Delaware
|
11-3516358
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
PAGE(S)
|
|||
PART
I
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements:
|
||
1
|
|||
2
|
|||
3
|
|||
4
|
|||
Item
2.
|
16
|
||
Item
3.
|
35
|
||
PART
II
|
OTHER
INFORMATION
|
||
Item
1.
|
36
|
||
Item
2.
|
36
|
||
Item
3.
|
36
|
||
Item
4.
|
36
|
||
Item
5.
|
36
|
||
Item
6.
|
37
|
||
Signatures |
38
|
June
30,
|
December
31,
|
||||||
2006
|
2005
|
||||||
|
(Unaudited)
|
||||||
ASSETS
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
67,592
|
$
|
1,679,441
|
|||
Short-term
investments
|
6,224,614
|
8,437,184
|
|||||
Prepaid
expenses and other
|
58,002
|
54,774
|
|||||
Total
Current Assets
|
6,350,208
|
10,171,399
|
|||||
Equipment,
Net
|
170,165
|
203,632
|
|||||
Intangible
Assets, Net
|
331,093
|
339,890
|
|||||
Total
Assets
|
$
|
6,851,466
|
10,714,921
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
241,969
|
$
|
587,612
|
|||
Licensing
fee payable
|
85,120
|
172,813
|
|||||
Total
Current Liabilities
|
327,089
|
760,425
|
|||||
Long-term
convertible debt
|
-
|
3,850,000
|
|||||
Deferred
revenue
|
1,237,500
|
1,275,000
|
|||||
Total
Liabilities
|
1,564,589
|
5,885,425
|
|||||
Commitment
and Contingencies (note 6)
|
|||||||
Stockholders'
Equity
|
|||||||
Common
stock, par value $0.0001
|
5,028
|
4,641
|
|||||
Treasury
stock, 14,205 shares, at cost
|
(28,410
|
)
|
-
|
||||
Additional
paid-in capital
|
23,691,719
|
19,029,178
|
|||||
Accumulated
deficit during
the development stage
|
(18,381,460
|
)
|
(14,204,323
|
)
|
|||
Total
Stockholders' Equity
|
5,286,877
|
4,829,496
|
|||||
Total
Liabilities and Stockholders' Equity
|
$
|
6,851,466
|
$
|
10,714,921
|
Cumulative
from March 19, 2001 (Inception) to
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
||||||||||||||
June
30,
|
||||||||||||||||
2006
|
2006
|
2005
|
2006
|
2005
|
||||||||||||
Revenue:
|
|
|
|
|
||||||||||||
Interest
and other income
|
$
|
590,728
|
$
|
88,087
|
$
|
31,960
|
$
|
199,279
|
$
|
36,769
|
||||||
Research
|
262,500
|
18,750
|
18,750
|
37,500
|
37,500
|
|||||||||||
853,228
|
106,837
|
50,710
|
236,779
|
74,269
|
||||||||||||
Expenses:
|
||||||||||||||||
General
and administrative
|
6,969,190
|
590,599
|
883,950
|
1,157,568
|
1,196,832
|
|||||||||||
Beneficial
conversion feature
|
1,625,000
|
-
|
-
|
-
|
-
|
|||||||||||
Research
and development
|
7,741,950
|
449,320
|
176,940
|
2,250,455
|
555,436
|
|||||||||||
Stock
option compensation expense
|
2,013,911
|
472,225
|
131,598
|
808,319
|
227,309
|
|||||||||||
Patent
fees
|
291,975
|
44,886
|
26,858
|
64,289
|
55,442
|
|||||||||||
Interest
|
292,517
|
30,569
|
57,750
|
91,021
|
77,219
|
|||||||||||
Depreciation
and amortization
|
300,145
|
21,187
|
16,517
|
42,264
|
33,033
|
|||||||||||
19,234,688
|
1,608,786
|
1,293,613
|
4,413,916
|
2,145,271
|
||||||||||||
Net
Loss
|
$
|
(18,381,460
|
)
|
$
|
(1,501,949
|
)
|
$
|
(1,242,903
|
)
|
$
|
(4,177,137
|
)
|
$
|
(2,071,002
|
)
|
|
Loss
per weighted average number of shares outstanding basic and
diluted
|
$
|
(0.03
|
)
|
$
|
(0.03
|
)
|
$
|
(0.09
|
)
|
$
|
(0.05
