competition
Our
principal drug candidates under development are expected to address unmet
medical needs within the oncology and CNS markets. For many of these disease
treatment indications, our drug candidates will be competing with products
and
therapies either currently existing or expected to be developed. Competition
among these products will be based, among other things, on product efficacy,
safety, and reliability, price and patent position. An important factor will
be
the timing of market introduction of our or competitive products. Accordingly,
the relative speed with which we can bring drug candidates to the market is
expected to be an important competitive factor. Our competitive position will
also depend upon our ability to attract and retain qualified personnel, to
obtain patent protection or otherwise develop proprietary products or processes,
and to secure sufficient capital resources for the often substantial period
between technological conception and commercial sales.
There
are
a number of pharmaceutical and biotechnology companies both privately and
publicly held that are conducting research and development activities on
technologies and products for treatment of cancers and diseases of the central
nervous system. We cannot assure you that our competitors will not succeed
in
developing products based on technology which is similar to ours, or other
novel
technologies that are more effective than any which are being developed by
us or
which would render our technology and products obsolete and noncompetitive
prior
to recovery by us of the research, development and commercialization expenses
incurred with respect to those products.
Our
competitors engaged in developing treatments for cancer and CNS include major
pharmaceutical, specialized biotechnology firms, and academic and other research
institutions. Many of our competitors have substantially greater financial,
technical and human resources than we do. In addition, many of our competitors
have significantly greater experience than we do in undertaking pre-clinical
testing and human clinical trials of new pharmaceutical products and obtaining
FDA and other regulatory approvals of products for use in health care.
Accordingly, our competitors may succeed in obtaining FDA approval for products
more rapidly than we can.
As
we
expand our drug development programs to include diseases other than cancer
and
CNS, we will also face competition from pharmaceutical and biotechnology
companies conducting research and development activities on technologies and
products for treatment of those other diseases, increasing both the number
and
the types of competitors we face. For many of the same reasons described above
with respect to our competitors in the oncology market, we cannot assure you
that we will compete successfully against these additional
competitors.
Government
Regulation
Regulation
by governmental authorities in the United States and in other countries
constitutes a significant consideration in our product development,
manufacturing and marketing strategies. We expect that all of our drug
candidates will require regulatory approval by appropriate governmental agencies
prior to commercialization and will be subjected to rigorous pre-clinical,
clinical, and post-approval testing, as well as to other approval processes
by
the FDA and by similar health authorities in foreign countries. U.S. federal
regulations control the ongoing safety, manufacture, storage, labeling, record
keeping, and marketing of all biopharmaceutical products intended for
therapeutic purposes. We believe that we are in compliance in all material
respects with currently applicable rules and regulations.
Obtaining
governmental approvals and maintaining ongoing compliance with federal
regulations is expected to require the expenditure of significant financial
and
human resources not currently at our disposal. We plan to fulfill our short-term
needs through consulting agreements and joint ventures with academic or
corporate partners while building our own internal infrastructure for long-term
corporate growth.
The
process by which biopharmaceutical compounds for therapeutic use are approved
for commercialization in the United States is lengthy. Many other countries
have
instituted equally difficult approval processes. In the United States,
regulations published by the FDA require that the person or entity sponsoring
and/or conducting a clinical study for the purpose of investigating a potential
biological drug product's safety and effectiveness submit an IND application
to
the FDA. These investigative studies are required for any drug product for
which
the product manufacturer intends to pursue licensing for marketing the product
in interstate commerce. If the FDA does not object to the IND application,
clinical testing of the compound may begin in humans after a 30-day review
period. Clinical evaluations typically are performed in three
phases.
In
Phase I, the drug is administered to a small number of healthy human
subjects or patients to confirm its safety and to develop detailed profiles
of
its pharmacological and pharmacokinetic actions (i.e.,
absorption, metabolism, excretion, duration of therapeutic concentration and
effects, if any).
In
Phase II, the drug is administered to groups of patients (up to a total of
500) to determine its efficacy against the targeted disease and the requisite
dose and dose intervals. In a typical development program, additional animal
toxicology studies precede this phase. Some Phase I clinical studies may
also proceed in parallel with some Phase II studies.
In
Phase III, the drug is administered to a larger group of patients (usually
1000 to 3000) by practicing expert physicians in a network of participating
clinics and hospitals. The extensive clinical testing is intended to confirm
Phase II results and to document the nature and incidence of adverse
reactions. Studies also are performed in patients with concomitant diseases
and
medications. Phase III is intended to model more closely the real world in
which the drug will be used. Two multiclinical trials typically constitute
Phase III evaluations. Although larger numbers of patients are evaluated in
Phase III at more clinical study sites, many of these are done in parallel
and therefore Phase III may not require a longer time than
Phase II.
After
completing the IND clinical studies, the product developer submits the safety
and effectiveness data generated by the studies to the FDA in the form of a
New
Drug Application (NDA) to market the product. It is the legal responsibility
of
the FDA to review the proposed product labeling, the pre-clinical (animal and
laboratory) data, the clinical data, as well as the facilities utilized and
the
methodologies employed in the manufacture of the product which have been
submitted to the agency to determine whether the product is safe and effective
for its intended use.
Even
after initial FDA approval has been obtained, further studies may be required
to
provide additional data on safety or to gain approval for the use of a product
as a treatment in clinical disease treatment indications other than those for
which the product was initially tested. Also, the FDA may require post-marketing
testing and surveillance programs to monitor the drug's effects. Side effects
resulting from the use of drug products may prevent or limit the further
marketing of the products.
For
marketing outside the United States, we will be subject to foreign regulatory
requirements governing human clinical trials and marketing approval for drugs.
The requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country.
Certain
drugs are eligible in the United States for designation by the FDA as "orphan"
drugs if their use is intended to treat a disease that affect less than 200,000
persons in the U.S. or the disease affects more than 200,000 persons in the
United States but there is no reasonable expectation that the cost of developing
and marketing a drug will be recovered from the U.S. sales of such drug. In
order for a sponsor to obtain orphan designation for a drug product, an
application must be submitted for approval to the FDA's Office of Orphan
Products Development. The approval of an application for orphan designation
is
based upon the information submitted by the sponsor. A drug that has obtained
orphan designation is said to have "orphan status". Each designation request
must stand on its own merit. Sponsors requesting designation of the same drug
for the same disease treatment indication as a previously designated product
must submit their own data in support of their designation request. The approval
of an orphan designation request does not alter the standard regulatory
requirements and process for obtaining marketing approval. Safety and efficacy
of a compound must be established through adequate and well-controlled studies.
If
a
sponsor obtains orphan drug designation for a particular compound and is the
first to obtain FDA regulatory approval of that compound, then that sponsor
is
granted marketing exclusivity for a period of seven years. As a result, orphan
drug designation blocks all other competitors from marketing the same drug
for
the approved use for seven years.
Research
and Development
Our
research and development has focused on signal transduction inhibitors, which
are drugs that target the communication system of cancer cells, and products
affecting the central nervous system that act on the paths of serotonin and
dopamine, major neurotransmitters controlling anxiety and depression as well
as
potentially affecting sexual dysfunction. Our drug discovery program in the
cancer area focuses on key cellular signaling proteins involved in receiving
and
promoting growth and survival information, enhancing gene activity, controlling
cell division, and inducing angiogenesis. Our integrated technology platforms
serve to maximize efficiency in discovering and validating signaling targets
while simultaneously screening and identifying lead tumor-targeted compounds.
For a discussion of collaboration arrangements pursuant to which we obtain
research and development services from universities, research institutions
and
other organizations, see "Collaboration Agreements" and "Certain Relationships
and Related Transactions" in Item 12 of this Annual Report.
Manufacturing
We
do not
currently have the resources required for commercial manufacturing of our drug
candidates. We currently outsource the manufacturing of drug substances and
drug
products for our drug candidates. We have no current plans to build internal
manufacturing capacity for any product. Manufacturing will be accomplished
through outsourcing or through partnerships with large pharmaceutical
companies.
Intellectual
Property
Proprietary
protection for our drug candidates, processes and know-how is important to
our
business. We plan to aggressively prosecute and defend our patents and
proprietary technology. Our policy is to file patent applications to protect
technology, inventions, and improvements that are considered important to the
development of our business. We also rely upon trade secrets, know-how,
continuing technological innovation and licensing opportunities to develop
and
maintain our competitive position. See "Collaboration Arrangements" and "Certain
Relationships and Related Transactions" in Item 12 of this Annual Report for
a
description of the intellectual property rights we have or share in connection
with our collaborative research and development relationships with universities,
research institutions and other organizations.
Collaboration
and License Arrangements
We
have
numerous collaborative research and development relationships with universities,
research institutions and other organizations. Also see the discussion in
"Certain Relationships and Related Transactions" in Item 12 of this Annual
Report. A brief description of some of these relationships is
below:
The
University of Maryland("UMD"). On
March 15, 2005, we entered into a Maryland Industrial Partnership agreement
with the Biotechnology Institute of UMD to collaborate with and sponsor UMD's
research in the area of ligand screening for novel anticancer therapeutics.
Intellectual property made or developed under this agreement is jointly owned
by
us and UMD.
Ewha
Womans University ("Ewha"). On
March 1, 2004, we entered into an agreement with Ewha to collaborate with
and sponsor Ewha's research in the area of carbocyclic nucleoside, which relates
to our anticancer drug discovery efforts. Intellectual property made or
developed in the course of this agreement is or will be owned by
us.
Georgetown
University. We
entered into a clinical development agreement with Georgetown University with
an
effective period from April 5, 2004 through April 5, 2006. Under the terms
of
this agreement, Georgetown University must provide us with case reports no
later
than 30 days after the termination date of this agreement or the date upon
which
we reasonably request delivery of such case reports.
Korea
Research Institute of Chemical Technology ("KRICT"). On
June 1, 2005, we entered into a joint research agreement with KRICT with
respect to research regarding protein kinases in human cancer diseases.
Intellectual property made or developed under this agreement is jointly owned
by
us and KRICT.
The
University of Alabama at Birmingham.
On
August 30, 2005, we entered into an agreement for the University of Alabama
at
Birmingham to carry out Phase I clinical trials of RX-0201. The agreement term
expires on February 15, 2007.
University
of Massachusetts.
On
August 1, 2005, we entered into an agreement with the University of
Massachusetts Medical School ("UMass") to test proprietary drugs in pre-clinical
behavioral assays of anxiety and cognition. The agreement term expires on August
1, 2006.
Revaax
Pharmaceuticals LLC ("Revaax"). On
February 10, 2005, we licensed on an exclusive basis, with the right to
sublicense, all of the intellectual property of Revaax, which includes five
patents and 14 patent applications, with respect to certain chemical structures
that have demonstrated in pre-clinical research the potential to treat certain
behavioral disorders, such as anxiety, depression and cognitive disorders.
This
agreement expires upon the expiration of the royalty term for all licensed
products in all countries, which is no earlier than August 2020 and could extend
to August 2024. This agreement provides for an initial license fee and milestone
payments based on the initiation of pivotal trials for disease treatment
indication for licensed products. Furthermore, we will pay Revaax a specified
fee for each licensed product under the agreement upon receipt of marketing
approval for the licensed product. Notwithstanding the milestone payment
arrangement described above, we are not obligated to make any milestone payment
with respect to milestone events for which we receive sublicense revenues and
are obligated to pay Revaax a percentage of such sublicense revenues, as well
royalties for sales of licensed products based on net sales of the licensed
products. For a more detailed description, please refer to the agreement, which
is filed as an Exhibit to this Annual Report.
Formatech,
Inc. ("Formatech"). On
August
17, 2004 we entered into an agreement with Formatech to monitor and perform
stability studies on our drug candidate, RX-0201.
Employees
We
currently have 18 employees, all of whom are based at our Rockville, Maryland
office. Our employees are not covered by any collective bargaining agreement
and
we have never experienced a work stoppage. We believe our relationships with
our
employees are satisfactory.
RISK
FACTORS
You
should carefully consider the risks described below together with the other
information included in this Annual Report on Form 10-KSB. Our business,
financial condition or results of operations could be adversely affected by
any
of these risks. If any of these risks occur, the value of our common stock
could
decline.
We
currently have no product revenues and will need to raise additional capital
to
operate our business.
To
date,
we have generated no product revenues. Until we receive approval from the FDA
and other regulatory authorities for our drug candidates, we cannot sell our
drugs and will not have product revenues. Therefore, for the foreseeable future,
we will have to fund all of our operations and capital expenditures from the
net
proceeds of equity or debt offerings we may make, cash on hand, licensing fees
and grants. Over the next year we expect to spend approximately $3 million
on
clinical development for Phase II clinical trials of RX-0201 and Phase I
clinical trials for RX-5902 and RX-10100. Based on our current plans and our
capital resources, we believe that our cash and cash equivalents will be
sufficient to enable us to meet our planned operating needs for at least the
next year, including the clinical trials of RX-0201, RX-10100 and RX-5902.
However,
changes may occur that would consume our existing capital at a faster rate
than
projected, including but not limited to, the progress of our research and
development efforts, the cost and timing of regulatory approvals and the costs
of protecting our intellectual property rights. We may seek additional financing
to implement and fund other drug candidate development, clinical trial and
research and development efforts, including Phase I clinical trials for RX-0047
and other new drug candidates, as well as other research and development
projects, which together with the current operating plan for the next year,
could aggregate $20 million through the second quarter of 2007.
We
will
need additional financing to continue to develop our drug candidates, which
may
not be available on favorable terms, if at all. If we are unable to secure
additional financing in the future on acceptable terms, or at all, we may be
unable to complete our planned pre-clinical and clinical trials or obtain
approval of our drug candidates from the FDA and other regulatory authorities.
In addition, we may be forced to reduce or discontinue product development
or
product licensing, reduce or forego sales and marketing efforts and forego
attractive business opportunities in order to improve our liquidity to enable
us
to continue operations. Any additional sources of financing will likely involve
the sale of our equity securities, which will have a dilutive effect on our
stockholders.
We
are not currently profitable and may never become profitable.
We
have
generated no revenues to date from product sales. Our accumulated deficit as
of
December 31, 2005 and 2004 was $14,204,323 and $7,854,783, respectively.
For the years ended December 31, 2005 and 2004, we had net losses of
$6,349,540 and $3,273,442, respectively, primarily as a result of expenses
incurred through a combination of research and development activities related
to
the various technologies under our control and expenses supporting those
activities. Even if we succeed in developing and commercializing one or more
of
our drug candidates, we expect to incur substantial losses for the foreseeable
future and may never become profitable. We also expect to continue to incur
significant operating and capital expenditures and anticipate that our expenses
will increase substantially in the foreseeable future, based on the following
considerations:
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continued
pre-clinical development and clinical trials for our current and
new drug
candidates;
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efforts
to seek regulatory approvals for our drug
candidates;
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implementing
additional internal systems and
infrastructure;
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licensing
in additional technologies to develop;
and
|
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hiring
additional personnel.
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We
also
expect to continue to experience negative cash flow for the foreseeable future
as we fund our operating losses and capital expenditures. As a result, we will
need to generate significant revenues in order to achieve profitability.
We
have a limited operating history.
We
are a
development-stage company with four drug candidates. To date, we have not
demonstrated an ability to perform the functions necessary for the successful
commercialization of any of our drug candidates. The successful
commercialization of our drug candidates will require us to perform a variety
of
functions, including, but not limited to:
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conducting
pre-clinical and clinical trials;
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·
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participating
in regulatory approval processes;
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formulating
and manufacturing products; and
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conducting
sales and marketing activities.
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To
date,
our operations have been limited to organizing and staffing our company,
acquiring, developing and securing our proprietary technology and undertaking,
through third parties, pre-clinical trials and clinical trials of our principal
drug candidates. These operations provide a limited basis for assessment of
our
ability to commercialize drug candidates.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize our drug candidates.
We
will
need FDA approval to commercialize our drug candidates in the U.S. and approvals
from the FDA-equivalent regulatory authorities in foreign jurisdictions to
commercialize our drug candidates in those jurisdictions. In order to obtain
FDA
approval of our drug candidates, we must submit to the FDA a New Drug
Application ("NDA") demonstrating that the drug candidate is safe for humans
and
effective for its intended use. This demonstration requires significant research
and animal tests, which are referred to as pre-clinical studies, as well as
human tests, which are referred to as clinical trials. Satisfaction of the
FDA's
regulatory requirements typically takes many years, and depends upon the type,
complexity and novelty of the drug candidate and requires substantial resources
for research, development and testing. We cannot predict whether our research
and clinical approaches will result in drugs that the FDA considers safe for
humans and effective for indicated uses. Two of our four drug candidates,
RX-0201 and RX-0047, are ASO compounds. To date, the FDA has not approved any
NDAs for any ASO compounds. In addition, both RX-0201 and RX-0047 are of a
drug
class (Akt inhibitor, in the case of RX-0201, and HIF inhibitor, in the case
of
RX-0047) that has not been approved by the FDA to date. After the clinical
trials are completed, the FDA has substantial discretion in the drug approval
process and may require us to conduct additional pre-clinical and clinical
testing or to perform post-marketing studies.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We cannot assure you that we will receive the
approvals necessary to commercialize our drug candidates for sale outside the
United States.
Our
drug candidates are in early stages of clinical trials.
Our
drug
candidates are in an early stage of development and require extensive clinical
testing, which are very expensive, time-consuming and difficult to design.
In
2006, we expect to have one oncology drug candidate entering Phase II clinical
trials, one neuroscience drug candidate entering Phase I clinical trials and
one
oncology drug candidate in Phase I clinical trials.
Clinical
trials are very expensive, time-consuming and difficult to design and implement.
Human
clinical trials are very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory requirements. The clinical
trial process is also time consuming. We estimate that clinical trials of our
current drug candidates will take at least three years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors, including,
but
not limited to:
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unforeseen
safety issues;
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determination
of dosing issues;
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lack
of effectiveness during clinical
trials;
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reliance
on third party suppliers for the supply of drug candidate
samples;
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slower
than expected rates of patient
recruitment;
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inability
to monitor patients adequately during or after treatment;
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inability
or unwillingness of medical investigators and institutional review
boards
to follow our clinical protocols;
and
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lack
of sufficient funding to finance the clinical
trials.
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In
addition, we or the FDA may suspend clinical trials at any time if it appears
that we are exposing participants to unacceptable health risks or if the FDA
finds deficiencies in our IND submissions or the conduct of these trials.
If
the results of our clinical trials fail to support our drug candidate claims,
the completion of development of such drug candidate may be significantly
delayed or we may be forced to abandon development altogether, which will
significantly impair our ability to generate product
revenues.
Even
if
our clinical trials are completed as planned, we cannot be certain that our
results will support our drug candidate claims. Success in pre-clinical testing
and early clinical trials does not ensure that later clinical trials will be
successful, and we cannot be sure that the results of later clinical trials
will
replicate the results of prior clinical trials and pre-clinical testing. The
clinical trial process may fail to demonstrate that our drug candidates are
safe
for humans and effective for indicated uses. This failure would cause us to
abandon a drug candidate and may delay development of other drug candidates.
Any
delay in, or termination of, our clinical trials will delay the filing of our
NDAs with the FDA and, ultimately, delay our ability to commercialize our drug
candidates and generate product revenues. In addition, our trial designs may
involve a small patient population. Because of the small sample size, the
results of early clinical trials may not be indicative of future
results.
If
physicians and patients do not accept and use our drugs, our ability to generate
revenue from sales of our products will be materially impaired.
Even
if
the FDA approves our drug candidates, physicians and patients may not accept
and
use them. Future acceptance and use of our products will depend upon a number
of
factors including:
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awareness
of the drug's availability and
benefits;
|
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perceptions
by members of the health care community, including physicians, about
the
safety and effectiveness of our
drugs;
|
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pharmacological
benefit and cost-effectiveness of our product relative to competing
products;
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availability
of reimbursement for our products from government or other healthcare
payers;
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effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any; and
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the
price at which we sell our
products.
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Because
we expect sales of our current drug candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of any of these drugs to find market acceptance would harm our business
and could require us to seek additional financing.
Much
of our drug development program depends upon third-party researchers, and the
results of our clinical trials and such research activities are, to a limited
extent, beyond our control.
We
depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our pre-clinical and clinical trials. For
example, the Phase I clinical trials of RX-0201 are being conducted at the
Lombardi Comprehensive Cancer Center of Georgetown Medical Center with the
assistance of Amarex, LLC, a pharmaceutical clinical research service provider
who will be responsible for creating the reports that will be submitted to
the
FDA. We also relied on TherImmune Research Corporation (currently Gene Logic
Laboratories, Inc.), a discovery and pre-clinical service provider, to summarize
RX-0201's pre-clinical data. While we make every effort internally to oversee
their work, these collaborators are not our employees and we cannot control
the
amount or timing of resources that they devote to our programs. These
investigators may not assign priority to our programs or pursue them as
diligently as we would if we were undertaking such programs ourselves. If
outside collaborators fail to devote sufficient time and resources to our
drug-development programs, or if their performance is substandard, the approval
of our FDA applications, if any, and our introduction of new drugs, if any,
may
be delayed. These collaborators may also have relationships with other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors at our expense, our competitive position would be harmed.
We
rely exclusively on third parties to formulate and manufacture our drug
candidates, which expose us to a number of risks that may delay development,
regulatory approval and commercialization of our products or result in higher
product costs.
We
have
no experience in drug formulation or manufacturing. Internally, we lack the
resources and expertise to formulate or manufacture our own drug candidates.
Therefore, we rely on third party expertise to support us in this area. For
example, we have entered into contracts with third-party manufacturers such
as
Raylo Chemicals Inc., Formatech, Inc. and Avecia Biotechnology Inc. to
manufacture, supply, store and distribute supplies of our drug candidates for
our clinical trials. If any of our drug candidates receive FDA approval, we
will
rely on these or other third-party contractors to manufacture our drugs. Our
reliance on third-party manufacturers exposes us to the following potential
risks:
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We
may be unable to identify manufacturers on acceptable terms or at
all
because the number of potential manufacturers is limited and the
FDA must
approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer
would
have to be educated in, or develop substantially equivalent processes
for,
the production of our products after receipt of FDA approval, if
any.
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Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs.
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Our
contract manufacturers may not perform as agreed or may not remain
in the
contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store and distribute
our
products.
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Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the Drug Enforcement Agency, or DEA, and corresponding state
agencies to ensure strict compliance with good manufacturing practice
and
other government regulations and corresponding foreign standards.
We do
not have control over third-party manufacturers' compliance with
these
regulations and standards, but we may be ultimately responsible for
any of
their failures.
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If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the
innovation.
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Each
of
these risks could delay our clinical trials, drug approval and commercialization
and potentially result in higher costs and/or reduced revenues.
We
have no experience selling, marketing or distributing products and no internal
capability to do so.
We
currently have no sales, marketing or distribution capabilities. While we intend
to have a role in the commercialization of our products, we do not anticipate
having the resources in the foreseeable future to globally develop sales and
marketing capabilities for all of our proposed products. Our future success
depends, in part, on our ability to enter into and maintain collaborative
relationships with other companies having sales, marketing and distribution
capabilities, the collaborator's strategic interest in the products under
development and such collaborator's ability to successfully market and sell
any
such products. To the extent that we decide not to, or are unable to, enter
into
collaborative arrangements with respect to the sales and marketing of our
proposed products, significant capital expenditures, management resources and
time will be required to establish and develop an in-house marketing and sales
force with technical expertise. We cannot assure you that we will be able to
establish or maintain relationships with third party collaborators or develop
in-house sales and distribution capabilities. To the extent that we depend
on
third parties for marketing and distribution, any revenues we receive will
depend upon the efforts of such third parties, as well as the terms of its
agreements with such third parties, which cannot be predicted at this early
stage of our development. We cannot assure you that such efforts will be
successful. In addition, we cannot assure you that we will be able to market
and
sell our products in the United States or overseas.
Developments
by competitors may
render our products or technologies obsolete or non-competitive.
We
will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations, such as Antigenics Inc., Genta Incorporated, Imclone Systems
Incorporated, Human Genome Sciences, Inc., Kosan Biosciences Incorporated and
Medimmune, Inc. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs or have substantially greater financial resources than we do, as well
as more experience in:
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developing
drugs;
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undertaking
pre-clinical testing and human clinical trials;
|
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obtaining
FDA and other regulatory approvals of
drugs;
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formulating
and manufacturing drugs; and
|
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launching,
marketing and selling drugs.
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Large
pharmaceutical companies such as Bristol-Myers, Squibb, Eli-Lilly, Novartis
and
Glaxo-SmithKline currently sell both generic and proprietary compounds for
the
treatment of cancer. In addition, companies pursuing different but related
fields represent substantial competition. Many of these organizations have
substantially greater capital resources, larger research and development staffs
and facilities, longer drug development history in obtaining regulatory
approvals and greater manufacturing and marketing capabilities than we do.
These
organizations also compete with us to attract qualified personnel, parties
for
acquisitions, joint ventures or other collaborations.
If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish and our business and competitive position would
suffer.
Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights
of
third parties. We have filed U.S. and PCT patent applications for anti-Akt
compounds, including RX-0201, anti-HIF compounds, including RX-0047. We have
also filed three U.S. provisional patent applications for new anti-cancer
quinazoline compounds, new anti-cancer nucleoside products and a drug target,
cenexin, a polo-box binding protein. In December 2004, we also filed two Korean
patent applications for new anti-cancer piperazine compounds. Through our
licensing agreement with Revaax, we hold exclusive rights to five patents and
14
patent applications, with respect to certain chemical structures related to
antibiotics, but without antibiotic efficacy.
However,
we cannot predict:
|
·
|
the
degree and range of protection any patents will afford us against
competitors, including whether third parties will find ways to invalidate
or otherwise circumvent our licensed
patents;
|
|
·
|
if
and when patents will issue;
|
|
·
|
whether
or not others will obtain patents claiming aspects similar to those
covered by our licensed patents and patent applications; or
|
|
·
|
whether
we will need to initiate litigation or administrative proceedings
which
may be costly whether we win or
lose.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions
for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require all
employees to enter into agreements that prohibit the disclosure of confidential
information and, where applicable, require disclosure and assignment to us
of
the ideas, developments, discoveries and inventions important to our business.
These agreements may not provide adequate protection for our trade secrets,
know-how or other proprietary information in the event of any unauthorized
use
or disclosure or the lawful development by others of such information. If any
of
our trade secrets, know-how or other proprietary information is disclosed,
the
value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would
suffer.
If
we infringe the rights of third parties we could be prevented from selling
products and be forced to pay damages and defend against
litigation.
If
our
products, methods, processes and other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and may have
to:
|
·
|
obtain
licenses, which may not be available on commercially reasonable terms,
if
at all;
|
|
·
|
redesign
our products or processes to avoid infringement;
|
|
·
|
stop
using the subject matter claimed in the patents held by others, which
could cause us to lose the use of one or more of our drug candidates;
|
|
·
|
pay
damages; or
|
|
·
|
defend
litigation or administrative proceedings which may be costly whether
we
win or lose, and which could result in a substantial diversion of
our
management resources.
|
Although
to date, we have not received any claims of infringement by any third parties,
as our drug candidates move into clinical trials and commercialization, our
public profile and that of our drug candidates may be raised and generate such
claims.
Our
license agreement with Revaax may be terminated in the event we commit a
material breach, the result of which would significantly harm our business
prospects.
Our
license agreement with Revaax is subject to termination by Revaax if we
materially breach those agreements, including breaches with respect to certain
installment payments and royalty payments, if such breaches are not cured within
a 60-day period. The agreement also provides that it may be terminated if we
become involved in a bankruptcy, insolvency or similar proceeding. If this
license agreement is terminated, we will lose all of our rights to develop
and
commercialize the licensed compounds, which would significantly harm our
business and future prospects.
If
we are unable to successfully manage our growth, our business may be harmed.
In
addition to our own internally developed drug candidates, we proactively seek
opportunities to license in and advance compounds in oncology and other
therapeutic areas that are strategic and have value creating potential to take
advantage of our development know-how. We are actively pursuing additional
drug
candidates to acquire for development. Such additional drug candidates could
significantly increase our capital requirements and place further strain on
the
time of our existing personnel, which may delay or otherwise adversely affect
the development of our existing drug candidates. Alternatively, we may be
required to hire more employees, further increasing the size of our organization
and related expenses. If we are unable to manage our growth effectively, we
may
not efficiently use our resources, which may delay the development of our drug
candidates and negatively impact our business, results of operations and
financial condition.
We
may not be able to attract and retain qualified personnel necessary for the
development and commercialization of our drug candidates. Our success may be
negatively impacted if key personnel leave.
Attracting
and retaining qualified personnel will be critical to our future success. We
compete for qualified individuals with numerous biopharmaceutical companies,
universities and other research institutions. Competition for such individuals
is intense, and we cannot assure you that we will be successful.
The
loss
of the technical knowledge and management and industry expertise of any of
our
key personnel, especially Dr. Chang H. Ahn, our Chairman and Chief
Executive Officer and regulatory expert, could result in delays in product
development and diversion of management resources, which could adversely affect
our operating results. We do not have "key person" life insurance policies
for
any of our officers.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with collaborators. Although we
currently carry clinical trial insurance and product liability insurance, we,
or
any collaborators, may not be able to maintain such insurance at a reasonable
cost. Even if our agreements with any future collaborators entitles us to
indemnification against losses, such indemnification may not be available or
adequate should any claim arise.
An
investment in shares of our common stock is very speculative and involves a
very
high degree of risk.
To
date,
we have generated no revenues from product sales and only minimal revenues
from
a research agreement with a minority shareholder, and interest on bank account
balances and short-term investments. Our accumulated deficit as of December
31,
2005 and 2004 was $14,204,323 and $7,854,783, respectively. For the years ended
December 31, 2005 and 2004, we had net losses of $6,349,540 and $3,273,442,
respectively, primarily as a result of expenses incurred through a combination
of research and development activities related to the various technologies
under
our control and expenses supporting those activities. Until we receive approval
from the FDA and other regulatory authorities for our drug candidates, we cannot
sell our drugs and will not have product revenues.
The
market price of our common stock may fluctuate significantly.
The
market price of our common stock may fluctuate significantly in response to
factors, some of which are beyond our control, such as:
|
·
|
the
announcement of new products or product enhancements by us or our
competitors;
|
|
·
|
developments
concerning intellectual property rights and regulatory
approvals;
|
|
·
|
variations
in our and our competitors' results of operations;
|
|
·
|
changes
in earnings estimates or recommendations by securities
analysts;
and
|
|
·
|
developments
in the biotechnology industry.
|
Further,
the stock market, in general, and the market for biotechnology companies, in
particular, have experienced extreme price and volume fluctuations. Continued
market fluctuations could result in extreme volatility in the price of our
common stock, which could cause a decline in the value of our common stock.
You
should also be aware that price volatility might be worse if the trading volume
of our common stock is low. We have not paid, and do not expect to pay, any
cash
dividends because we anticipate that any earnings generated from future
operations will be used to finance our operations and as a result, you will
not
realize any income from an investment in our common stock until and unless
you
sell your shares at a profit.
Some
or
all of the "restricted" shares of our common stock issued in the Merger or
held
by other stockholders may be offered from time to time in the open market
pursuant to Rule 144, and these sales may have a depressive effect on the market
for our common stock. In general, a person who has held restricted shares for
a
period of one year may, upon filing with the SEC a notification on Form 144,
sell into the market common stock in an amount equal to 1 percent of the
outstanding shares (approximately 464,156 shares) during a three month period.
Any of the restricted shares may be freely sold by a non-affiliate after they
have been held two years.
Trading
of our common stock is limited.
Trading
of our common stock is currently conducted on the National Association of
Securities Dealers' Over-the-Counter Bulletin Board, or "OTC-BB." The liquidity
of our securities has been limited, not only in terms of the number of
securities that can be bought and sold at a given price, but also through delays
in the timing of transactions and reduction in security analysts' and the
media's coverage of us.
These
factors may result in lower prices for our common stock than might otherwise
be
obtained and could also result in a larger spread between the bid and asked
prices for our common stock. Currently, there are approximately 110 holders
of
record of our common stock.
Because
our common stock may be a "penny stock," it may be more difficult for you to
sell shares of our common stock, and the market price of our common stock may
be
adversely affected.
Our
common stock may be a "penny stock" if, among other things, the stock price
is
below $5.00 per share, we are not listed on a national securities exchange
or
approved for quotation on the Nasdaq Stock Market, or we have not met certain
net tangible asset or average revenue requirements. Broker-dealers who sell
penny stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing
in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock
is a
suitable investment for the purchaser, and obtain the purchaser's written
agreement to the purchase. Broker-dealers must also provide customers that
hold
penny stock in their accounts with such broker-dealer a monthly statement
containing price and market information relating to the penny stock. If a penny
stock is sold in violation of the penny stock rules, purchasers may be able
to
cancel their purchase and get their money back. If applicable, the penny stock
rules may make it difficult for investors to sell their shares of our stock.
Because of the rules and restrictions applicable to a penny stock, there is
less
trading in penny stocks and the market price of our common stock may be
adversely affected. Also, many brokers choose not to participate in penny stock
transactions. Accordingly, purchasers may not always be able to resell shares
of
our common stock publicly at times and prices that they feel are
appropriate.
Item
2. Description of Property.
We
lease
approximately 8,030 square feet of laboratory and office space in Rockville,
Maryland. The facility is equipped with the requisite laboratory services
required to conduct our business and we believe that our existing facilities
are
adequate to meet our needs for the foreseeable future. Our lease expires on
June
30, 2009. We do not own any real property.
Item
3. Legal Proceedings.
We
are
not subject to any pending legal proceedings, nor are we aware of any threatened
claim against us.
Item
4. Submission of Matters to a Vote of Security
Holders.
None.
PART
II
Item
5. Market for Common Equity and Related Stockholder
Matters.
As
of
March 27, 2006, we are authorized to issue two classes of capital stock,
which are common stock and preferred stock. Our total authorized shares of
common stock and preferred stock are 500,000,000 shares, par value $0.0001
per
share, and 100,000,000 shares, par value $0.0001, respectively. As of
March 27, 2006, we have 46,415,632 shares of common stock outstanding and
approximately 110 stockholders of record of common stock. As of
March 27, 2006, no shares of preferred stock are outstanding.
Our
common stock is traded on the Over the Counter Bulletin Board (the "OTC-BB")
under the ticker symbol "RXHN." Prior to May 13, 2005, the Company common stock
was traded on the OTC-BB under the ticker symbol "CPRD" since November 2004.
The
reported high and low bid and asked prices for the Company common stock are
shown below for the periods from November 30, 2004 through
December 31, 2005. The prices presented are bid and ask prices, which
represent prices between broker-dealers and do not include retail mark-ups
and
mark-downs or any commission to the broker-dealer. The prices may not
necessarily reflect actual transactions.
|
Period
|
High1
|
Low1
|
|||||
|
Fourth
Quarter Fiscal 20042
|
$
|
0.38
|
$
|
0.04
|
|||
|
First
Quarter Fiscal 2005
|
$
|
0.15
|
$
|
0.02
|
|||
|
Second
Quarter Fiscal 20053
|
$
|
4.00
|
$
|
0.30
|
|||
|
Third
Quarter Fiscal 2005
|
$
|
4.60
|
$
|
2.50
|
|||
|
Fourth
Quarter Fiscal 2005
|
$
|
3.25
|
$
|
1.50
|
|||
________________________
1 Reflects
adjustments made in accordance with a 1-for-100 reverse stock split in May
2005.
2 From
November 30, 2004.
3 The
merger of Corporate Road Show.Com Inc. and Rexahn, Corp occurred on May 13,
2005.
Dividends
We
have
not paid any cash dividends on common stock and do not expect to do so in the
foreseeable future. We anticipate that any earnings generated from future
operations will be used to finance our operations. No restrictions exist upon
our ability to pay dividends.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The
following table provides information, as of December 31, 2005, about shares
of
our common stock that may be issued upon the exercise of options, warrants
and
rights granted to employees, consultants or directors under all of our existing
equity compensation plans.
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and
rights
|
Weighted
average exercise price of outstanding options, warrants
and rights
|
Number
of securities remaining available for future issuance under equity
compensation
plans
|
||||||||
|
Equity
compensation plans approved by stockholders
|
||||||||||
|
Rexahn
stock option plan
|
5,770,000
|
$
|
0.84
|
1,182,500
|
||||||
|
|
|
|
||||||||
|
CPRD
stock option plan
|
──
|
──
|
10,000
|
|||||||
|
|
|
|
||||||||
|
Equity
compensation plans not approved by stockholders
|
──
|
──
|
──
|
|||||||
|
|
|
|
||||||||
|
Total
|
5,770,000
|
$
|
0.84
|
1,192,500
|
||||||
Recent
Sales of Unregistered Securities
In
connection with the Merger described under Item 1 of this Annual Report, we
issued an aggregate of 38,140,830 shares of common stock to the former
shareholders of Rexahn, Corp. The common stock issued in the Merger was exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Section 4(2) of the Securities Act,
Regulation D under the Securities Act and/or Regulation S under the
Securities Act. These shares of common stock are deemed "restricted securities"
and bear an appropriate restrictive legend indicating that the resale of such
shares may be made only pursuant to registration under the Securities Act or
pursuant to an available exemption from such registration. We did not receive
any cash proceeds from the issuance of these securities.
Following
the Merger, we issued 500,000 "restricted" shares of common stock to Frank
Ferraro, the CPRD's sole director and officer, pursuant to a Settlement
Agreement. The issuance of shares of common stock to Mr. Ferraro did not
involve any public offering and was exempt from the registration requirements
under the Securities Act pursuant to Section 4(2) thereof. We did not
receive any cash proceeds from the issuance of these securities.
On
August
8, 2005, we completed a private placement of 4,175,000 shares of common stock,
$.0001 par value per share, at $2.00 per share for aggregate gross proceeds
of
$8.35 million pursuant to the Subscription Agreements dated August 8, 2005.
The
offers and sales occurred outside the United States to persons other than U.S.
persons in offshore transactions meeting the requirements of Regulation S under
the Securities Act. After payment of certain expenses by us, we received
approximately $8.31 million in net proceeds upon closing of the private
placement of the common stock. The proceeds will be used to fund clinical trials
of our drug candidates and other general corporate purposes. Shares of the
common stock have not been registered under the Securities Act and may not
be
offered or sold in the Unites States absent registration under the Securities
Act or an applicable exemption from registration requirements under the
Securities Act.
On
August
8, 2005, we also completed a private placement of $1.3 million aggregate
principal amount of our convertible notes (the "Convertible Notes") in offers
and sales that occurred outside the United States to persons other than U.S.
persons in offshore transactions meeting the requirements of Regulation S under
the Securities Act. The holders of the Convertible Notes are entitled any time
after September 19, 2005 until August 8, 2008 (the "Maturity Date"), or upon
the
occurrence and continuance of any of the events of default, to convert the
principal amount of any Convertible Notes or portions thereof into common stock
at a conversion price of $2.00 per share. The initial conversion price of $2.00
per share of common stock is subject to adjustment upon the occurrence of
certain events, including the issuance of any additional capital stock after
August 8, 2005, without consideration or for a consideration per share less
than
the current market price per share of additional capital stock as of the time
of
such issuance. On December 2, 2005, the holders of convertible notes,
representing $1,300,000 aggregate principal amount, exercised their option
to
convert the entire principal amount of the notes into the Company's common
stock. Based on a $2.00 per share conversion price, the holders received an
aggregate of 650,000 shares.
Item
6. Management's Discussion and Analysis or Plan of
Operation
You
should read the following discussion and analysis of our results of operations,
financial condition and liquidity in conjunction with our financial statements
and the related notes, which are included in this Annual Report on Form 10-KSB.
Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report on Form 10-KSB, including information with
respect to our plans and strategies for our business, statements regarding
the
industry outlook, our expectations regarding the future performance of our
business, and the other non-historical statements contained herein are
forward-looking statements. See "Cautionary Statement Regarding Forward-Looking
Statements". You should also review the "Risk Factors" section under this Item
1
of this Annual Report for a discussion of important factors that could cause
actual results to differ materially from the results described herein or implied
by such forward-looking statements.
Overview
Our
company resulted from the merger of Corporate Road Show.Com Inc., a New York
corporation incorporated in November 1999, and Rexahn, Corp, a Maryland
corporation, immediately after giving effect to our reincorporation as a
Delaware corporation under the name "Rexahn Pharmaceuticals, Inc." In connection
with that transaction, a wholly owned subsidiary of ours merged with and into
Rexahn, Corp, with Rexahn, Corp remaining as the surviving corporation and
a
wholly owned subsidiary of ours. In exchange for their shares of capital stock
in Rexahn, Corp, the former stockholders of Rexahn, Corp received shares of
common stock representing approximately 91.8% of the Company's outstanding
equity after giving effect to the transaction. Further, upon the effective
time
of the Merger, our historic business was abandoned and the business plan of
Rexahn, Corp was adopted. The transaction was therefore accounted for as a
reverse acquisition with Rexahn, Corp as the accounting acquiring party and
CPRD
as the acquired party. In September 2005, Rexahn, Corp was merged with and
into
the Company.
Our
efforts and resources have been focused primarily on acquiring and developing
our pharmaceutical technologies, raising capital and recruiting personnel.
We
are a development stage company and have no product sales to date and we will
not receive any product sales until we receive approval from the FDA or
equivalent foreign regulatory bodies to begin selling our pharmaceutical
candidates. Our major sources of working capital have been proceeds from various
private financings, primarily private sales of common stock and debt securities,
and collaboration agreements with our strategic investors.
Critical
Accounting Policies
A
"critical accounting policy" is one which is both important to the portrayal
of
our financial condition and results and requires our management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
accounting policies are in accordance with United States generally accepted
accounting principles and their basis of application is consistent with that
of
the previous year.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates are based on management's best knowledge
of
current events and actions the Company may undertake in the future. Actual
results may ultimately differ from those estimates. These estimates are reviewed
periodically and as adjustments become necessary, they are reported in earnings
in the period in which they become available.
Stock-Based
Compensation
The
Company uses the intrinsic value method to account for stock-based compensation
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and, as permitted by SFAS No. 123
"Accounting for Stock-Based Compensation", provides pro forma disclosures of
net
income and earnings per common share as if the fair value methods had been
applied in measuring compensation expense. Under the intrinsic value method,
compensation cost for employee stock awards is recognized as the excess, if
any,
of the deemed fair value for financial reporting purposes of the Company's
common stock on the date of grant over the amount an employee must pay to
acquire the stock. Compensation cost is amortized over the vesting period using
an accelerated graded method in accordance with Financial Accounting Standards
Board ("FASB") Interpretation No. 28, "Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans."
For
all
non-employee stock-based compensation the Company uses the fair value method
in
accordance with SFAS No. 123.
In
management's opinion, existing stock option valuation models do not provide
a
reliable single measure of the fair value of employee stock options that have
vesting provisions and are not transferable. In addition, option valuation
models require the input of highly subjective assumptions, and changes in such
subjective assumptions can materially affect the fair value estimate of employee
stock options.
In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This
pronouncement amends SFAS No. 123 and supersedes APB 25. SFAS No. 123R requires
that companies account for awards of equity instruments issued to employees
under the fair value method of accounting and recognize such amounts in the
statement of operations. The implementation of this statement will be effective
beginning with the Company's first quarter of fiscal 2006, and will be adopted
using the modified prospective method.
Recently
Issued Accounting Standards
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Non monetary Assets,
an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception from
fair value measurement in APB Opinion No. 29 for non-monetary exchanges of
similar productive assets with a general exception from fair value measurement
for exchanges of non-monetary assets that do not have commercial substance.
A
non-monetary exchange has commercial substance if the future cash flows of
the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is to be applied prospectively, and is effective for non-monetary asset
exchanges occurring in fiscal periods after the December 2004 issuance of SFAS
No. 153. The adoption of SFAS No. 153 in 2005 has not been significant to the
Company's overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based
Payment" ("SFAS No. 123R"). SFAS No. 123R requires the Company to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. The cost of the
employee services is recognized as compensation cost over the period that an
employee provides service in exchange for the award. SFAS No. 123R will be
effective January 1, 2006 for the Company and will be adopted using
the modified
prospective method. The Company expects that the adoption of SFAS 123R may
have
a material impact on its results of operations subsequent to adoption. The
disclosures in Note 8 to the financial statements in Item 7 of this Annual
Report provides detail as to the Company's financial performance as if the
Company had applied the fair value based method and recognition provisions
of
SFAS No. 123R to stock based employee compensation to the current reporting
periods.
In
March
2005, the FASB issued FASB Staff Position ("FSP") No. 46(R)-5, "Implicit
Variable Interests under FASB Interpretation No. ("FIN") 46 (revised December
2003), Consolidation of Variable Interest Entities" ("FSP FIN 46R-5"). FSP
FIN
46R-5 provides guidance for a reporting enterprise on whether it holds an
implicit variable interest in Variable Interest Entities ("VIEs") or potential
VIEs when specific conditions exist. This FSP is effective in the first period
beginning after March 3, 2005 in accordance with the transition provisions
of
FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities
-
an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46R"). The
adoption of FSP FIN 46R-5 in 2005 did not have an impact on the Company's
results of operations and financial position.
In
March
2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset
Retirement Obligations" ("FIN 47"), which will result in (1) more consistent
recognition of liabilities relating to asset retirement obligations, (2) more
information about expected future cash outflows associated with those
obligations, and (3) more information about investments in long-lived assets
because additional asset retirement costs will be recognized as part of the
carrying amounts of the assets. FIN 47 clarifies that the term "conditional
asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset
Retirement Obligations", refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of
the
entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and/or method of settlement.
Uncertainty about the timing and/or method of settlement of a conditional asset
retirement obligation should be factored into the measurement of the liability
when sufficient information exists. FIN 47 also clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal
years
ending after December 15, 2005. The adoption of FIN 47 in 2005 did not have
a
material impact on the financial position or results of operations of the
Company.
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections",
which replaces APB Opinion No. 20, "Accounting Changes", and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements - An Amendment
of
APB Opinion No. 28". SFAS No. 154 provides guidance on the accounting for and
reporting of changes in accounting principles and error corrections. SFAS No.
154 requires retrospective application to prior period financial statements
of
voluntary changes in accounting principle and changes required by new accounting
standards when the standard does not include specific transition provisions,
unless it is impracticable to do so. SFAS No. 154 also requires certain
disclosures for restatements due to correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005, and is required to be adopted by the Company
as of January 1, 2006. The impact that the adoption of SFAS No. 154 will have
on
the Company's results of operations and financial condition will depend on
the
nature of future accounting changes adopted by the Company and the nature of
transitional guidance provided in future accounting pronouncements.
Results
of Operations
Comparison
of the Year Ended December 31, 2005 and the Year Ended December 31,
2004
Total
Revenues
During
2003 we entered into a collaborative research agreement with Rexgene Biotech
Co., Ltd. ("Rexgene"), a minority shareholder. Rexgene is engaged in the
development of pharmaceutical products in Asia and has agreed to assist us
with
the research, development and clinical trials necessary for registration of
our
RX-0201 drug candidate in Asia. This agreement provides Rexgene with exclusive
rights to license, sublicense, make, have made, use, sell and import RX-0201
in
Asia. A one-time contribution to the joint development and research of RX-0201
of $1,500,000 was paid to us in 2003 in accordance with the agreement. The
amount of revenue from this contribution is being recognized as income over
the
term of this agreement which terminates at the later of 20 years or the term
of
the patent on the licensed product. We use 20 years as the basis for revenue
recognition and accordingly $75,000 was included in revenues in each of fiscal
2005, 2004 and 2003 and the remaining $1,275,000 is reflected as deferred
revenue on the balance sheet as of December 31, 2005. We adopted Staff
Accounting Bulletin No. 104, "Revenue Recognition - Nonrefundable Upfront Fees"
with respect to the accounting for this transaction. These fees are to be used
in the cooperative funding of the costs of development of RX-0201.
In
fiscal
2005, we recorded $190,610 of interest income from the investment of our cash
and cash equivalents and other short-term investments, compared to $57,463
recorded in fiscal 2004. The increase of $133,147, or 231.7%, was primarily
due
to interest income from the investment of the proceeds of financing activities
in 2005, including private placements of long-term debt and common stock as
described under "Recent Sales of Unregistered Securities" in Item 5 of this
Annual Report.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and related expenses
for executive, finance and other administrative personnel, recruitment expenses,
professional fees and other corporate expenses, including business development
and general legal activities.
General
and administrative expenses increased $1,237,273, or 93.7%, from $1,319,892
in
fiscal 2004 to $2,557,165 in fiscal 2005. The increase was due primarily to
an
increase in professional fees and expenses incurred in connection with our
reverse merger transaction completed on May 13, 2005, including legal,
accounting and public relations fees and expenses, and increased compliance
costs associated with being a public company.
Research
and Development Expenses
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for laboratory
development and other expenses relating to the design, development, testing,
and
enhancement of our drug candidates. We expense our research and development
costs as they are incurred.
Research
and development expenses decreased $263,629, or 14.7%, from $1,788,025 in fiscal
2004 to $1,524,396 in fiscal 2005. The decrease was due primarily to the fact
that the clinical trials of RX-0201, one of our drug candidates, have been
ongoing without additional payment during fiscal 2005. We expect that
research and development expenses will increase as our drug candidates move
into
the clinical trials phases of development.
Stock
Option Compensation Expense
Our
results include non-cash compensation expense as a result of stock option
grants. We account for stock-based employee compensation arrangements in
accordance with the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and comply with the disclosure provisions of SFAS No.
123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Compensation expense
for options granted to employees represents the difference between the fair
market value of our common stock and the exercise price of the options at the
date of grant. This amount is being recorded over the respective vesting periods
of the individual stock options. We expect to record additional non-cash
compensation expense in the future, which may be significant. Compensation
for
options granted to non-employees has been determined in accordance with SFAS
No.
123 and EITF 96-18, "Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services," as the fair value of the equity instruments issued.
On
August
5, 2003, the Company established a stock option plan. Under the plan, we issued
options to employees and non-employees during fiscal 2004 and incurred a
compensation expense of $230,770. During fiscal 2005, we incurred a compensation
expense of $436,748 for options issued to employees and non-employees.
The
plan
grants stock options to key employees, directors and consultants of the Company.
For grants prior to September 12, 2005 and grants to employees of the Company
after September 12, 2005, the vesting period is 30% after the first year, an
additional 30% after the second year and the remaining 40% after the third
year.
For grants to non-employee directors and consultants of the Company after
September 12, 2005, the vesting period is 100% after the first year, subject
to
the fulfillment of certain conditions in the individual stock option grant
agreements, or 100% upon the occurrence of certain events specified in the
individual stock option grant agreements, subject to the fulfillment of certain
conditions in the individual stock option grant agreements.
The
exercise prices of the options granted to employees were below the fair market
value of the common stock on the date of the grant. In December 2005, employees
holding stock options that were not vested as of December 31, 2004 and stock
options that were granted on or after January 1, 2005 agreed to amend the
exercise prices of those options from $0.24 per share to $0.80 per share, the
fair market value of the common stock (as determined by the board of directors),
in order to comply with the requirements of Internal Revenue Code Section 409A.
The repricing of the options issued to employees was accounted as a cancellation
of existing options and issuance of new options. The effective date of this
repricing is January 1, 2005. The amendment was accounted for prospectively
and
resulted in a reversal of stock option compensation expense of $306,896 related
to employee options recorded in the period from January 1, 2005 to September
30,
2005. There was no impact on the Company's results of operations for the year
ended December 31, 2004. Using the intrinsic value method, the total
compensation cost for the year ended December 31, 2005 amounted to $0
(2004-$658,000) and is being amortized over the vesting period.
The
options issued to certain non-employees accounted under the fair value method
were similarly repriced as of January 1, 2005. As a result, stock compensation
expense of $158,531 recorded in the period from January 1, 2005 to September
30,
2005, related to non-employee options was reversed. The stock compensation
expense related to non-employees during 2005 was $436,748, after accounting
for
the repricing adjustment.
See
Note
8 to the Financial Statements in Item 7 of this Annual Report for further
information on our stock option compensation expense.
Patent
Fees
Our
patent fees increased $168,877, or 1,732.4%, from $9,748 in fiscal 2004 to
$178,625 in fiscal 2005. The increase was due primarily to an increase in the
number of patent filings made during the 2005 period compared to fiscal
2004.
Interest
Expense
Our
interest expense increased $192,135, or 4104.5%, from $4,681 in fiscal 2004
to
$196,816 in fiscal 2005. The increase was due primarily to interest payable
on
the convertible notes issued in February 2005. We
also
reflected a charge of $1,625,000 which represents the beneficial conversion
feature of the Company's convertible notes which were issued in August 2005
and
converted into Company common stock in December 2005.
Depreciation
Depreciation
expense increased $43,611, or 82.6%, from $52,789 in fiscal 2004 to $96,400
in
fiscal 2005. The increase was due primarily to a move to a new facility in
July
2004 and the related purchase of new laboratory equipment.
Research
and Development Projects
Research
and development expenses are expensed as incurred. Research and development
expenses consist primarily of salaries and related personnel costs, costs to
acquire pharmaceutical products and product rights for development and amounts
paid to contract research organizations, hospitals and laboratories for the
provision of services and materials for drug development and clinical trials.
Costs incurred in obtaining the license rights to technology in the research
and
development stage and that have no alternative future uses are expensed as
incurred. Our research and development programs are related to our four lead
drug candidates, RX-0201, RX-0047, RX-5902 and RX-10100.
We
have
allocated direct and indirect costs to each program based on certain assumptions
and our review of the status of each program, payroll-related expenses and
other
overhead costs based on estimated usage by each program. Each of our lead drug
candidates is in various stages of completion as described below. As we expand
our clinical studies, we will enter into additional development agreements.
Significant additional expenditures will be required if we complete our clinical
trials, start new trials, apply for regulatory approvals, continue development
of our technologies, expand our operations and bring our products to market.
The
eventual total cost of each clinical trial is dependent on a number of
uncertainties such as trial design, the length of the trial, the number of
clinical sites and the number of patients. The process of obtaining and
maintaining regulatory approvals for new therapeutic products is lengthy,
expensive and uncertain. Because the successful development of our most advanced
drug candidate, RX-0201, is uncertain, and because RX-0047, RX-5902 and RX-10100
are in early-stage development, we are unable to estimate the costs of
completing our research and development programs, the timing of bringing such
programs to market and, therefore, when material cash inflows could commence
from the sale of these drug candidates. If these projects are not completed
as
planned, our results of operations and financial condition could be negatively
affected and if we are unable to obtain additional financing to fund these
projects, we may not be able to continue as a going concern.
RX-0201
RX-0201
is currently our leading drug candidate and has been in a Phase I clinical
trial
at Georgetown University's Lombardi Cancer Center since September 2004 and
University of Alabama at Birmingham since August 2005. The costs incurred for
the clinical trial to date have been approximately $750,000. As the main purpose
of this clinical trial is to establish the safety of RX-0201, the parameters
that determine the completion of this project are a direct function of the
safety profile of this compound in humans. As this is the first time that
RX-0201 has been administered to humans, the safety profile in humans is unknown
and therefore, the number of doses required to determine the dosage at which
the
FDA safety endpoints are met is an estimate. If more doses are required than
estimated, completion of the Phase I clinical trials may be delayed. Therefore,
the costs, timing and efforts necessary to complete this program also are
estimates. We currently estimate that the completion of the Phase I clinical
trial will require approximately $300,000 and anticipate its completion in
the
second quarter of 2006.
RX-0047
and RX-5902
RX-0047
and RX-5902 are all in a pre-clinical stage of development and the next
scheduled program for each compound is a pre-clinical toxicology study required
prior to submission of an Investigational New Drug (IND) application to the
FDA.
To date, the costs incurred for development of these compounds to date have
been
approximately $750,000 for RX-0047, and $250,000 for RX-5902. The estimated
cost
to complete pre-clinical toxicology and Phase I clinical trials is estimated
to
be approximately $1,500,000 per compound for a total of $3,000,000. These
compounds may be entered into these Phase I clinical trials in late 2006 or
early 2007.
The
conduct of the clinical trial and toxicology studies described above are being
accomplished in conjunction with third-party CROs at external locations. This
business practice is typical for the pharmaceutical industry and companies
like
us. As a result, the risk of completion or delay of these studies is not within
our direct control and a program delay may occur due to circumstances outside
our control. A delay in any of these programs may not necessarily have a direct
impact on our daily operations. However, to the extent that a delay results
in
additional cost to us, a higher than expected expense may result.
RX-10100
RX-10100
is in early pre-IND stages of development and the next scheduled event is the
synthesis and testing of novel formulations for pre-clinical and clinical
evaluations. We currently estimate that these studies will require approximately
$300,000 and $450,000, respectively. We are preparing to initiate a Phase I
clinical trial of RX-10100 during 2006.
Liquidity
and Capital Resources
Cash
used
in operating activities was $4,131,450 in fiscal 2005 compared to $2,880,624
in
fiscal 2004. Fiscal 2005 operating cash flows reflect our loss from continuing
operations of $6,349,540, offset by net non-cash charges of $2,105,025 and
a net
increase in cash components of working capital of $113,065. Non-cash charges
include a charge of $1,625,000 representing the
beneficial conversion feature of our convertible notes, compensatory stock
expense of $21,877, depreciation of $96,400 and stock option compensation
expense of $436,748. The increase in working capital primarily consists of
the
beneficial conversion feature charge of $1,625,000, a $205,978 increase in
stock
option compensation expenses and a $43,611 increase in depreciation, offset
by a
decrease in accounts payable of $37,843. Fiscal 2004 operating cash flows
reflect Rexahn's loss from continuing operations of $3,273,442, offset by
non-cash charges of $283,559 and a net increase in cash components of working
capital of $184,259. Non-cash charges consisted of depreciation of $52,789
and
stock option compensation expense of $230,770. The increase in working capital
primarily consisted of a $189,487 increase in accounts payable.
Cash
used
in investing activities of $7,915,750 in fiscal 2005 consist of purchases of
short-term investments of $7,821,667, in addition to capital expenditures of
$94,083 for the purchase of equipment. Cash provided by investing activities
of
$1,263,194 in fiscal 2004 reflect the sale of short-term investments of
$1,384,482, offset by capital expenditures of $121,288 for the purchase of
equipment.
Cash
provided by financing activities of $1,800 in fiscal 2004 consisted of proceeds
from the issuance of Rexahn common stock upon exercise of stock options. Cash
provided by financing activities of $13,326,179 in fiscal 2005 consisted of
proceeds of $8,359,582 from the issuance of common stock and $5,150,000 from
proceeds of long-term debt, offset by principal payments on long-term debt
of
$183,403.
For
the
years ended December 31, 2005 and 2004, we experienced net losses of
$6,349,540 and $3,273,442, respectively. Our accumulated deficit as of
December 31, 2005 and 2004 were $14,204,323 and $7,854,783,
respectively.
We
have
financed our operations since inception primarily through equity and convertible
debt financings. During fiscal 2005, we had a net increase in cash and cash
equivalents of $1,278,979. This increase primarily resulted from proceeds from
the issuance of convertible debt and common stock in fiscal 2005. Total cash
resources as of December 31, 2005 were $1,679,441 compared to $400,462 at
December 31, 2004. In addition, we had $8,437,184 in short-term investments
at
December 31, 2005.