|
)
|
||||
Weighted
average number of shares basic and diluted
|
48,488,709
|
39,834,175
|
47,456,433
|
38,987,503
|
Cumulative
from
March
19, 2001
|
Six
Months Ended
|
|||||||||
(Inception)
to
|
June
30,
|
|||||||||
June
30, 2006
|
2006
|
2005
|
||||||||
Cash
Flows from Operating Activities:
|
||||||||||
Net
loss
|
$
|
(18,381,460
|
)
|
$
|
(4,177,137
|
)
|
$
|
(2,071,002
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||
Beneficial
conversion feature
|
1,625,000
|
—
|
—
|
|||||||
Compensatory
stock
|
21,877
|
—
|
—
|
|||||||
Depreciation
and amortization
|
300,145
|
42,264
|
33,034
|
|||||||
Stock
option compensation expense
|
2,013,911
|
808,319
|
227,309
|
|||||||
Deferred
revenue
|
1,237,500
|
(37,500
|
)
|
(37,500
|
)
|
|||||
Changes
in assets and liabilities:
|
||||||||||
Prepaid
expenses and other
|
(58,002
|
)
|
(3,228
|
)
|
(33,618
|
)
|
||||
Accounts
payable and accrued expenses
|
241,969
|
(345,643
|
)
|
181,113
|
||||||
Net
Cash Used in Operating Activities
|
(12,999,060
|
)
|
(3,712,925
|
)
|
(1,700,664
|
)
|
||||
Cash
Flows from Investing Activities
|
||||||||||
Short-term
investments
|
(6,224,614
|
)
|
2,212,570
|
—
|
||||||
Purchase
of equipment
|
(445,187
|
)
|
—
|
—
|
||||||
Net
Cash (Used in) Provided by Investing Activities
|
(6,669,801
|
)
|
2,212,570
|
—
|
||||||
Cash
Flows from Financing Activities
|
||||||||||
Issuance
of common stock
|
14,885,959
|
4,609
|
—
|
|||||||
Proceeds
from long-term debt
|
5,150,000
|
—
|
3,850,000
|
|||||||
Principal
payments on long-term debt
|
(271,096
|
)
|
(87,693
|
)
|
(93,750
|
)
|
||||
Purchase
of treasury stock
|
(28,410
|
) |
(28,410
|
) |
—
|
|||||
Net
Cash Provided by (Used in) Financing
Activities
|
19,736,453
|
(111,494
|
)
|
3,756,250
|
||||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
67,592
|
(1,611,849
|
)
|
2,055,586
|
||||||
Cash
and Cash Equivalents - beginning of period
|
—
|
1,679,441
|
1,015,979
|
|||||||
Cash
and Cash Equivalents - end of period
|
$
|
67,592
|
$
|
67,592
|
$
|
3,071,565
|
||||
Supplemental
Cash Flow Information
|
||||||||||
Interest
paid
|
$
|
292,912
|
$
|
280,535
|
$
|
659
|
||||
Non-cash
investing and financing activities:
|
||||||||||
In
February 2005, the Company entered into a licensing agreement in
exchange
for debt of $375,000.
|
||||||||||
In
May 2006, the convertible debt of $3.85 million was converted into
3.85
million shares of the Company's common
stock.
|
1.
|
Organization
|
1. |
Organization
(cont'd)
|
2. |
Summary
of Significant Accounting
Policies
|
3. |
Long-Term
Convertible Debt
|
4. |
Common
Stock
|
Authorized
|
500,000,000
shares of common stock, voting, par value
$0.0001
|
June
30,
2006
|
December
31,
2005
|
||||||
Issued
|
|
||||||
50,279,837
shares (2005 - 46,410,632) of common stock
|
|||||||
Outstanding
|
|||||||
50,265,632
shares (2005 - 46,410,632) of common stock
|
$
|
5,028
|
$
|
4,641
|
|||
14,205
shares (2005 - 0) of treasury stock
|
28,410 |
—
|
4. |
Common
Stock (cont'd)
|
5. |
Stock-Based
Compensation
|
5.
|
Stock-Based
Compensation (cont'd)
|
5.
|
Stock-Based
Compensation (cont'd)
|
5.