For
the
foreseeable future, we will have to fund all of our operations and capital
expenditures from the net proceeds of any equity or debt offerings we may make,
cash on hand, licensing fees and grants. Although we have plans to pursue
additional financing, there can be no assurance that we will be able to secure
financing when needed or obtain such financing on terms satisfactory to us,
if
at all, or that any additional funding we do obtain will be sufficient to meet
our needs in the long term.
Contractual
Obligations
In
April
2004, we entered into a clinical development agreement with Georgetown
University with an effective period from April 5, 2004 through April 5, 2006.
The total estimated cost of the program is $223,126, based on the fees,
enrolment and completion of 20 patients and is payable based on the progress
of
the treatment over the effective period of the agreement. For the years ended
December 31, 2005 and 2004, we paid $0 and $17,426, respectively towards the
cost of this program. In addition, we extended a research agreement, initially
entered into on January 1, 2004, until November 10, 2005 with Georgetown
University. For the year ended December 31, 2005, we paid $60,000 in
consideration of the extension.
On
August
17, 2004, we entered into an agreement with Formatech, Inc. to monitor and
perform stability studies on our drug candidate, RX-0201. The total cost of
these services is $46,700. For the years ended December 31, 2005 and 2004,
we
paid $10,400 and $22,900, respectively, towards the cost of these studies.
The
remainder consists of a $5,200 payment due during 2006 and $8,200 due during
2007.
In
April
2004, we signed a 5-year lease for 8,030 square feet of office space in
Rockville, Maryland commencing July 2004. The lease requires annual base rents
of $200,750 subject to annual increases of 3% of the preceding years adjusted
base rent. Under the leasing agreement, we also pay our allocable portion of
real estate taxes and common area operating charges.
Minimum
future rental payments under this lease are as follows:
|
For
the years ended December
31
|
||||
|
2006
|
$
|
209,874
|
||
|
2007
|
216,170
|
|||
|
2008
|
222,655
|
|||
|
2009
|
112,972
|
|||
|
$
|
761,671
|
|||
On
June
1, 2005, we signed a one year research project agreement with the Korea Research
Institute of Chemical Technology ("KRICT") relating to the development of a
synthetic process for the lead compound of the quinozalines acting on human
cancer cells. In accordance with the agreement, the cost of the project is
$100,000, of which $50,000 was paid during the 2005 fiscal year. The remaining
$50,000 is included in accounts payable at December 31, 2005.
On
August
1, 2005, we signed a one year contract with the University of Massachusetts
Medical School ("UMASS") to test proprietary drugs in preclinical behavioral
assays of anxiety and cognition. We agreed to provide UMASS with a grant of
$76,666, which includes the full direct and indirect costs of the preclinical
study, payable in four equal quarterly installments of $19,167. For the year
ended December 31, 2005, we made two quarterly payments totaling $38,334. The
remainder is due in 2006.
On
August
3, 2005, we engaged Montgomery Pacific Group ("MPG") to act as the Company's
financial advisor for a one-year term in connection with our growth strategies,
certain licensing activities and acquisition of certain assets. In consideration
of the services, we agreed to pay MPG an advisory fee, consisting of an initial
retainer fee and success fees subject to the successful closing of licensing
transactions, acquisitions and private placements. An initial retainer fee
of $50,000 was paid during the year ended December 31, 2005. Dr.
John
Holaday, one of our directors, is a partner of MPG.
Although
we currently believe that our cash and cash equivalents will be sufficient
to
meet our minimum planned operating needs for the next 12 months, including
the
amounts payable under the contractual commitments described above, as our drug
candidates move into the clinical trials phase of development, we expect to
enter into additional agreements of the same type, which may require additional
contractual commitments. These additional commitments may have a negative impact
on our future cash flows.
Current
and Future Financing Needs
We
have
incurred negative cash flow from operations since we started our business.
We
have spent, and expect to continue to spend, substantial amounts in connection
with implementing our business strategy, including our planned product
development efforts, our clinical trials, and our research and discovery
efforts. Based on our current plans and out capital resources (including the
proceeds of our 2005 financings), we believe that our cash and cash equivalents
will be sufficient to enable us to meet our minimum planned operating needs
for
at least the next 12 months, which would entail focusing our resources on
Phase II clinical trials of RX-0201 and the pre-clinical studies and Phase
I clinical trials for RX-10100. Over the next 12 months we expect to spend
a
minimum of approximately $3 million on clinical development for
Phase I and Phase II clinical trials of RX-0201 (including our
commitments described under "Contractual Commitments" of this Item 6), $2.5
million on general corporate expenses, and $250,000 on facilities rent. We
may
seek additional financing to implement and fund other drug candidate
development, clinical trial and research and development efforts to the maximum
extent of our operating plan, including pre-clinical studies and Phase I
clinical trials for RX-0047 and in-vivo animal and pre-clinical studies and
Phase I clinical trials for RX-5209, RX-10100 and other new product
candidates, as well as other research and development projects, which together
with the minimum operating plan for the next 12 months, could aggregate
$10 million through the first quarter of 2007.
However,
the actual amount of funds we will need to operate is subject to many factors,
some of which are beyond our control. These factors include the
following:
|
·
|
the
progress of our product development
activities;
|
|
·
|
the
number and scope of our product development
programs;
|
|
·
|
the
progress of our pre-clinical and clinical trial
activities;
|
|
·
|
the
progress of the development efforts of parties with whom we have
entered
into collaboration agreements;
|
|
·
|
our
ability to maintain current collaboration programs and to establish
new
collaboration arrangements;
|
|
·
|
the
costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and
|
|
·
|
the
costs and timing of regulatory
approvals.
|
Item
7. Financial Statements
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Balance
Sheets
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
ASSETS
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
1,679,441
|
$
|
400,462
|
|||
|
Short-term
investments
|
8,437,184
|
615,517
|
|||||
|
Prepaid
expenses and other
|
54,774
|
16,195
|
|||||
|
Total
Current Assets
|
10,171,399
|
1,032,174
|
|||||
|
Equipment,
Net (note
3)
|
203,632
|
189,623
|
|||||
|
Intangible
Assets,
Net
(note 4)
|
339,890
|
-
|
|||||
|
|
|
||||||
|
Total
Assets
|
$
|
10,714,921
|
$
|
1,221,797
|
|||
|
|
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
587,612
|
$
|
435,968
|
|||
|
Licensing
fee payable (note 4)
|
172,813
|
-
|
|||||
|
Total
Current Liabilities
|
760,425
|
435,968
|
|||||
|
Long-Term
Convertible Debt (note
5)
|
3,850,000
|
-
|
|||||
|
Deferred
Revenue (note
6)
|
1,275,000
|
1,350,000
|
|||||
|
Total
Liabilities
|
5,885,425
|
1,785,968
|
|||||
|
Commitments
and Contingencies (note
11)
|
-
|
-
|
|||||
|
Stockholders'
Equity (Deficit) (note
7):
|
|||||||
|
Common
stock, par
value $0.0001, 500,000,000 authorized shares, 46,415,632 shares issued
and
outstanding (2004 - par value $0.01, 20,000,000 authorized shares,
7,628,166 shares issued and outstanding)
|
4,641
|
76,281
|
|||||
|
Additional
paid-in capital
|
19,029,178
|
7,214,331
|
|||||
|
Accumulated
deficit during the development stage
|
(14,204,323
|
)
|
(7,854,783
|
)
|
|||
|
Total
Stockholders' Equity (Deficit)
|
4,829,496
|
(564,171
|
)
|
||||
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
$
|
10,714,921
|
$
|
1,221,797
|
|||
The
accompanying notes are an integral part of these financial
statements.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Operations
|
Cumulative
from
|
||||||||||
|
March
19,2001
|
Years
Ended
|
|||||||||
|
(Inception)
to
|
December
31,
|
|||||||||
|
December
31,
|
||||||||||
|
2005
|
2005
|
2004
|
||||||||
|
Revenue:
|
||||||||||
|
Interest
and other income
|
$
|
391,449
|
$
|
190,610
|
$
|
57,463
|
||||
|
Research
|
225,000
|
75,000
|
75,000
|
|||||||
|
616,449
|
265,610
|
132,463
|
||||||||
|
Expenses:
|
||||||||||
|
General
and administrative
|
5,811,622
|
2,557,165
|
1,319,892
|
|||||||
|
Beneficial
conversion feature
|
1,625,000
|
1,625,000
|
—
|
|||||||
|
Research
and development
|
5,491,495
|
1,524,396
|
1,788,025
|
|||||||
|
Stock
option compensation expense (note 8)
|
1,205,592
|
436,748
|
230,770
|
|||||||
|
Patent
fees
|
227,686
|
178,625
|
9,748
|
|||||||
|
Interest
|
201,496
|
196,816
|
4,681
|
|||||||
|
Depreciation
and amortization
|
257,881
|
96,400
|
52,789
|
|||||||
|
14,820,772
|
6,615,150
|
3,405,905
|
||||||||
|
Net
Loss
|
$
|
(14,204,323
|
)
|
$
|
(6,349,540
|
)
|
$
|
(3,273,442
|
)
|
|
|
Loss
per weighted average number of
shares outstanding, basic and diluted
|
$
|
(0.15
|
)
|
$
|
(0.09
|
)
|
||||
|
Weighted
average number of shares outstanding, basic and diluted
|
41,976,959
|
38,133,689
|
||||||||
The
accompanying notes are an integral part of these financial
statements.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Changes in Stockholders' Equity (Deficit)
Period
from March 19, 2001 (Inception) to December 31, 2005
|
Number
of
Shares
|
Common
Stock
|
Additional
Paid
in
Capital
|
Accumulated
Deficit
During
the
Development Stage
|
Total
Stockholders'
Equity
(Deficit)
|
||||||||||||
|
Opening
balance, March 19, 2001
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Common
shares issued
|
7,126,666
|
71,266
|
4,448,702
|
-
|
4,519,968
|
|||||||||||
|
Net
loss
|
-
|
-
|
-
|
(625,109
|
)
|
(625,109
|
)
|
|||||||||
|
Balance,
December 31, 2001
|
7,126,666
|
71,266
|
4,448,702
|
(625,109
|
)
|
3,894,859
|
||||||||||
|
Net
loss
|
-
|
-
|
-
|
(1,181,157
|
)
|
(1,181,157
|
)
|
|||||||||
|
Balance,
December 31, 2002
|
7,126,666
|
71,266
|
4,448,702
|
(1,806,266
|
)
|
2,713,702
|
||||||||||
|
Common
shares issued
|
500,000
|
5,000
|
1,995,000
|
-
|
2,000,000
|
|||||||||||
|
Stock
option compensation
|
-
|
-
|
538,074
|
-
|
538,074
|
|||||||||||
|
Net
loss
|
-
|
-
|
-
|
(2,775,075
|
)
|
(2,775,075
|
)
|
|||||||||
|
Balance, December
31, 2003
|
7,626,666
|
76,266
|
6,981,776
|
(4,581,341
|
)
|
2,476,701
|
||||||||||
|
Common
shares issued
|
1,500
|
15
|
1,785
|
-
|
1,800
|
|||||||||||
|
Stock
option compensation
|
-
|
-
|
230,770
|
-
|
230,770
|
|||||||||||
|
Net
loss
|
-
|
-
|
-
|
(3,273,442
|
)
|
(3,273,442
|
)
|
|||||||||
|
Balance, December
31, 2004
|
7,628,166
|
76,281
|
7,214,331
|
(7,854,783
|
)
|
(564,171
|
)
|
|||||||||
|
Stock
split (5 for 1)
|
30,512,664
|
(72,467
|
)
|
72,467
|
-
|
-
|
||||||||||
|
Common
shares issued in connection with the merger
|
3,397,802
|
340
|
(340
|
)
|
-
|
-
|
||||||||||
|
Stock
option compensation
|
-
|
-
|
436,748
|
-
|
436,748
|
|||||||||||
|
Common
stock issued for cash
|
4,175,000
|
417
|
8,349,565
|
-
|
8,349,982
|
|||||||||||
|
Common
shares issued on conversion of convertible debt
|
650,000
|
65
|
1,299,935
|
-
|
1,300,000
|
|||||||||||
|
Common
shares issued in exchange for services
|
7,000
|
1
|
21,876
|
-
|
21,877
|
|||||||||||
|
Exercise
of stock options
|
40,000
|
4
|
9,596
|
-
|
9,600
|
|||||||||||
|
Beneficial
conversion feature
|
-
|
-
|
1,625,000
|
-
|
1,625,000
|
|||||||||||
|
Net
loss
|
-
|
-
|
-
|
(6,349,540
|
)
|
(6,349,540
|
)
|
|||||||||
|
Balance, December
31, 2005
|
46,410,632
|
$
|
4,641
|
$
|
19,029,178
|
$
|
(14,204,323
|
)
|
$
|
4,829,496
|
||||||
The
accompanying notes are an integral part of these financial
statements.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Cash Flows
|
Cumulative
from
March
19,2001
(Inception)
to
|
Years
Ended December
31,
|
|||||||||
|
December
31, 2005
|
2005
|
2004
|
||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||
|
Net
loss
|
$
|
(14,204,323
|
)
|
$
|
(6,349,540
|
)
|
$
|
(3,273,442
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||
|
Beneficial
conversion feature
|
1,625,000
|
1,625,000
|
-
|
|||||||
|
Compensatory
stock
|
21,877
|
21,877
|
-
|
|||||||
|
Depreciation
and amortization
|
257,881
|
96,400
|
52,789
|
|||||||
|
Stock
option compensation expense
|
1,205,592
|
436,748
|
230,770
|
|||||||
|
Deferred
revenue
|
1,275,000
|
(75,000
|
)
|
(75,000
|
)
|
|||||
|
Changes
in assets and liabilities:
|
||||||||||
|
Prepaid
expenses and other
|
(54,774
|
)
|
(38,579
|
)
|
(5,228
|
)
|
||||
|
Accounts
payable and accrued expenses
|
587,613
|
151,644
|
189,487
|
|||||||
|
Net
Cash Used in Operating Activities
|
(9,286,134
|
)
|
(4,131,450
|
)
|
(2,880,624
|
)
|
||||
|
Cash
Flows from Investing Activities:
|
||||||||||
|
Short-term
investments
|
(8,437,184
|
)
|
(7,821,667
|
)
|
1,384,482
|
|||||
|
Purchase
of equipment
|
(445,187
|
)
|
(94,083
|
)
|
(121,288
|
)
|
||||
|
Net
Cash (Used in) Provided by Investing Activities
|
(8,882,371
|
)
|
(7,915,750
|
)
|
1,263,194
|
|||||
|
Cash
Flows from Financing Activities:
|
||||||||||
|
Issuance
of common stock
|
14,881,349
|
8,359,582
|
1,800
|
|||||||
|
Proceeds
from long-term debt
|
5,150,000
|
5,150,000
|
-
|
|||||||
|
Principal
payments on long-term debt
|
(183,403
|
)
|
(183,403
|
)
|
-
|
|||||
|
Net
Cash Provided by Financing Activities
|
19,847,946
|
13,326,179
|
1,800
|
|||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
1,679,441
|
1,278,979
|
(1,615,630
|
)
|
||||||
|
Cash
and Cash Equivalents, beginning of period
|
|
400,462
|
2,016,092
|
|||||||
|
Cash
and Cash Equivalents, end of period
|
$
|
1,679,441
|
$
|
1,679,441
|
$
|
400,462
|
||||
|
Supplemental
Cash Flow Information
|
||||||||||
|
Interest
paid
|
$
|
9,675
|
$
|
4,316
|
$
|
5,000
|
||||
Non-cash
investing and financing activities:
In
February 2005, the Company entered into a licensing agreement in exchange for
debt of $356,215.
On
December 2, 2005, $1,300,000 aggregate principal amount of the Company's
convertible notes were converted into shares of Company common stock at a
conversion price of $2.00 per share.
The
accompanying notes are an integral part of these financial
statements.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
1.
|
Operations
and Organization
|
Operations
Rexahn
Pharmaceuticals, Inc. (the "Company" or "Rexahn Pharmaceuticals"), a Delaware
corporation, is a development stage biopharmaceutical company focused on the
development of signal inhibitor drug therapies for the treatment of cancer
and
other diseases.
Reverse
Merger Acquisition
Pursuant
to an Agreement and Plan of Merger by and among Rexahn, Corp ("Rexahn"),
Corporate Road Show.Com Inc. ("CRS"), a New York corporation and predecessor
corporation of the Company, CRS Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of CRS ("Merger Sub"), CRS Delaware, Inc., a Delaware
corporation and wholly owned subsidiary of CRS ("CRS Delaware"), immediately
after giving effect to a 1 for 100 reverse stock split and the reincorporation
of CRS as a Delaware corporation under the name Rexahn Pharmaceuticals, Inc.
("Rexahn Pharmaceuticals"), on May 13, 2005, Merger Sub merged with and into
Rexahn, with Rexahn surviving as a wholly owned subsidiary of Rexahn
Pharmaceuticals (the "Acquisition Merger"). In the Acquisition Merger, (i)
each
share of the issued and outstanding common stock of Rexahn (other than
dissenting shares) was converted into the right to receive five shares of Rexahn
Pharmaceuticals common stock; and (ii) each issued, outstanding and unexercised
option to purchase a share of Rexahn common stock was converted into an option
to purchase five shares of Rexahn Pharmaceuticals common stock.
Shares
of
Rexahn Pharmaceuticals common stock issued in the Acquisition Merger were exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Regulation D under the Securities Act and/or
Regulation S under the Securities Act. These shares of Rexahn Pharmaceuticals
common stock are deemed "restricted securities" and bear an appropriate
restrictive legend indicating that the resale of such shares may be made only
pursuant to registration under the Securities Act or pursuant to an available
exemption from such registration.
As
part
of the Acquisition Merger, the Company assumed the convertible notes further
described in Note 5 and the conversion price was adjusted to reflect the merger
exchange ratio.
For
accounting purposes, the Acquisition Merger is accounted for as a reverse
acquisition of CRS (legal acquiror) by Rexahn (accounting acquiror). As a
result, following the Acquisition Merger, the historical financial statements
of
Rexahn became the historical financial statements of the Company.
Merger
of
Subsidiary
On
September 29, 2005, the Company's wholly owned subsidiary, Rexahn, was merged
with and into the Company and Rexahn's separate existence was
terminated.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
2.
|
Summary
of Significant Accounting
Policies
|
The
accounting policies of the Company are in accordance with United States
generally accepted accounting principles and their basis of application is
consistent with that of the previous year. Set forth below are the Company's
significant accounting policies:
|
a)
|
Cash
and Cash Equivalents
|
Cash
and
cash equivalents include cash on hand and short-term investments with remaining
maturities of three months or less at acquisition.
| b) |
Short-Term
Investments
|
Short-term
investments include highly liquid investments with initial maturities of between
three and twelve months.
|
c)
|
Equipment
|
Equipment
is stated at cost less accumulated depreciation. Depreciation, based on the
estimated useful lives of the assets, is provided as follows:
|
Furniture
and fixtures
|
7
years
|
double
declining balance
|
|
Office
equipment
|
5
years
|
double
declining balance
|
|
Lab
equipment
|
7
years
|
double
declining balance
|
|
Computer
equipment
|
5
years
|
straight
line
|
|
Leasehold
improvements
|
3
years
|
straight
line
|
|
d)
|
Research
and Development
|
Research
and development costs are expensed as incurred. Research and development
expenses consist primarily of salaries and related personnel costs, costs to
acquire pharmaceutical products and product rights for development and amounts
paid to contract research organizations, hospitals and laboratories for the
provision of services and materials for drug development and clinical trials.
Costs
incurred in obtaining the license rights to technology in the research and
development stage and that have no alternative future uses are expensed as
incurred.
|
e)
|
Government
Grants
|
Income
from government grants are recorded when received. Amounts received are applied
to the expenses that they are intended to compensate.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
2.
|
Summary
of Significant Accounting Policies (cont'd)
|
|
f)
|
Revenue
Recognition
|
The
Company recognizes revenues from research and license agreements as the
contracted services are performed, in accordance with the terms of the
agreement. Amounts received in advance of recognition are included in deferred
revenues.
Interest
and securities income is recognized on an accrual basis.
|
g)
|
Use
of Estimates
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates are based on management's best knowledge
of
current events and actions the Company may undertake in the future. Actual
results may ultimately differ from those estimates. These estimates are reviewed
periodically and as adjustments become necessary, they are reported in earnings
in the period in which they become available.
|
h)
|
Fair
Value of Financial Instruments
|
The
carrying amounts reported in the accompanying financial statements for current
assets and current liabilities approximates fair value because of the short-term
maturity of these financial instruments. The fair value of long-term convertible
debt is indeterminable due to terms of the instrument and the absence of a
market for such instruments.
|
i)
|
Income
Taxes
|
The
Company accounts for income taxes pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". Deferred tax assets
and liabilities are recorded for differences between the financial statement
and
tax basis of the assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates. Valuation
allowances are established when necessary to reduce deferred tax assets to
the
amount expected to be realized. Income tax expense is recorded for the amount
of
income tax payable or refundable for the period, increased or decreased by
the
change in deferred tax assets and liabilities during the period.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
2.
|
Summary
of Significant Accounting Policies (cont'd)
|
|
j)
|
Earnings
or Loss Per Share
|
The
Company accounts for earnings per share pursuant to SFAS No. 128, "Earnings
per
Share", which requires disclosure on the financial statements of "basic" and
"diluted" earnings (loss) per share. Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of common shares
outstanding for the year. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding plus potentially dilutive securities outstanding for each year.
Potentially dilutive securities include stock options and warrants and shares
of
common stock issuable upon conversion of the Company's convertible
notes.
The
following potentially dilutive securities have been excluded from the diluted
net earnings (loss) per share calculations for the years ended December 31,
2005
and 2004 because their effect would have been antidilutive:
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Shares
subject to options
|
5,770,000
|
2,775,000
|
|||||
|
Convertible
notes
|
3,850,000
|
-
|
|||||
|
Total
|
9,620,000
|
2,775,000
|
|||||
|
k)
|
Stock-Based
Compensation
|
The
Company uses the intrinsic value method to account for stock-based compensation
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and, as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), provides pro forma
disclosures of net income and earnings per common share as if the fair value
methods had been applied in measuring compensation expense. Under the intrinsic
value method, compensation cost for employee stock awards is recognized as
the
excess, if any, of the deemed fair value for financial reporting purposes of
the
Company's common stock on the date of grant over the amount an employee must
pay
to acquire the stock. Compensation cost is amortized over the vesting period
using an accelerated graded method in accordance with Financial Accounting
Standards Board ("FASB") Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans."
For
all
non-employee stock-based compensation the Company uses the fair value method
in
accordance with SFAS No. 123 and EITF 96-18.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
2.
|
Summary
of Significant Accounting Policies (cont'd)
|
|
k)
|
Stock-Based
Compensation (cont'd)
|
In
management's opinion, existing stock option valuation models do not provide
a
reliable single measure of the fair value of employee stock options that have
vesting provisions and are not transferable. In addition, option valuation
models require the input of highly subjective assumptions, and changes in such
subjective assumptions can materially affect the fair value estimate of employee
stock options.
In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This
pronouncement amends SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No.
123R requires that companies account for awards of equity instruments issued
to
employees under the fair value method of accounting and recognize such amounts
in the statement of operations. The implementation of this statement will be
effective beginning with the Company's first quarter of fiscal 2006, and will
be
adopted using the modified prospective method.
|
l)
|
Impairment
of Long-Lived Assets
|
In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", long-lived assets to be held and used are analyzed for
impairment whenever events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. The Company evaluates at each balance
sheet date whether events and circumstances have occurred that indicate possible
impairment. If there are indications of impairment, the Company uses future
undiscounted cash flows of the related asset or asset grouping over the
remaining life in measuring whether the assets are recoverable. In the event
such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value. Long-lived
assets to be disposed of are reported at the lower of the carrying amount or
the
fair value of the asset less cost to sell.
|
m)
|
Concentration
of Credit Risk
|
SFAS
No.
105, "Disclosure of Information About Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentration of Credit Risk",
requires disclosure of any significant off-balance sheet risk and credit risk
concentration. The Company does not have significant off-balance sheet risk
or
credit concentration. The Company maintains cash and short-term investments
with
major financial institutions. From time to time the Company has funds on deposit
with commercial banks that exceed federally insured limits. Management does
not
consider this to be a significant credit risk as these banks and financial
institutions are well-known.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
2.
|
Summary
of Significant Accounting Policies (cont'd)
|
|
n)
|
Recent
Accounting Pronouncements
|
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Non monetary Assets,
an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception from
fair value measurement in APB Opinion No. 29 for non-monetary exchanges of
similar productive assets with a general exception from fair value measurement
for exchanges of non-monetary assets that do not have commercial substance.
A
non-monetary exchange has commercial substance if the future cash flows of
the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is to be applied prospectively, and is effective for non-monetary asset
exchanges occurring in fiscal periods after the December 2004 issuance of SFAS
No. 153. The adoption of SFAS No. 153 in 2005 has not been significant to the
Company's overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based
Payment" ("SFAS No. 123R"). SFAS No. 123R requires the Company to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. The cost of the
employee services is recognized as compensation cost over the period that an
employee provides service in exchange for the award. SFAS No. 123R will be
effective January 1, 2006 for the Company and will be adopted using
the modified
prospective method. The Company expects that the adoption of SFAS 123R may
have
a material impact on its results of operations subsequent to adoption. The
disclosures in Note 8 provides detail as to the Company's financial performance
as if the Company had applied the fair value based method and recognition
provisions of SFAS No. 123R to stock based employee compensation to the current
reporting periods.
In
March
2005, the FASB issued FASB Staff Position ("FSP") No. 46(R)-5, "Implicit
Variable Interests under FASB Interpretation No. ("FIN") 46 (revised December
2003), Consolidation of Variable Interest Entities" ("FSP FIN 46R-5"). FSP
FIN
46R-5 provides guidance for a reporting enterprise on whether it holds an
implicit variable interest in Variable Interest Entities ("VIEs") or potential
VIEs when specific conditions exist. This FSP is effective in the first period
beginning after March 3, 2005 in accordance with the transition provisions
of
FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities
-
an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46R"). The
adoption of FSP FIN 46R-5 in 2005 did not have an impact on the Company's
results of operations and financial position.
In
May
2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments With Characteristics of Both Liabilities and Equity". SFAS No.
150
requires that issuers classify as liabilities the following three types of
freestanding financial instruments: (1) mandatory redeemable financial
instruments, (2) obligations to repurchase the issuer's equity shares by
transferring assets; and (3) certain obligations to issue a variable number
of
shares. The Company adopted SFAS No. 150 for the year ended December 31, 2003.
The adoption of SFAS No. 150 did not have a material impact on the financial
position or results of operations of the Company.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
2.
|
Summary
of Significant Accounting Policies (cont'd)
|
|
n)
|
Recent
Accounting Pronouncements (cont'd)
|
In
March
2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset
Retirement Obligations" ("FIN 47"), which will result in (1) more consistent
recognition of liabilities relating to asset retirement obligations, (2) more
information about expected future cash outflows associated with those
obligations, and (3) more information about investments in long-lived assets
because additional asset retirement costs will be recognized as part of the
carrying amounts of the assets. FIN 47 clarifies that the term "conditional
asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset
Retirement Obligations", refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of
the
entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and/or method of settlement.
Uncertainty about the timing and/or method of settlement of a conditional asset
retirement obligation should be factored into the measurement of the liability
when sufficient information exists. FIN 47 also clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal
years
ending after December 15, 2005. The adoption of FIN 47 in 2005 did not have
a
material impact on the financial position or results of operations of the
Company.
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections",
which replaces APB Opinion No. 20, "Accounting Changes", and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements - An Amendment
of
APB Opinion No. 28". SFAS No. 154 provides guidance on the accounting for and
reporting of changes in accounting principles and error corrections. SFAS No.
154 requires retrospective application to prior period financial statements
of
voluntary changes in accounting principle and changes required by new accounting
standards when the standard does not include specific transition provisions,
unless it is impracticable to do so. SFAS No. 154 also requires certain
disclosures for restatements due to correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005, and is required to be adopted by the Company
as of January 1, 2006. The impact that the adoption of SFAS No. 154 will have
on
the Company's results of operations and financial condition will depend on
the
nature of future accounting changes adopted by the Company and the nature of
transitional guidance provided in future accounting pronouncements.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
3.
|
Equipment,
Net
|
|
2005
|
2004
|
||||||||||||
|
Accumulated
|
Accumulated
|
||||||||||||
|
Cost
|
Depreciation
|
Cost
|
Depreciation
|
||||||||||
|
Furniture
and fixtures
|
$
|
31,713
|
$
|
15,060
|
$
|
30,943
|
$
|
8,551
|
|||||
|
Office
equipment
|
43,648
|
25,007
|
28,848
|
18,336
|
|||||||||
|
Lab
equipment
|
363,140
|
197,701
|
286,628
|
131,492
|
|||||||||
|
Computer
equipment
|
5,066
|
4,161
|
5,066
|
3,483
|
|||||||||
|
Leasehold
improvements
|
2,000
|
6
|
-
|
-
|
|||||||||
|
$
|
445,567
|
$
|
241,935
|
$
|
351,485
|
$
|
161,862
|
||||||
|
Net
carrying amount
|
$
|
203,632
|
$
|
189,623
|
|||||||||
|
4.
|
Intangible
Assets
|
On
February 10, 2005, the Company entered into a licensing agreement with Revaax
Pharmaceuticals LLC ("Revaax"), whereby the Company received an exclusive,
worldwide, royalty bearing license with the right to sub-license Revaax's
licensed technology and products. The agreement calls for an initial licensing
fee of $375,000 to be payable to Revaax in eight quarterly installments ending
on November 10, 2006. Accordingly, the Revaax license has been measured at
fair
value at the date the licensing agreement was entered into. The fair value
of
the license component of $339,890
as at
December 31, 2005 has been determined by discounting the stream of future
quarterly payments of $46,875 at 6%, the prevailing market rate for a debt
instrument of comparable maturity and credit quality. The liability component
is
being accreted over the term of the liability, calculated based on the Company's
estimated effective market interest rate. The asset is amortized on a
straightline basis over the estimated useful life of 20 years. Pursuant to
the
agreement, at December 31, 2005, four installments had been paid. As at December
31, 2005, the outstanding balance was $172,813.
Amortization expenses for 2005 amounted to $16,326.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
5.
|
Long-Term
Convertible Debt
|
On
February 28, 2005, the Company issued, in a transaction exempt from registration
under the Securities Act, $3,850,000 aggregate principal amount of 6%
convertible notes due on February 28, 2008. The notes are subject to conversion
into shares of common stock of the Company, at the holder's option, at any
time
from and after the earlier of (i) the date of the first anniversary of the
closing of the Acquisition Merger and (ii) May 26, 2006 to the maturity date,
February 28, 2008. The notes will be automatically converted upon (i) the
closing of the sale of all or substantially all of the assets of the Company
or
any merger, consolidation or other business combination and (ii) the maturity
date. The conversion price is equal to the lesser of $1.00 per share (as
adjusted in the Acquisition Merger) and a floating price determined by the
average of three lowest current market prices of Company common stock during
the
40 calendar day period immediately preceding conversion.
On
August
8, 2005, the Company completed a private placement of $1.3 million aggregate
principal amount of convertible notes. The holders of these notes are entitled
any time after September 19, 2005 until August 8, 2008, or upon the occurrence
and continuance of any of the events of default, to convert the principal amount
of any convertible notes or portions thereof into common stock at a conversion
price of $2.00 per share. The Company evaluated this transaction and determined
that based on the market price of the Company's common stock on August 8,
2005 of $4.50 per share, there was an associated deferred beneficial
conversion feature of $2.50 per share, or a total of $1,625,000, and
recorded such amount as interest to be recognized over the term of the note.
On
December 2, 2005, the note holders exercised their rights to convert the entire
principal amount of the note into an aggregate of 650,000 shares of the
Company's common stock. Upon
conversion, the deferred beneficial conversion feature of $1,625,000 was
recorded as an increase in net loss and an increase in the value of additional
paid in capital.
|
6.
|
Deferred
Revenue
|
In
2003,
the Company entered into a collaborative research agreement with Rexgene Biotech
Co., Ltd. ("Rexgene"), a minority shareholder. Rexgene is engaged in the
development of pharmaceutical products in Asia and has agreed to assist the
Company with the research, development and clinical trials necessary for
registration of, the Company's drug candidate, RX-0201 in Asia. This agreement
provides Rexgene with exclusive rights to license, sublicense, make, have made,
use, sell and import RX-0201 in Asia. A one time contribution to the joint
development and research of RX-0201 of $1,500,000 was paid to the Company in
2003 in accordance with the agreement. The amount of revenue from this
contribution is being recognized as income over the term of the agreement which
terminates at the later of 20 years or the term of the patent on the licensed
product. The Company is using 20 years as its basis for recognition and
accordingly $75,000
was
included in revenues for each of the years ended December 31, 2005 and 2004.
The
remaining $1,275,000
at
December 31, 2005 (2004-$1,350,000)
is
reflected as deferred revenue on the balance sheet. The Company adopted SAB
No.
104, "Revenue Recognition Nonrefundable Up-front Fees" with respect to the
accounting for this transaction. These fees are being used in the cooperative
funding of the costs of development of RX-0201. Royalties of 3% of net sales
of
licensed products will become payable to the Company on a quarterly basis once
commercial sales of RX-0201 begin. The product is still under development and
commercial sales are not expected to begin until at least 2007.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
7.
|
Capital
Stock
|
Authorized
500,000,000
shares of common stock, voting, par value $0.0001
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Issued
|
|||||||
|
46,410,632
shares (2004- 7,628,166 shares, par value $0.01*) of common stock
|
$
|
4,641
|
$
|
76,281
|
|||
*
Reflects the par value of Rexahn, Corp prior to the Merger.
The
following transactions occurred during fiscal years 2001, 2002, 2003, 2004
and
2005:
|
a)
|
On
May 10, 2001 the Company issued 3,600,000 shares of common stock
to the
Company's founders for $1.
|
|
b)
|
On
August 10, 2001 the Company issued:
|
|
i)
|
1,208,332
shares of common stock to the directors of the Company for cash of
$1,450,000.
|
|
ii)
|
958,334
shares of common stock to Rexgene for cash of
$550,000.
|
|
iii)
|
360,000
shares of common stock in a private placement to individual investors
for
cash of $1,080,000.
|
These
share purchases were negotiated by the parties at various dates prior to the
August 10, 2001 share issuance date.
|
c)
|
On
October 10, 2001 the Company issued 400,000 shares of common stock
to
Chong Kun Dang Pharmaceutical Corp. ("CKD") for cash of $479,991
and
400,000 shares of common stock to an individual investor for cash
of
$479,991.
|
|
d)
|
On
October 10, 2001 the Company issued 200,000 shares of common stock
to CKD
for cash of $479,985.
|
|
e)
|
Since
inception, the Company's founders have transferred 800,000 shares
of the
common stock described in a) to officers and directors of the
Company.
|
|
f)
|
In
July 2003, the shareholders described in b)(3) and e) transferred
an
aggregate of 1,268,332 shares of common stock to a voting trust.
The trust
allows for the unified voting of the stock by the trustees. The appointed
trustees are senior management of the Company who, together with
their
existing shares, control a majority of the voting power of the
Company.
|
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
7.
|
Capital
Stock (cont'd)
|
|
g)
|
On
August 20, 2003 the Company issued 500,000 shares of common stock
to
KT&G Corporation for cash of
$2,000,000.
|
|
h)
|
On
October 29, 2004 the Company issued 1,500 shares of common stock
for cash
of $1,800 on the exercise of 1,500 stock
options.
|
|
i)
|
Pursuant
to the agreement and plan of merger as disclosed in Note 1, in the
Acquisition Merger, (i) each share of the issued and outstanding
common
stock of Rexahn (other than dissenting shares) was converted into
the
right to receive five shares of Rexahn Pharmaceuticals common stock;
(ii)
each issued, outstanding and unexercised option to purchase a share
of
Rexahn common stock was converted into an option to purchase five
shares
of Rexahn Pharmaceuticals common stock and (iii) the par value of
Rexahn's
common stock was adjusted to reflect the par value of CRS common
stock. In
the Acquisition Merger, 289,780,000 CRS pre-reverse stock split shares
were converted into 2,897,802 post-reverse stock split Rexahn
Pharmaceuticals shares, and an additional 500,000 post-reverse stock
split
Rexahn Pharmaceuticals shares were issued to a former executive of
CRS.
For purposes of the Statement of Stockholders' Equity, the five-for-one
stock split is reflected as a one-line adjustment. All shares and
earnings
per share information has been retroactively restated in these financial
statements.
|
|
j)
|
On
August 8, 2005, the Company issued, in a transaction exempt from
registration under the Securities Act, 4,175,000 shares of common
stock at
a purchase price of $2.00 per
share.
|
|
k)
|
On
October 3, 2005, the Company issued 7,000 shares of common stock
for
$21,877 and $7,500 cash in exchange for
services.
|
|
l)
|
On
December 2, 2005, the holder's of a convertible note, representing
$1,300,000 aggregate principal amount, exercised their option to
convert
the entire principal amount of the note into the Company's common
stock.
Based on a $2.00 per share conversion price, the holder's received
an
aggregate of 650,000 shares.
|
|
m)
|
On
December 27, 2005, option holders exercised their options to purchase
shares of the Company's common stock for cash of $9,600. Pursuant
to the
agreement, the Company issued an aggregate 40,000
shares.
|
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
8.
|
Stock-Based
Compensation
|
On
August
5, 2003, the Company established a stock option plan. Under the plan, the
Company grants stock options to key employees, directors and consultants of
the
Company. For all grants prior to September 12, 2005 and grants to employees
of
the Company after September 12, 2005, the vesting period is 30% after the first
year, an additional 30% after the second year and the remaining 40% after the
third year. For grants to non-employee directors and consultants of the Company
after September 12, 2005, the vesting period is 100% after the first year,
subject to the fulfillment of certain conditions in the individual stock option
grant agreements, or 100% upon the occurrence of certain events specified in
the
individual stock option grant agreements, subject to the fulfillment of certain
conditions in the individual stock option grant agreements. Options authorized
for issuance total 6,952,500 and as of December 31, 2005, 1,182,500 options
are
available for issuance.
Prior
to
adoption of the plan, the Company made restricted stock grants. During 2003
all
existing restricted stock grants were converted to stock options. The converted
options maintained the same full vesting period as the original restricted
stock
grants.
The
exercise price of the options granted to employees were below the fair market
value of the common stock on the date of the grant. In December 2005, employees
holding stock options that were not vested as of December 31, 2004 and stock
options that were granted in January 2005 agreed to amend the exercise prices
of
those options from $0.24 per share to $0.80 per share, the fair market value
of
the common stock (as determined by the board of directors), in order to comply
with the requirements of Internal Revenue Code Section 409A. The repricing
of
the options issued to employees was accounted as a cancellation of existing
options and issuance of new options. The effective date of this repricing is
January 1, 2005. The amendment was accounted for prospectively and resulted
in
reversal of stock option compensation expense of $306,896 related to employee
options recorded in the period from January 1, 2005 to September 30, 2005.
There
was no impact on the Company's results of operations for the year ended December
31, 2004. Using the intrinsic value method, the total compensation cost for
the
year ended December 31, 2005 amounted to $0 (2004- $658,000) and is being
amortized over the vesting period.
The
options issued to non-employees accounted under fair value method were similarly
repriced as of January 1, 2005. As a result, stock compensation expense of
$158,531 for the period from January 1, 2005 to September 30, 2005 related
to
non-employee options was reversed. The stock compensation expense related to
non-employees during 2005 was $436,748, after accounting for the repricing
adjustment.