|
Stock-Based
Compensation (cont'd)
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
Black-Scholes Weighted Average Assumptions: |
2006
|
2005
|
2006
|
2005
|
|||||||||
Expected
dividend yield
|
0
|
0
|
0
|
0
|
|||||||||
Expected
volatility
|
100
|
% |
100
|
% |
100
|
%
|
100
|
%
|
|||||
Risk
free interest rate
|
4.990
|
% |
4.54
|
% |
4.990
|
%
|
4.54
|
%
|
|||||
Expected
term (in years)
|
5
years
|
5
years
|
5
years
|
5
years
|
|
Three
Months Ended
|
Six
Months Ended
|
|||||
June
30,
|
June
30,
|
||||||
2005
|
2005
|
||||||
Net
loss, as reported
|
$
|
(1,242,903
|
)
|
$
|
(2,071,002
|
)
|
|
Add:
Employee stock option compensation expense included in reported
net
loss
|
-
|
155,640
|
|||||
Deduct:
Employee stock option compensation expense determined under fair
value-based method for all employee awards (no tax effect)
|
(166,972
|
)
|
(238,900
|
)
|
|||
Pro
forma net loss
|
$
|
(1,409,875
|
)
|
$
|
(2,154,262
|
)
|
|
Net
loss per share:
|
|||||||
Basic
and diluted-as reported
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
|
Basic
and diluted-pro forma
|
$
|
(0.03
|
)
|
$
|
(0.06
|
)
|
5. |
Stock-Based
Compensation (cont'd)
|
Shares
Subject to Options
|
Weighted
Avg.Option Exercise Prices
|
Weighted
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
at January 1, 2006
|
5,770,000
|
$
|
0.84
|
-
|
-
|
||||||||
Granted
|
1,045,000
|
1.20
|
-
|
-
|
|||||||||
Exercised
|
(19,205
|
)
|
0.24
|
-
|
-
|
||||||||
Cancelled
|
-
|
-
|
-
|
-
|
|||||||||
Outstanding
at June 30, 2006
|
6,795,795
|
$
|
0.89
|
8.5
years
|
$
|
7,543,333
|
|||||||
Exercisable
at June 30, 2006
|
2,515,337
|
$
|
0.76
|
7.8
years
|
$
|
3,119,018
|
6. |
Commitments
and Contingencies
|
a)
|
The
Company has contracted with various vendors to provide research and
development services. The terms of these agreements usually require
an initiation fee and monthly or periodic payments over the terms
of the
agreement, ranging from 6 months to 24 months. The costs to be
incurred are estimated and are subject to revision. As of June 30,
2006, the total value of these agreements was approxiamtely $1,375,000
and
the Company had made payments totaling $556,000 under the terms of
the
agreements.
|
b)
|
The
Company signed an agreement with a public relations company to
provide services for a period of 12 months for consideration of an
initiation fee of $5,000 and periodic payments totaling
$30,000. As of June 30, 2006, the Company had paid
$10,000 in connection with this
agreement.
|
6. |
Commitments
and Contingencies (cont'd)
|
c) |
On
April 19, 2006, the Company executed definitive agreements with Future
Systems, Inc. ("FSI"), a Korean stock exchange (KOSDAQ) listed information
technology company based in Seoul, Korea. Pursuant to the agreements,
the
Company would transfer to FSI exclusive rights and a non-exclusive
license
to develop, manufacture, and sell products based on Rexahn’s RX-0201,
RX-0047 and RX-10100 drug candidates in certain territories for
approximately $35.8 million, and simultaneously, FSI would issue
and sell
4,326,854 shares of its common stock to the Company, representing
approximately 28% of FSI’s outstanding shares, after giving effect to the
subscription. The investment, of approximately $35.8 million, would
have
made the Company the largest single stockholder of FSI. In addition,
the
Company entered into an agreement with FSI and Core F.G. Co., Ltd.,
the
general partner of Triplewin Corporate Restructuring Partnership,
the
then-current majority shareholder of FSI, with respect to the management
of FSI in connection with redirecting FSI’s business focus to the
biopharmaceutical industry. Completion of the transactions was subject
to
customary closing conditions, including approval by FSI
shareholders. On
June 8, 2006, the Company terminated the agreements entered into
with FSI
and Core F.G. Co., Ltd., including a share subscription agreement,
an
intellectual property assignment and license agreement and a management
agreement, providing for, among other things, the assignment and
license
by the Company to FSI of certain intellectual property rights for
the
Company's drug candidates in specified markets and the acquisition
by the
Company of an ownership interest in FSI. The termination followed
a vote
on the proposed transactions that was not approved by the FSI shareholders
at a meeting in Seoul, Korea on June 7, 2006.
|
7. |
Comparative
Information
|
·
|
our
lack of profitability and the need for additional capital to operate
our
business;
|
·
|
our
ability to obtain the necessary U.S. and worldwide regulatory approvals
for our drug candidates;
|
·
|
successful
and timely completion of clinical trials for our drug
candidates;
|
·
|
demand
for and market acceptance of our drug
candidates;
|
·
|
the
availability of qualified third-party researchers and manufacturers
for
our drug development programs;
|
·
|
our
ability to develop and obtain protection of our intellectual property;
and
|
·
|
other
risks and uncertainties, including those detailed from time to time
in our
filings with the Securities and Exchange Commission.