The
value
of options issued to non-employees is determined using Black-Scholes method
using the following assumptions: volatility of 100%, risk free interest rate
of
4.46%, expected life of option 5 years and dividend yield of 0%. Pro forma
information regarding net income is required to be disclosed in financial
statements by SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", and has been determined as if the Company had
accounted for its employee stock options and employee stock purchase plan under
the fair value method of SFAS No. 123. The fair value for these options was
estimated at the dates of grant using the Black-Scholes pricing model. The
weighted average fair value of the options granted to employees under this
method is $0.63 per option for a total cost of $2,340,000 (2004-
$714,400).
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
8.
|
Stock-Based
Compensation (cont'd)
|
The
assumptions are evaluated annually and revised as necessary to reflect market
conditions and additional experience.
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Net
loss, as reported
|
$
|
(6,349,540
|
)
|
$
|
(3,273,442
|
)
|
|
|
Add:
Stock-based employee compensation expense rendered under APB No.
25
intrinsic value method
|
-
|
229,752
|
|||||
|
Deduct:
Stock-based employee compensation expense determined under fair
value-based method for all employee awards
|
638,918
|
249,445
|
|||||
|
Pro
forma net loss
|
$
|
(6,988,458
|
)
|
$
|
(3,459,449
|
)
|
|
|
Net
loss per share:
|
|||||||
|
Basic
and diluted-as reported
|
$
|
(0.15
|
)
|
$
|
(0.09
|
)
|
|
|
Basic
and diluted-pro forma
|
$
|
(0.17
|
)
|
$
|
(0.09
|
)
|
|
|
Black-Scholes
Weighted Average Assumptions:
|
|||||||
|
Dividend
yield
|
0
|
0
|
|||||
|
Volatility
|
100
|
%
|
1
|
%
|
|||
|
Risk
free interest rate
|
4.46
|
%
|
4.54
|
%
|
|||
|
Expected
lives of options
|
5
years
|
5
years
|
|||||
Stock
option compensation has been expensed in the statement of operations for the
years ended December 31, 2005 and 2004 as follows:
|
Years
Ended
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Employees
|
$
|
-
|
$
|
63,438
|
|||
|
Non-employees
|
436,748
|
167,332
|
|||||
|
Stock
option compensation expense
|
$
|
436,748
|
$
|
230,770
|
|||
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
8.
|
Stock-Based
Compensation (cont'd)
|
Stock
option activity related to employees and non-employees from December 31, 2002
to
December 31, 2005 are listed below.
|
Weighted
|
|||||||
|
Shares
|
Avg.
|
||||||
|
Subject
|
Option
|
||||||
|
to
Options
|
Prices
|
||||||
|
Outstanding
at December 31, 2002
|
-
|
$
|
-
|
||||
|
Granted
|
1,850,000
|
0.24
|
|||||
|
Exercised
|
-
|
-
|
|||||
|
Expired
|
-
|
-
|
|||||
|
Cancelled
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2003
|
1,850,000
|
0.24
|
|||||
|
Granted
|
1,300,000
|
0.24
|
|||||
|
Exercised
|
(7,500
|
)
|
0.24
|
||||
|
Cancelled
|
(367,500
|
)
|
0.24
|
||||
|
Outstanding
at December 31, 2004
|
2,775,000
|
0.24
|
|||||
|
Cancelled
due to repricing
|
(927,500
|
)
|
0.24
|
||||
|
Granted
due to repricing
|
927,500
|
0.80
|
|||||
|
Granted
|
3,810,000
|
1.01
|
|||||
|
Exercised
|
(40,000
|
)
|
0.24
|
||||
|
Cancelled
|
(775,000
|
)
|
0.24
|
||||
|
Outstanding
at December 31, 2005
|
5,770,000
|
$
|
0.84
|
||||
|
Weighted
|
|||||||
|
Shares
|
Avg.
|
||||||
|
Subject
|
Option
|
||||||
|
to
Options
|
Prices
|
||||||
|
Options
exercisable at the end of each fiscal year:
|
|||||||
|
December
31, 2003
|
525,000
|
$
|
0.24
|
||||
|
December
31, 2004
|
507,500
|
0.24
|
|||||
|
December
31, 2005
|
420,000
|
0.80
|
|||||
The
weighted-average remaining contractual life of the stock options is
approximately 9 years.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
9.
|
Income
Taxes
|
The
components of deferred income taxes are as follows:
|
2005
|
2004
|
||||||
|
Deferred
income tax assets:
|
|||||||
|
Net
operating loss carryforwards
|
$
|
4,113,844
|
$
|
2,404,970
|
|||
|
Stock
option compensation expense
|
148,494
|
78,462
|
|||||
|
Valuation
allowance
|
(4,262,338
|
)
|
(2,483,432
|
)
|
|||
|
Deferred
income taxes
|
$
|
-
|
$
|
-
|
|||
The
Company has tax losses available to be applied against future years income.
Due
to the losses incurred in the current year and expected future operating
results, management determined that it is more likely than not that the deferred
tax asset resulting from the tax losses available for carryforward and stock
option compensation expense will not be realized through the reduction of future
income tax payments. Accordingly a 100% valuation allowance has been recorded
for deferred income tax assets.
As
of
December 31, 2005 and 2004, the Company had approximately $10,465,390 and
$7,073,442, respectively, of federal and state net operating loss carryforwards
available to offset future taxable income; such carryforwards expire in various
years through 2024.
|
10.
|
Government
Assistance
|
On
December 13, 2003, the Company accepted an offer of a conditional grant from
the
Montgomery County Department of Economic Development for $100,000 to assist
in
the growth and expansion of the Company, which amount was received in February
2004. The terms of the offer state that $50,000 of the grant is convertible
to a
loan repayable over three years bearing interest at 20% per annum if, at any
time within five years from receipt of the grant, the Company's annual net
revenues exceed $1,000,000 or the Company obtains aggregate equity financing
of
over $2,000,000. This portion of the grant was recorded in accounts payable
at
December 31, 2004. The terms of the grant also state that the remaining $50,000
balance of the grant would be permanently forgiven when performance criteria
relating to lease of premises and employment commitments are met, provided
that
the forgiven amounts may only be applied to reducing business-related expenses.
In 2004 upon satisfaction of the performance criteria, the $50,000 amount was
forgiven and applied to lease payments and was recorded as a reduction of
business-related expenses. Following the Company's February 2005 convertible
debt financing, the remaining $50,000 was converted into a loan pursuant to
the
terms of the grant and was paid off by the Company in March 2005.
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
11.
|
Commitments
|
|
a)
|
On
February 6, 2003, the Company entered into a research collaboration
agreement with Rexgene Biotech Co., Ltd. ("Rexgene"), the holder
of
approximately 10.32% of outstanding common stock. We contributed
a license
to technology relating to RX-0201, and Rexgene contributed $1,500,000
as
initial contributions under the agreement. Rexgene also agreed to
pay the
Company 3% of the profits derived from the sale of RX-0201 in Asian
countries. The agreement, if not earlier terminated by either us
or
Rexgene, will terminate on the expiration of the patents resulting
from
the agreement, or if no such patents are granted, 20 years from February
6, 2003.
|
|
b)
|
On
September 3, 2003, the Company entered into a joint research and
development agreement with Chong Kun Dang Pharmaceutical Corp. ("CKD"),
the holder of approximately 6.46% of outstanding common stock. Under
the
agreement, we and CKD agreed to cooperate in the research and development
of a variety of new pharmaceutical compounds for human use in their
own
capacities. All profits derived from or in connection with the agreement
will be allocated to CKD and the Company in proportion to relative
contributions based on certain ratios, which vary depending upon
a
particular research and development phase during which the profits
are
earned. The agreement, if not earlier terminated by either the Company
or
CKD, will last until the expiration of any intellectual property
rights
pertaining to information, data, discoveries and all other results
made or
developed in connection with or arising out of the
agreement.
|
|
c)
|
In
April 2004, the Company entered into a clinical development agreement
with
Georgetown University with an effective period from April 5, 2004
through
April 5, 2006. The total estimated cost of the program is $223,126,
based
on the fees, enrolment and completion of 20 patients and is payable
based
on the progress of the treatment over the effective period of the
agreement. For the years ended December 31, 2005 and 2004, the Company
paid $0 and $17,426, respectively, towards the cost of this program.
In
addition, the Company extended a research agreement, initially entered
into on January 1, 2004, until November 10, 2005 with Georgetown
University. For the year ended December 31, 2005, the Company paid
$60,000
in consideration of the extension.
|
|
d)
|
On
August 17, 2004 the Company entered into an agreement with Formatech,
Inc.
to monitor and perform stability studies on our drug candidate, RX-0201.
The total cost of these services is $46,700. For the years ended
December
31, 2005 and 2004, the Company paid $10,400 and $22,900, respectively,
towards the cost of these studies. The remainder is included in accounts
payable and consists of a $5,200 payment due during 2006 and $8,200
due
during 2007.
|
|
e)
|
In
April 2004, the Company signed a 5 year lease for 8,030 square feet
of
office space in Rockville, Maryland commencing July 2004. The lease
requires annual base rents of $200,750 subject to annual increases
of 3%
of the preceding years adjusted base rent. Under the leasing agreement,
the Company also pays its allocable portion of real estate taxes
and
common area operating charges.
|
REXAHN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Financial Statements
December
31, 2005 and 2004
|
11.
|
Commitments
(cont'd)
|
Minimum
future rental payments under this lease are as follows:
|
For
the years ended December
31
|
||||
|
2006
|
$
|
209,874
|
||
|
2007
|
216,170
|
|||
|
2008
|
222,655
|
|||
|
2009
|
112,972
|
|||
|
$
|
761,671
|
|||
|
f)
|
On
June 1, 2005, the Company signed a one year research project agreement
with the Korea Research Institute of Chemical Technology ("KRICT")
relating to the development of a synthetic process for the lead compound
of the quinoxalines acting on human cancer cells. In accordance with
the
agreement, the cost of the project is $100,000, of which $50,000
was paid
during the 2005 fiscal year. The remaining $50,000 is included in
accounts
payable at December 31, 2005.
|
|
g)
|
On
August 30, 2005, the Company entered into an agreement for the University
of Alabama at Birmingham to carry out Phase I clinical trials of
RX-0201.
The agreement term expires on February 15, 2007.
|
|
h)
|
On
August 1, 2005, the Company signed a one year contract with the University
of Massachusetts Medical School ("UMASS") to test proprietary drugs
in
preclinical behavioral assays of anxiety and cognition. The Company
agreed
to provide UMASS with a grant of $76,666, which includes the full
direct
and indirect costs of the preclinical study, payable in four equal
quarterly installments of $19,167. For the year ended December 31,
2005,
the Company made two quarterly payments totaling $38,334. The remainder
is
due in 2006.
|
|
i)
|
On
August 3, 2005, the Company engaged Montgomery Pacific Group ("MPG")
to
act as the Company's financial advisor for a one-year term in connection
with its growth strategies, certain licensing activities and acquisition
of certain assets. In consideration of the services, the Company
agreed to
pay MPG an advisory fee, consisting of an initial retainer fee and
success
fees, subject to the successful closing of licensing transactions,
acquisitions and private placements. An initial retainer fee of $50,000
was paid during the year ended December 31, 2005. Dr. Holaday, one
of the
Company's directors, is a partner of
MPG.
|
|
j)
|
On
September 12, 2005, the Company and three of its key executives
entered
into employment agreements. Two of the three agreements expire
on
September 12, 2007 and result in an annual commitment of $360,000.
One
agreement expires on September 12, 2010 and results in an annual
commitment of $350,000.
|
|
k)
|
On
October 6, 2005, the Company entered into an agreement with Avecia
Biotechnology Inc. ("Avecia"). Avecia will manufacture and supply
the
Company with RX-0201 and related drug services. The total cost of
the
project is estimated to be $1,738,000. The Company paid $521,400
(included
in research and development expenses) during the year ended December
31,
2005. The remainder is due upon release and delivery of the product,
expected in early 2006.
|
|
12.
|
Comparative
Information
|
Certain
amounts for fiscal 2004 have been reclassified to conform with the current
year's financial statement presentation.
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and Stockholders of
Rexahn
Pharmaceuticals, Inc.
Rockville,
Maryland
We
have
audited the accompanying balance sheet of Rexahn Pharmaceuticals, Inc. (a
development stage company) as of December 31, 2005 and the related statements
of
operations, shareholders' deficit and cash flows for the year ended December
31,
2005 and the cumulative period from inception (March 19, 2001) to December
31,
2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Rexahn Pharmaceuticals, Inc. at
December 31, 2005 and the results of its operations and its cash flows for
the
year ended December 31, 2005 and the cumulative period from inception (March
19,
2001) to December 31, 2005, in conformity with accounting principles generally
accepted in the United States of America.
/s/
Lazar Levine & Felix LLP
New
York,
New York
March
9,
2006
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of
Rexahn
Pharmaceuticals, Inc. (formerly Rexahn, Corp)
We
have
audited the accompanying balance sheet of Rexahn Pharmaceuticals, Inc. (formerly
Rexahn, Corp) (a development stage company) as at December 31, 2004 and the
related statements of operations, changes in stockholders' equity and cash
flows
for the year then ended. These financial statements are the responsibility
of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Rexahn Pharmaceuticals, Inc.
(formerly Rexahn, Corp), as at December 31, 2004 and the results of its
operations, changes in stockholders' equity and cash flows for the year then
ended in conformity with U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.
The
Company has suffered recurring losses from operations since inception that
raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
/s/
SF
Partnership, LLP
Toronto,
Canada
Chartered
Accountants
February
25, 2005
Item
8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
Not
applicable.
Item
8A. Controls and Procedures
Based
on
their most recent evaluation, which was completed as of the end of the period,
December, 2005, covered by this Annual Report on Form 10-KSB, the Company's
Chief Executive Officer and Chief Financial Officer believe the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and
15d-14) are effective to ensure that information required to be disclosed by
the
Company in this report is accumulated and communicated to the Company's
management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. During the last fiscal quarter to which this report relates, there
were no changes in the Company's internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation
and there were no corrective actions with regard to significant deficiencies
and
material weaknesses.
Item
8B. Other
Information
None.
PART
III
Item
9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of the Exchange
Act
In
accordance with the Merger Agreement, our board of directors was reconstituted
in connection with the Merger. Specifically, prior to the Merger, the CPRD's
board of directors consisted of Mr. Frank Ferraro. In connection with the
Merger, (i) CPRD's board of directors was increased to seven members,
(ii) Chang H. Ahn, Young-Soon Park, Suk Hyung Kwon, Jang Han Rhee, John
Holaday, David McIntosh and Inok Ahn were appointed as directors, effective
as
of the closing of the Merger, and (iii) the following individuals were
appointed as officers of the Company: Dr. Chang H. Ahn, Chairman of the Board
and Chief Executive Officer; Tae Heum Jeong, Chief Financial Officer and
Secretary; Dr. George F. Steinfels, Chief Business Officer and Senior Vice
President, Clinical Development; and Inok Ahn, Treasurer, each of whom was
an
existing officer of Rexahn, effective as of the closing of the Merger. Mr.
Ferraro resigned as a director and an officer of the Company, effective as
of
the closing of the Merger. On June 14, 2005, Suk Hyung Kwon and Jang Han Rhee
both resigned, effective immediately, as members of the Board of Directors
of
the Company. On June 14, 2005, the Board of Directors of the Company elected
Tae
Heum Jeong, the Company's Chief Financial Officer and Secretary, as a Director
of the Company to fill one of the vacancies created by the
resignations.
We
believe that during fiscal 2005, our executive officers and directors and more
than 10% beneficial owners timely filed all forms required to be filed under
Section 16(a) of the Exchange Act.
The
following table sets forth the names, ages and positions of our directors and
executive officers:
|
Name
|
Age
|
Position
|
||
|
Dr.
Chang H. Ahn
|
54
|
Chairman
of the Board and Chief Executive Officer
|
||
|
Dr.
Young-Soon Park
|
59
|
Director
|
||
|
Dr.
John Holaday
|
60
|
Director
|
||
|
David
McIntosh
|
47
|
Director
|
||
|
Inok
Ahn
|
53
|
Treasurer
and Director
|
||
|
Tae
Heum Jeong
|
35
|
Chief
Financial Officer, Secretary and Director
|
||
|
Dr.
George F. Steinfels
|
51
|
Chief
Business Officer and Senior Vice President, Clinical
Development
|
Chang
H. Ahn.
Dr. Ahn
has served as Chairman of the Board and Chief Executive Officer since May 2005.
Dr. Ahn served as Chairman and Chief Executive Officer of Rexahn from its
incorporation in March 2001 to May 2005. From 1988 to 2001, Dr. Ahn
held dual positions as both Expert Regulatory Pharmacologist and Lab Head at
the
FDA's Center for Drug Evaluation and Research. Prior to joining the FDA in
1988,
Dr. Ahn carried out cancer research at the National Cancer Institute, as
well as at Emory University's School of Medicine. In 2003 and 2004, Dr. Ahn
organized and chaired the U.S.-Korea Bio Business and Partnership Forum, for
which Maryland State and Montgomery County are partners. He also served as
president of the Society of Biomedical Research from 2000 to 2003. Dr. Ahn
holds a Ph.D. in pharmacology from Ohio State University. He also holds two
B.S.
degrees in pharmacy from Creighton University and Seoul National University.
Dr.
Ahn and Inok Ahn are husband and wife.
Young-Soon
Park.
Dr. Park
has served as a director since May 2005. Dr. Park served as a director of Rexahn
from March 2001 to May 2005. She is the founder of Onnuri Health Group and
has served as its Chief Executive Officer and Chairman of the Board of Directors
since 1992. She is also the Chairman of the Board of Directors of Onnuri
Pharmacy Welfare Association since 1997. She had served as the Chief Executive
Officer and Chairman of Rexgene Biotech from 2000 until 2002. Dr. Park
received a B.A. in pharmacy from Pusan University and a Ph.D. in pharmacy from
Wonkwang University.
John
Holaday. Dr. Holaday
has served as a director since May 2005. Dr. Holaday served as a director of
Rexahn from March 2004 to May 2005. He is the Chairman and co-founder of HarVest
Bank of Maryland, a local commercial bank serving the technology community
in
Montgomery County, Maryland formed in 2004 and a partner of Montgomery Pacific
Group. From August 2003 to March 2004, Dr. Holaday was a consultant to
Rexahn. He was the founder of EntreMed, Inc. and the Chairman of the Board
of
Directors of EntreMed, Inc. from 1995 until his retirement in January 2003
and
the Chief Executive Officer of EntreMed Inc. from 1992 to 2003. From 1989 to
1992, he was a co-founder of Medicis Pharmaceutical Corp., where he served
as
Vice President for Research and Development and Member of the Board of
Directors. Dr. Holaday also served as Chairman of MaxCyte, Inc., a
subsidiary of EntreMed, Inc. until 2003. In addition, he is on the Board of
Directors of CytImmune Sciences, Xceleron, BSI Proteomics, Accelovance, Health
Pathways and LabBook, which are privately held biotechnology companies.
Dr. Holaday was elected as the Chairman of the Maryland Bioscience Alliance
in April 2000, and is a member of the American Society for Pharmacology and
Experimental Therapeutics, the Society for Critical Care Medicine (Fellow,
1989)
and Sigma Xi. Dr. Holaday serves on the Queensland (Australia) North America
Advisory Board, the Leadership Board for the College of Arts and Sciences,
University of Alabama, the Board of the University of Maryland Biotechnology
Institute, the Board of the BioIT Coalition and the Advisory Board of Harbert
Investments.
David
McIntosh. Mr. McIntosh
has served as a director since May 2005. Mr. McIntosh served as a director
of
Rexahn from March 2004 to May 2005. He has been a partner at Mayer, Brown,
Rowe
& Maw LLP (law firm) since 2001. Mr. McIntosh was a member of the
United States House of Representatives, representing the 2nd District of Indiana
from 1995 to 2001. From 1993 to 1994, he was a director of the Hudson Institute
Competitiveness Center. He served on President Bush's Council on Competitiveness
as Executive Director from 1989 to 1993. He also served as the Special Assistant
to President Reagan for Domestic Affairs from 1987 to 1989 and was the Special
Assistant to the Attorney General of the United States from 1986 to 1987.
Mr. McIntosh received a B.A. from Yale College and a J.D. from the
University of Chicago Law School.
Inok
Ahn.
Mrs. Ahn
has served as a director and Treasurer since May 2005. Mrs. Ahn served as
Treasurer and a director of Rexahn from March 2001 to May 2005. From 1986
to 2001 she was on the Clinical Research Nursing staff of the National
Institutes of Health. Mrs. Ahn served as a clinical nurse in Emory University
Medical Center and Ohio State University Hospital from 1981 to 1986. Mrs. Ahn
received a B.S.N. from Seoul National University. Dr. Ahn and Mrs. Ahn are
husband and wife.
Tae
Heum Jeong.
Mr.
Jeong has served as Chief Financial Officer and Secretary since May 2005. Mr.
Jeong served as Chief Financial Officer of Rexahn from December 2002 to May
2005
and as a director since June 2005. From 1997 to November 2002, Mr. Jeong
served as a senior investment manager at Hyundai Venture Investment Corporation,
a venture capital firm where he managed the biotech investment team. He was
also
a committee member of the Industrial Development Fund of Korea's Ministry of
Commerce, Industry and Energy from 2000 to 2002. Mr. Jeong holds a B.S. in
chemistry and an M.S. specializing in bio-medicinal chemistry, from Pohang
University of Science and Technology (POSTECH).
George
F. Steinfels.
Dr.
Steinfels has served as Chief Business Officer and Senior Vice President,
Clinical Development, since May 2005. Dr. Steinfels served as Chief
Business Officer and Senior Vice President, Clinical Development of Rexahn,
from
June 2004 to May 2005. From 2000 to June 2004, Dr. Steinfels served as
President of Genomic Strategies, a medical technology consulting firm that
provided client solutions in the areas of regulatory, clinical development,
and
product launch and marketing. From 2001 to 2002, Dr. Steinfels was Chief
Science Officer and General Manager of QNOME at QED Solutions. From 1996 to
1999, he was Chief Operating Officer for the Pharmacogenomic Business Unit
of
Quintiles, Inc. From 1994 to 1996, Dr. Steinfels was Vice President at The
Lewin Group (which was acquired by Quintiles) where he started Lewin's Strategic
Marketing Practice. Dr. Steinfels began his career in pharmaceuticals at
E.I. DuPont and later Dupont/Merck where he was Research Manager in Central
Nervous System Research. Dr. Steinfels received a B.A. in Biology from The
Johns Hopkins University, an M.S. and a Ph.D. in pharmacology from the
University of Maryland, and an M.B.A. from The Wharton School of the University
of Pennsylvania.
Board
Composition
Our
board
of directors is currently composed of seven members, of whom two have been
determined by the board to be "independent directors", as defined by the rules
of the Nasdaq Stock Market, Inc.
Board
Committees
Our
board
of directors has the authority to appoint committees to perform certain
management and administration functions. Currently, we do not have an
independent audit committee, compensation committee or nominating committee
and
do not have an audit committee financial expert.
Code
of Ethics
We
have
not adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We are in the process of reviewing a
code
of ethics with our attorneys and the independent board members and will adopt
one upon completion of discussions.
Item
10. Executive Compensation
Our
non-employee director compensation policy which pays no cash compensation,
but
which provides for the grant of options to purchase 75,000 shares of our common
stock for each calendar year of service on the board of directors.
At
a
meeting on September 12, 2005, the Company's Board of Directors approved the
following changes to the compensation of non-employee directors:
(a)
each
of the non-employee directors of the Company will receive 20,000 options to
purchase shares of the common stock of the Company for each year he or she
serves on the Board; and
(b)
each
of the non-employee directors of the Company will receive an additional board
meeting fee of $1,000 for each meeting he or she participates in.
The
following table sets forth the annual and long-term compensation, from all
sources, of the Chief Executive Officer of the Company and the other executive
officers of the Company for services rendered in all capacities to Rexahn for
the fiscal years ended December 31, 2005, 2004 and 2003, except as noted below.
The compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all of our salaried
employees.
Summary
Compensation Table
|
Name
and Principal Position(s)
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compensation ($)
|
Securities
Underlying Options (Shares)
|
All
Other Compensation ($)
|
|||||||||||||
|
Chang
H. Ahn
|
2005
|
$
|
350,000
|
$
|
70,000
|
—
|
1,000,000
|
—
|
|||||||||||
|
Chairman
of the
|
2004
|
$
|
350,000
|
—
|
—
|
—
|
—
|
||||||||||||
|
Board
and Chief
|
2003
|
$
|
338,461
|
—
|
—
|
—
|
—
|
||||||||||||
|
Executive
Officer
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||
|
Tae
Heum Jeong
|
2005
|
$
|
111,470
|
$
|
20,000
|
—
|
500,000
|
—
|
|||||||||||
|
Chief
Financial
|
2004
|
$
|
97,432
|
—
|
—
|
—
|
|
||||||||||||
|
Officer
|
2003
|
$
|
61,538
|
—
|
—
|
250,000
|
—
|
||||||||||||
|
|
|
|
|
|
|
||||||||||||||
|
George
F. Steinfels2
|
2005
|
$
|
165,385
|
$
|
20,000
|
—
|
500,000
|
—
|
|||||||||||
|
Chief
Business Officer and Senior Vice President, Clinical
Development
|
2004
|
$
|
80,182
|
—
|
—
|
250,000
|
—
|
||||||||||||
|
|
|
|
|
|
|
||||||||||||||
|
Frank
Ferraro3
|
2005
|
—
|
—
|
—
|
—
|
$
|
120,0005
|
||||||||||||
|
Chief
Executive
|
2004
|
$
|
90,0004
|
—
|
—
|
—
|
—
|
||||||||||||
|
Officer
and President
|
2003
|
$
|
90,0004
|
—
|
—
|
—
|
—
|
||||||||||||
2 Mr.
Steinfels joined in June 2004; therefore, compensation information for Mr.
Steinfels is provided only for fiscal 2004 and 2005.
3
Mr.
Ferraro resigned from all his positions with the Company in May
2005.
4
During
fiscal 2003 and 2004, payments of Mr. Ferraro's salary under his employment
agreement were deferred in the amount of $42,026 and $76,020, respectively.
5
Mr.
Ferraro received 500,000 shares of common stock issued after the Merger pursuant
to the Settlement Agreement dated May 12, 2005 in consideration of the
cancellation of $122,500 of deferred salary and certain other reimbursements
owed to Mr. Ferraro in exchange for such shares of common stock and certain
assets. The value of the 500,000 shares issued to Mr. Ferraro is based on the
value of Rexahn, Corp common stock on January 20, 2005.
Option
Grants in Last Fiscal Year
Shown
below is further information on grants to the named executive officers of
options to purchase our common stock pursuant to our stock option plan during
the fiscal year ended December 31, 2005, which are reflected in the Summary
Compensation Table above, and give effect to the Merger exchange ratio of five
shares of Rexahn Pharmaceuticals common stock for each share of Rexahn common
stock.
|
Number
of Securities Underlying Options Granted (Shares)1
|
Percentage
of Total Options Granted to Rexahn Employees in Fiscal
2005
|
Exercise
Price
(per
share)1
|
Expiration
Date
|
||||||||||
|
Chang
H. Ahn
|
1,000,000
|
35.7
|
%
|
$
|
0.80
|
1/20/2015
|
|||||||
|
Tae
Heum Jeong
|
500,000
|
17.9
|
%
|
$
|
0.80
|
1/20/2015
|
|||||||
|
George
F. Steinfels
|
500,000
|
17.9
|
%
|
$
|
0.80
|
1/20/2015
|
|||||||
|
Frank
Ferraro2
|
—
|
—
|
%
|
$
|
—
|
—
|
|||||||
1
On
January 20, 2005, Dr. Ahn, Mr. Jeong and Dr. Steinfels received grants of
options to purchase 200,000, 100,000 and 100,000 shares of Rexahn common stock,
respectively, at an exercise price of $4.00 per share, which after giving effect
to the adjustments in the Merger became options to purchase 1,000,000, 500,000
and 500,000 shares of Rexahn Pharmaceuticals common stock, respectively, at
an
exercise price of $0.80. These options will vest 30%, 30% and 40% on the first,
second and third anniversaries, respectively, of the date of grant.
2
Mr.
Ferraro resigned from all his positions with the Company in May
2005.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Shown
below is information with respect to (i) exercises by the named executive
officers during fiscal year 2005 of options to purchase Rexahn common stock
granted under the Rexahn stock option plan and (ii) the unexercised options
to
purchase Rexahn Pharmaceuticals common stock derived from options to purchase
Rexahn common stock granted to the named executive officers in fiscal year
2005
and prior years and held by them at December 31, 2005, after giving effect
to
the Merger exchange ratio of five shares of Rexahn Pharmaceuticals common stock
for each share of Rexahn common stock.
|
Number
of Unexercised Options Held at
December
31, 20051
|
Value
of Unexercised In-the-Money Options at
December
31, 20052
|
||||||||||||||||||
|
Name
|
Shares
Acquired on
Exercise
|
Value
Realized
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
|
Chang
H. Ahn
|
—
|
—
|
—
|
1,000,000
|
$
|
—
|
$
|
1,200,000
|
|||||||||||
|
Tae
Heum Jeong
|
—
|
—
|
250,000
|
500,000
|
$
|
300,000
|
$
|
600,000
|
|||||||||||
|
George
F. Steinfels
|
—
|
—
|
75,000
|
675,000
|
$
|
90,000
|
$
|
810,000
|
|||||||||||
|
Frank
Ferraro3
|
—
|
—
|
—
|
—
|
$
|
—
|
$
|
—
|
|||||||||||
1
Option
information reflects options to purchase shares of Rexahn common stock
outstanding as of December 31, 2005 which were adjusted in the Merger to become
options to purchase Rexahn Pharmaceuticals common stock, and gives effect to
the
Merger exchange ratio of five shares of Rexahn Pharmaceuticals common stock
for
each share of Rexahn common stock.
2
Based
on
closing price of our common stock of $2.00 on December 14, 2005, the last day
any trades of common stock were reported in the year 2005.
3
Mr.
Ferraro resigned from all his positions with the Company in May
2005.
Stock
Option Plan
In
July
2003 the board of directors adopted, and in August 2003 our stockholders
approved, the Rexahn stock option plan. In connection with the Merger, we
assumed the plan and converted all outstanding options to purchase Rexahn common
stock into options to purchase Rexahn Pharmaceuticals common stock. The number
of shares subject to the converted options was multiplied by five and the
exercise price per share was divided by five.
The
plan
permits grants to be made from time to time as non-qualified stock options
or
incentive stock options.
Administration.
The
stock
option plan is administered by the board of directors. In the alternative,
the
board may appoint a stock option committee to administer the plan on behalf
of
the board. The plan is currently administered by our board of directors. In
order to meet the requirements of the rules under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), all future
grants under the plan will be made by a committee whose members are
"non-employee directors" as defined for purposes of Section 16 of the
Exchange Act and outside directors within the meaning of Section 162(m) of
the
Internal Revenue Code of 1986, as amended.
Participation.
The
persons to whom grants are made under the plan will be selected from time to
time by the stock option committee in its sole discretion from among our
employees, officers, directors and consultants.
Shares
Subject to Stock Option Plan. The
plan
authorizes the issuance or delivery of an aggregate of 6,992,500 shares of
common stock. Shares of common stock subject to the unexercised, undistributed
or unearned portion of any terminated or forfeited grant under the plan will
be
available for further awards.
Stock
Options. The
plan
authorizes grants of stock options, which may be either incentive stock options
eligible for special tax treatment or non-qualified stock options. Incentive
stock options may be granted only to our employees.
Under
the
provisions of the plan authorizing the grant of stock options:
|
·
|
the
option price will be determined by the stock option committee; provided,
however, that the option price for an incentive stock option may
not be
less than 100% of the fair market value of the shares of our common
stock
on the date of grant (110% for grants to an optionee owning more
than 10%
of our total combined voting power);
|
|
·
|
the
term during which each stock option may be exercised will be determined
by
the stock option committee; provided, however, that incentive stock
options generally may not be exercised more than ten years from the
date
of grant (five years for grants to an optionee owning more than 10%
of our
total combined voting power); and
|
|
·
|
at
the time of exercise of a stock option the option price must be paid
in
full in cash or in shares of our common stock or in a combination
of cash
and shares of our common stock or by such other means as the stock
option
committee may determine.
|
All
grants made under the plan will be evidenced by a letter to the optionee,
together with the terms and conditions applicable to the grants, as determined
by the stock option committee consistent with the terms of the plan. These
terms
and conditions will include, among other things, a provision describing the
treatment of grants in the event of certain triggering events, such as a sale
of
a majority of the outstanding shares of our common stock, a merger or
consolidation in which we are not the surviving company, and termination of
an
optionee's employment, including terms relating to the vesting, time for
exercise, forfeiture or cancellation of a grant under such circumstances.
Under
the
plan, stock options may not be granted after August 5, 2013.
Tax
Matters. The
following is a brief summary of the material federal income tax consequences
of
benefits under the plan under present law and regulations:
(a) Incentive
Stock Options. The
grant
of an incentive stock option will not result in any immediate tax consequences
to us or the optionee. An optionee will not realize taxable income, and we
will
not be entitled to any deduction, upon the timely exercise of an incentive
stock
option, but the excess of the fair market value of the shares of our common
stock acquired over the option exercise price will be includable in the
optionee's "alternative minimum taxable income" for purposes of the alternative
minimum tax. If the optionee does not dispose of the shares of our common stock
acquired within one year after their receipt, and within two years after the
option was granted, gain or loss realized on the subsequent disposition of
the
shares of our common stock will be treated as long-term capital gain or loss.
Capital losses of individuals are deductible only against capital gains and
a
limited amount of ordinary income. In the event of an earlier disposition,
the
optionee will realize ordinary income in an amount equal to the lesser of
(i) the excess of the fair market value of the shares of our common stock
on the date of exercise over the option exercise price or (ii) if the
disposition is a taxable sale or exchange, the amount of any gain realized.
Upon
such a disqualifying disposition, we will be entitled to a deduction in the
same
amount as the optionee realizes such ordinary income.
(b) Non-qualified
Stock Options. In
general, the grant of a non-qualified stock option will not result in any
immediate tax consequences to us or the optionee. Upon the exercise of a
non-qualified stock option, generally the optionee will realize ordinary income
and we will be entitled to a deduction, in each case, in an amount equal to
the
excess of the fair market value of the shares of our common stock acquired
at
the time of exercise over the option exercise price.
Amendment,
Suspension or Termination of Stock Option Plan.
Our
board of directors may at any time amend, suspend or discontinue the plan and
the stock option committee may at any time alter or amend awards and award
agreements made thereunder to the extent permitted by law, provided that no
such
alteration or amendment will be effective without the approval of our
stockholders to the extent that such approval is necessary to comply with any
tax or regulatory requirement applicable to the plan and no such alteration
and
amendment will impair the rights of any recipient of grants without such
recipient's consent. In the event of any change in or affecting the outstanding
shares of our common stock by reason of a stock dividend, stock split,
combination of shares or other similar event, our board of directors will make
such amendments to the plan and outstanding grants and award agreements, and
make such adjustments and take such actions as it deems appropriate and
equitable. In the event of any proposed change in control (as defined by the
plan), the stock option committee will take such action as it deems appropriate
and equitable to effectuate the purposes of the plan and to protect the
optionees, including, but not limited to, accelerating or changing the exercise
dates of stock options, payment of appropriate consideration for the
cancellation and surrender of stock options or if equity securities of any
other
corporation will be exchanged for outstanding shares of our common stock,
providing for stock options to become options with respect to such other equity
securities. For purposes of the plan, a change in control means the sale,
exchange or disposition of substantially all of our assets or any merger, share
exchange, consolidation or other reorganization or business combination in
which
we are not the surviving corporation or in which our stockholders become
entitled to receive cash, securities of our company other than voting common
stock or securities of another issuer.
Employment
Agreements
Chang
H. Ahn. Dr.
Ahn's
employment agreement dated September 12, 2005 provides that Dr. Ahn will
serve as Chief Executive Officer ("CEO") of the Company until September 12,
2010, unless Dr. Ahn's employment is sooner terminated as further described
below. If Dr. Ahn's employment continues beyond September 12, 2010, such
employment will become "at-will," unless his employment agreement is expressly
extended.
Dr. Ahn
will be paid an annual base salary of $350,000, subject to periodic review
and
potential increase at the Board's sole discretion. During his employment, Dr.
Ahn will be eligible to receive an annual cash bonus,
as
determined by the Board in its sole discretion, not exceeding 75% of his annual
base salary. In order to receive such cash bonus, Dr. Ahn must be actively
employed by the Company on the date on which such cash bonus is scheduled to
be
paid to him. Dr. Ahn will also be eligible to receive options to purchase shares
of the Company's stock, to be awarded in the Board's sole discretion under
the
Company's Stock Option Plan (the "Stock Option Plan"). In addition, Dr. Ahn
will
be eligible for additional bonus in the form of cash and/or stock that may
be
awarded in the Board's sole discretion.
If
Dr.
Ahn suffers a "Disability" (as defined in his employment agreement), the Board,
in its sole discretion, may terminate the employment agreement immediately
upon
written notice to Dr. Ahn. The Board may terminate Dr. Ahn's employment with
or
without "Cause" (as defined in his employment agreement) or Dr. Ahn may
voluntarily terminate his employment, in each case, upon 30 days' written
notice.
If
the
Company terminates Dr. Ahn's employment without Cause (other than following
a
"Change of Control" (as defined in his employment agreement)), the Company
will
pay to Dr. Ahn (1) his then current base salary through the termination date,
(2) any accrued but unused vacation days as of the termination date, (3) a
pro-rata portion of Dr. Ahn's bonus for fiscal year in which the termination
occurs, assuming a bonus of 75% of his then current base salary, (4) an amount
equaling 6 months of his then current base salary, and (5) continued coverage
under the Company's health insurance plan for 18 months. If Dr. Ahn's employment
is terminated by the Board without Cause within the one-year period immediately
following a Change of Control, the Company will pay to Dr. Ahn the termination
compensation and benefits subject to the conditions as described in clauses
(1),
(2), (3) and (5) of the first sentence of this paragraph. In addition, the
Company will pay to Dr. Ahn an amount equaling his then current base salary
for
the greater of the remainder of the term of his employment under the employment
agreement or a period of one year. The payments and benefits to Dr. Ahn
described in this paragraph are subject to reimbursement by Dr. Ahn and
reduction by any compensation or benefits actually earned or received by Dr.
Ahn
as an employee of or consultant to any other entity during the period for which
Dr. Ahn continues to receive salary payments post-termination, the requirement
that Dr. Ahn, in good faith, seek other employment in a comparable position
and
otherwise mitigate the Company's obligations and Dr. Ahn's execution of a
customary release in a form satisfactory to the Company.
Tae
Heum Jeong.
Mr.
Jeong's employment agreement dated September 12, 2005 provides that Mr. Jeong
will serve as Chief Financial Officer of the Company until September 12,
2007, unless Mr. Jeong's employment is sooner terminated as further described
below. If Mr. Jeong's employment continues beyond September 12, 2007, such
employment will become "at-will," unless his employment agreement is expressly
extended.
Mr.
Jeong
will be paid an annual base salary of $160,000, subject to periodic review
and
potential increase at the Board's sole discretion. During his employment, Mr.