|
For
the years ending
December 31
|
||||
2006
|
$
|
209,874
|
||
2007
|
216,170
|
|||
2008
|
222,655
|
|||
2009
|
112,972
|
|||
$
|
761,671
|
·
|
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.
|
·
|
continued
pre-clinical development and clinical trials for our current and
new drug
candidates;
|
·
|
efforts
to seek regulatory approvals for our drug
candidates;
|
·
|
implementing
additional internal systems and
infrastructure;
|
·
|
licensing
in additional technologies to develop;
and
|
·
|
hiring
additional personnel.
|
·
|
conducting
pre-clinical and clinical trials;
|
·
|
participating
in regulatory approval processes;
|
·
|
formulating
and manufacturing products; and
|
·
|
conducting
sales and marketing activities.
|
·
|
unforeseen
safety issues;
|
·
|
determination
of dosing issues;
|
·
|
lack
of effectiveness during clinical
trials;
|
·
|
reliance
on third party suppliers for the supply of drug candidate
samples;
|
·
|
slower
than expected rates of patient
recruitment;
|
·
|
inability
to monitor patients adequately during or after treatment;
|
·
|
inability
or unwillingness of medical investigators and institutional review
boards
to follow our clinical protocols;
and
|
·
|
lack
of sufficient funding to finance the clinical
trials.
|
·
|
awareness
of the drug's availability and
benefits;
|
·
|
perceptions
by members of the health care community, including physicians, about
the
safety and effectiveness of our
drugs;
|
·
|
pharmacological
benefit and cost-effectiveness of our product relative to competing
products;
|
·
|
availability
of reimbursement for our products from government or other healthcare
payers;
|
·
|
effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any; and
|
·
|
the
price at which we sell our
products.
|
·
|
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.
|
·
|
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.
|
·
|
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.
|
·
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the Drug Enforcement Agency ("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.
|
·
|
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.
|
·
|
developing
drugs;
|
·
|
undertaking
pre-clinical testing and human clinical trials;
|
·
|
obtaining
FDA and other regulatory approvals of
drugs;
|
·
|
formulating
and manufacturing drugs; and
|
·
|
launching,
marketing and selling drugs.
|
·
|
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.
|
·
|
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.
|
·
|
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.
|
Number
of Shares
|
|||
Voted
For
|
Withheld
|
||
1. Election
of directors:
|
|||
Chang
H. Ahn
|
43,259,576
|
0
|
|
Charles
Beever
|
43,259,576
|
0
|
|
Kwang
Soon Cheong
|
43,259,576
|
0
|
|
Ted
T.H. Jeong
|
43,259,576
|
0
|
|
Y.
Michele Kang
|
43,259,576
|
0
|
|
David
McIntosh
|
43,259,576
|
0
|
|
Young-Soon
Park
|
43,259,576
|
0
|
Number
of Shares
|
|||||||
Voted
For
|
Voted
Against
|
Abstentions
|
Broker
Non-Votes
|
||||
2. Proposal
to amend the Company’s Stock Option Plan
|
43,259,526
|
50
|
0
|
0
|
|||
3. Proposal
to ratify appointment of Lazar Levine & Felix LLP as the Company’s
independent auditors
|
43,259,576
|
0
|
0
|
N/A
|
Exhibit
Number
|
Description
|
|
10.1
|
Termination
Agreement, dated June 7, 2006, by and between Core F.G. Co., Ltd.,
Rexahn
Pharmaceuticals, Inc. and Future Systems, Inc. (English
Translation)
|
|
31.1
|
Certification
of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e)
or Rule 15d-15(e)
|
|
31.2
|
Certification
of Chief Financial Officer of Periodic Report 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
|
REXAHN
PHARMACEUTICALS, INC.
|
||
|
||
/s/
Ted T.H. Jeong
|
||
Name:
Ted T. H. Jeong
|
||
Title:
Chief Financial Officer and Secretary
|
||
Date:
August 14, 2006
|
Exhibit
Number
|
Description
|
|
Termination
Agreement, dated June 7, 2006, by and between Core F.G. Co., Ltd.,
Rexahn
Pharmaceuticals, Inc. and Future Systems, Inc. (English
Translation)
|
||
Certification
of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e)
or Rule 15d-15(e)
|
||
Certification
of Chief Financial Officer of Periodic Report 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
|