Jeong will be eligible to receive an annual cash bonus,
as
determined by the CEO in his sole discretion, in an amount not exceeding 50%
of
his annual base salary. In order to receive such cash bonus, Mr. Jeong must
be
actively employed by the Company on the date on which such cash bonus is
scheduled to be paid to him. Mr. Jeong will also be eligible to receive options
to purchase shares of the Company's stock, to be awarded in the Board's sole
discretion under the Stock Option Plan. In addition, Mr. Jeong will be eligible
for additional bonus in the form of cash and/or stock that may be awarded in
the
Board's sole discretion.
The
circumstances under which Mr. Jeong's employment agreement may terminate and
the
related terms and conditions of any payments and benefits payable to Mr. Jeong
as a result of the termination are substantially similar to Dr. Ahn's employment
agreement, except that if the Company terminates Mr. Jeong's employment without
Cause (other than following a Change of Control), the Company will pay to Mr.
Jeong a pro-rata portion of Mr. Jeong's bonus for fiscal year in which the
termination occurs, assuming a bonus of 50% of his then current salary.
Mr.
Jeong
is restricted from soliciting employees or customers of the Company during
and
for 12 months after the employment period.
George
Steinfels.
Dr.
Steinfels' employment agreement dated September 12, 2005 provides that Dr.
Steinfels will serve as Chief Business Officer of the Company until
September 12, 2007, unless Dr. Steinfels' employment is sooner terminated
as further described below. If Dr. Steinfels' employment continues beyond
September 12, 2007, such employment will become "at-will," unless his
employment agreement is expressly extended.
Dr.
Steinfels will be paid an annual base salary of $200,000, which will be subject
to periodic review and potential increase at the Board's sole discretion. During
his employment, Dr. Steinfels will be eligible to receive an annual
cash bonus,
as
determined by the CEO in his sole discretion, in an amount not exceeding 50%
of
his annual base salary. In order to receive such cash bonus, Dr. Steinfels
must
be actively employed by the Company on the date on which such cash bonus is
scheduled to be paid to him. Dr. Steinfels, during his employment, will also
be
eligible to receive options to purchase shares of the Company's stock, to be
awarded in the Board's sole discretion under the Stock Option Plan. In addition,
Dr. Steinfels will be eligible for additional bonus in the form of cash and/or
stock that may be awarded in the Board's sole discretion.
The
circumstances under which Dr. Steinfels' employment agreement may terminate
and
the related terms and conditions of any payments and benefits payable to Dr.
Steinfels as a result of the termination are substantially similar to Mr.
Jeong's employment agreement.
Dr.
Steinfels is restricted from soliciting employees or customers of the Company
during and for 12 months after the employment period.
To
the
extent that any amounts payable to Dr. Ahn, Mr. Jeong or Dr. Steinfels described
above constitute an amount payable under a "nonqualified deferred compensation
plan," as defined in Section 409A, following a "separation from service," as
defined in Section 409A, such payment will not be made until the date that
is
six months following the executive's "separation from service," but only if
the
executive is then deemed to be a "specified employee" under Section
409A.
Item
11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
The
table
below sets forth the beneficial ownership of common stock as of
December 31, 2005 by the following individuals or entities:
|
·
|
each
person, or group of affiliated persons, known to us to own beneficially
own 5% or more of the outstanding common
stock;
|
|
·
|
each
director;
|
|
·
|
each
executive officer; and
|
|
·
|
all
of the directors and executive officers as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the Commission. Except
as indicated by footnote and subject to community property laws where
applicable, each person or entity named in the table has sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by him, her or it. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock that will be subject to options held by that person
that
are exercisable as of March 27, 2006, or will become exercisable within 60
days
thereafter are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing percentage ownership of any other person.
|
Shares
of Rexahn Pharmaceuticals
Common
Stock
Beneficially
Owned
|
|||||||
|
Name
of Beneficial Owner
|
Number
of Shares
|
Percentage
|
|||||
|
Directors
and Executive Officers:
|
|||||||
|
Chang
H. Ahn*
|
20,141,660
|
(1)(2)
|
43.1%
|
|
|||
|
Young-Soon
Park*
|
9,416,660
|
(1)(3)
|
19.9%
|
|
|||
|
John
Holaday*
|
135,000
|
(4)
|
Less
than 1%
|
|
|||
|
David
McIntosh*
|
75,000
|
(5)
|
Less
than 1%
|
|
|||
|
Inok
Ahn*
|
650,000
|
(6)
|
1.4%
|
|
|||
|
Tae
Heum Jeong*
|
900,000
|
(7)
|
1.9%
|
|
|||
|
George
F. Steinfels*
|
225,000
|
(8)
|
Less
than 1%
|
|
|||
|
All
executive officers and directors as a group (7 persons)
|
25,201,660
|
52.5%
|
|
||||
|
|
|||||||
|
Holders
of more than 5% of shares:
|
|
||||||
|
Korean
Rexahn Investors Voting Trust*
|
6,341,660
|
13.7%
|
|
||||
|
Rexgene
Biotech Co., Ltd.**
|
4,791,670
|
(9)
|
10.3%
|
|
|||
|
Chong
Kun Dang Pharmaceutical Corp.***
|
3,000,000
|
(9)
|
6.5%
|
|
|||
|
KT&G
Corporation****
|
2,500,000
|
(9)
|
5.4%
|
|
|||
_______________________________________________
| * |
c/o
Rexahn, Corp, 9620 Medical Center Drive, Rockville, MD
20850.
|
| ** |
4F
Wooyoung Venture Bldg. 1330-13, Seocho-dong Seocho-gu, Seoul 137-070,
Korea.
|
| *** |
368,
3-ga, Chungjeong-ro, Seodaemun-gu, Seoul 120-756,
Korea.
|
| **** |
100
Pyongchon-dong, Daedeog-gu, Daejeon 306-130,
Korea.
|
| (1) |
Includes
6,341,660 shares of common stock that are subject to the Korean Rexahn
Investors Voting Trust, of which Dr. Ahn and Dr. Park are
co-trustees. The voting trust agreement will terminate in July 2008,
subject to earlier termination in accordance with its terms. As
co-trustees, Dr. Ahn and Dr. Park have the exclusive unqualified
right and power to exercise all of the voting rights and powers with
respect to the shares that are subject to the voting trust. The voting
trust holds shares on behalf of approximately sixty individual and
institutional owners resident in Korea, none of whom (other than
Dr. Park) has investment power with respect to more than 5% of the
outstanding shares of common stock.
|
| (2) |
Includes
Dr. Ahn's options to purchase 300,000 shares of common stock that
are
currently exercisable and excludes 650,000 shares held by Dr. Ahn's
wife,
Inok Ahn, as to which shares he disclaims beneficial
ownership.
|
| (3) |
Includes
166,000 shares of common stock as to which Dr. Park holds sole
investment power subject to the Korean Rexahn Investors Voting
Trust.
|
| (4) |
Includes
Dr. Holaday's options to purchase 135,000 shares of common stock that
are currently exercisable.
|
| (5) |
Includes
Mr. McIntosh's options to purchase 75,000 shares common stock that
are currently exercisable.
|
| (6) |
Excludes
20,141,660 shares held by Mrs. Ahn's husband, Dr. Chang H. Ahn, as
to
which shares she disclaims beneficial ownership, and includes Mrs.
Ahn's
options to purchase 150,000 shares of common stock that are currently
exercisable.
|
| (7) |
Includes
Mr. Jeong's options to purchase 400,000 shares of common stock that
are
currently exercisable.
|
| (8) |
Includes
Dr. Steinfels' options to purchase 225,000 shares of common stock
that are
currently exercisable.
|
| (9) |
The
boards of directors of each of Rexgene, Chong Kun Dang and KT&G, each
a Korean corporation, have sole voting and sole investment power
as to the
shares owned by their respective
corporations.
|
Item
12. Certain Relationships and Related
Transactions
On
August
3, 2005, we engaged Montgomery Pacific Group ("MPG") to act as our financial
advisor for a one-year term in connection with our growth strategies, certain
in
licensing activities and acquisition of certain assets. In consideration of
the
services, we agreed to pay MPG an advisory fee, consisting of an initial
retainer fee and success fees subject to the successful closing of licensing
transactions, acquisitions and private placements. We paid an initial retainer
fee of $50,000 in 2005. Dr. John Holaday, one of our directors, is currently
a
partner at MPG.
On
February 6, 2003, Rexahn entered into a research collaboration agreement with
Rexgene Biotech Co., Ltd. ("Rexgene"), the holder of approximately 10.32% of
outstanding common stock. Dr. Young-Soon Park, holder of approximately
19.93% of outstanding common stock and a director, served as the Chairman of
Rexgene Biotech until 2003.
Under
the
agreement we and Rexgene agreed to jointly develop and implement a research
and
development plan (including conducting clinical and animal trials in various
countries and exchanging data derived from such trials) in order to register
RX-0201, one of our drug candidates, for sale and use in Asian countries. We
contributed a license to technology relating to RX-0201, and Rexgene contributed
$1,500,000 as initial contributions under the agreement. In addition, Rexgene
agreed to conduct clinical trials in Asian countries at its own expense, and
we
agreed to conduct clinical and animal trials in the United States and in
non-Asian countries at our own expense. We and Rexgene also agreed to share
data, improvements, developments, discoveries and inventions resulting from
the
agreement. Under the agreement, Rexgene also received an exclusive license
from
us to exploit any results from the research development in Asian countries,
and
we received an exclusive license to exploit any results from the research and
development everywhere in non-Asian countries. Pursuant to the terms of the
agreement, Rexgene also agreed to pay us 3% of the profits derived from the
sale
of RX-0201 in Asian countries. The agreement, if not earlier terminated by
either us or Rexgene, will terminate on the expiration of the patents resulting
from the agreement, or if no such patents are granted, 20 years from February
6,
2003.
On
September 3, 2003, we entered into a joint research and development agreement
with Chong Kun Dang Pharmaceutical Corp. ("CKD"), the holder of approximately
6.46% of outstanding common stock.
Under
the
agreement, we and CKD agreed to cooperate in the research and development of
a
variety of new pharmaceutical compounds for human use in their own capacities.
Each of CKD and us has performed and will continue to perform research,
development and other obligations under the agreement at its own expense. CKD
and Rexahn equally own all information, data, discoveries and all other results,
either patentable or non-patentable, made or developed in connection with or
arising out of the agreement. All profits derived from or in connection with
the
agreement will be allocated to CKD and us in proportion to relative
contributions based on certain ratios, which vary depending upon a particular
research and development phase during which the profits are earned. The
agreement, if not earlier terminated by either us or CKD, will last until the
expiration of any intellectual property rights pertaining to information, data,
discoveries and all other results made or developed in connection with or
arising out of the agreement.
Item
13. Exhibits
|
Exhibit
Number
|
Exhibit
Description
|
|
|
2.1.
|
Agreement
and Plan of Merger dated as of January 20, 2005 by and among CPRD,
CRS
Merger Sub, Inc., CRS Delaware, Inc. and Rexahn, Corp, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed on January 21,
2005, is incorporated herein by reference.
|
|
|
2.2.
|
Agreement
and Plan of Merger by and between CPRD and CRS Delaware, Inc. dated
as of
January 20, 2005, filed as Exhibit 2.2 to the Company's Current Report
on
Form 8-K filed on January 21, 2005, is incorporated herein by
reference.
|
|
|
3.1.
|
Amended
and Restated Certificate of Incorporation, filed as Appendix G to
the
Company's Definitive Proxy Statement on Schedule 14A (File No. 000-50590)
dated April 29, 2004, is incorporated herein by
reference.
|
|
|
3.2.
|
Amended
and Restated Bylaws, filed as Appendix H to the Company's Definitive
Proxy
Statement on Schedule 14A (File No. 000-50590) dated April 29, 2004,
is
incorporated herein by reference.
|
|
|
4.1.
|
Specimen
Certificate for the Company's Common Stock, par value $.0001 per
share,
filed as Exhibit 4.3 to the Company's Registration Statement on Form
S-8
(File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|
|
Korean
Rexahn Investors Voting Trust Agreement dated as of July
2003.
|
||
|
*10.1.1.
|
Rexahn
Pharmaceuticals, Inc. Stock Option Plan, as amended, filed as Exhibit
4.4
to the Company's Registration Statement on Form S-8 (File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|
|
*10.1.2.
|
Form
of Stock Option Grant Agreement for Employees, filed as Exhibit 4.5.1
to
the Company's Registration Statement on Form S-8 (File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|
|
*10.1.3.
|
Form
of Stock Option Grant Agreement for Non-Employee Directors and
Consultants, filed as Exhibit 4.5.2 to the Company's Registration
Statement on Form S-8 (File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|
|
*10.2.
|
Employment
Agreement, dated September 12, 2005, by and between Rexahn
Pharmaceuticals, Inc. and C. H. Ahn, filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on September 12, 2005,
is
incorporated herein by reference.
|
|
|
*10.3.
|
Employment
Agreement, dated September 12, 2005, by and between Rexahn
Pharmaceuticals, Inc. and T. H. Jeong, filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on September 12, 2005,
is
incorporated herein by reference.
|
|
|
*10.4.
|
Employment
Agreement, dated September 12, 2005, by and between Rexahn
Pharmaceuticals, Inc. and G. Steinfels, filed as Exhibit 10.1 to
the
Company's Current Report on Form 8-K filed on September 12, 2005,
is
incorporated herein by reference.
|
|
Research
Collaboration Agreement dated February 6, 2003 by and between Rexahn
Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd.
|
||
|
Revaax
License Agreement, dated February 8, 2005, by and between Rexahn
Pharmaceuticals, Inc. and Revaax
Pharmaceuticals LLC.
|
||
|
Consent
of Lazar, Levine & Felix, LLP, independent registered public
accounting firm.
|
||
|
Consent
of SF Partnership, LLP, independent registered public accounting
firm.
|
||
|
Power
of Attorney.
|
||
|
Certification
of Chief Executive Officer of Periodic Report Pursuant to Pursuant
to
Rule 13a-15(e) or Rule 15d-15(e).
|
||
|
Certification
of Chief Financial Officer of Periodic Report Pursuant to Pursuant
to
Rule 13a-15(e) or Rule 15d-15(e).
|
||
|
Certification
of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
|
||
|
Certification
of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
|
_______________________
*
Management contract or compensation plan or arrangement.
Item
14. Principal Accountant Fees and
Services
The
following table presents fees for professional audit services rendered by Lazar
Levine & Felix LLP and SF Partnership, LLP for the audits of the Company's
annual financial statements for the years ended December 31, 2005 and 2004,
respectively.
|
2005
|
2004
|
||||||
|
Audit
Fees
|
$
|
61,000
|
$
|
26,000
|
|||
|
Audit
Related Fees
|
—
|
—
|
|||||
|
Tax
Fees
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—
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—
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All
Other Fees
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—
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—
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SIGNATURES
In
accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the issuer has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized on this 31st day of
March, 2006.
|
REXAHN
PHARMACEUTICALS, INC.
|
|||
|
By:
|
/s/
Chang H. Ahn
|
||
|
Chang
H. Ahn
|
|||
|
Chairman
and Chief Executive Officer
|
|||
In
accordance with the requirement of the Securities Exchange Act of 1934, this
report has been signed on the 31st day of March, 2006 by the following
persons on behalf of the issuer and in the capacities indicated:
|
Name
|
Title
|
||
| Chang H. Ahn* |
Chairman
and Chief Executive Officer
|
||
|
Chang
H. Ahn
|
|
||
| Tae Heum Jeong* |
Chief
Financial Officer, Secretary and Director
|
||
|
Tae
Heum Jeong
|
|
||
| Young-Soon Park* |
Director
|
||
|
Young-Soon
Park
|
|
||
| John Holaday* |
Director
|
||
|
John
Holaday
|
|
||
| David McIntosh* |
Director
|
||
|
David
McIntosh
|
|
||
| Inok Ahn* |
Director
|
||
|
Inok
Ahn
|
|
||
| * By: |
/s/
Tae
Heum Jeong
|
|
|
Tae
Heum Jeong, Attorney-in-Fact**
|
||
| ** By authority of the power of attorney filed as Exhibit 24 hereto. | ||
EXHIBIT INDEX
|
Exhibit
Number
|
Exhibit
Description
|
Page
|
||
|
2.1.
|
Agreement
and Plan of Merger dated as of January 20, 2005 by and among CPRD,
CRS
Merger Sub, Inc., CRS Delaware, Inc. and Rexahn, Corp, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed on January 21,
2005, is incorporated herein by reference.
|
|||
|
2.2.
|
Agreement
and Plan of Merger by and between CPRD and CRS Delaware, Inc. dated
as of
January 20, 2005, filed as Exhibit 2.2 to the Company's Current Report
on
Form 8-K filed on January 21, 2005, is incorporated herein by
reference.
|
|||
|
3.1.
|
Amended
and Restated Certificate of Incorporation, filed as Appendix G to
the
Company's Definitive Proxy Statement on Schedule 14A (File No. 000-50590)
dated April 29, 2004, is incorporated herein by reference.
|
|||
|
3.2.
|
Amended
and Restated Bylaws, filed as Appendix H to the Company's Definitive
Proxy
Statement on Schedule 14A (File No. 000-50590) dated April 29, 2004,
is
incorporated herein by reference.
|
|||
|
4.1.
|
Specimen
Certificate for the Company's Common Stock, par value $.0001 per
share,
filed as Exhibit 4.3 to the Company's Registration Statement on Form
S-8
(File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|||
|
9.
|
Korean
Rexahn Investors Voting Trust Agreement dated as of July
2003.
|
|||
|
*10.1.1.
|
Rexahn
Pharmaceuticals, Inc. Stock Option Plan, as amended, filed as Exhibit
4.4
to the Company's Registration Statement on Form S-8 (File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|||
|
*10.1.2.
|
Form
of Stock Option Grant Agreement for Employees, filed as Exhibit 4.5.1
to
the Company's Registration Statement on Form S-8 (File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|||
|
*10.1.3.
|
Form
of Stock Option Grant Agreement for Non-Employee Directors and
Consultants, filed as Exhibit 4.5.2 to the Company's Registration
Statement on Form S-8 (File No. 333-129294
)
dated October 28, 2005, is incorporated herein by
reference.
|
|||
|
*10.2.
|
Employment
Agreement, dated September 12, 2005, by and between Rexahn
Pharmaceuticals, Inc. and C. H. Ahn, filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on September 12, 2005,
is
incorporated herein by reference.
|
|||
|
*10.3.
|
Employment
Agreement, dated September 12, 2005, by and between Rexahn
Pharmaceuticals, Inc. and T. H. Jeong, filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on September 12, 2005,
is
incorporated herein by reference.
|
|||
|
*10.4.
|
Employment
Agreement, dated September 12, 2005, by and between Rexahn
Pharmaceuticals, Inc. and G. Steinfels, filed as Exhibit 10.1 to
the
Company's Current Report on Form 8-K filed on September 12, 2005,
is
incorporated herein by reference.
|
|||
|
10.5.
|
Research
Collaboration Agreement dated February 6, 2003 by and between Rexahn
Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd.
|
|
10.6.
|
|
Revaax
License Agreement, dated February 8, 2005, by and between Rexahn
Pharmaceuticals, Inc. and Revaax
Pharmaceuticals LLC.
|
||
|
23.1.
|
|
Consent
of Lazar, Levine & Felix, LLP, independent registered public
accounting firm.
|
||
|
23.2.
|
Consent
of SF Partnership, LLP, independent registered public accounting
firm.
|
|||
|
24.
|
|
Power
of Attorney.
|
||
|
31.1.
|
|
Certification
of Chief Executive Officer of Periodic Report Pursuant to Pursuant
to
Rule 13a-15(e) or Rule 15d-15(e).
|
||
|
31.2.
|
Certification
of Chief Financial Officer of Periodic Report Pursuant to Pursuant
to
Rule 13a-15(e) or Rule 15d-15(e).
|
|||
|
32.1.
|
|
Certification
of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
|
||
|
32.2.
|
|
Certification
of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
|
_______________________
*
Management contract or compensation plan or arrangement.