UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K/A
Amendment No. 1

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-34079
Rexahn Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
11-3516358
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
15245 Shady Grove Road, Suite 455
Rockville, Maryland
 
 
20850
(Address of principal executive offices)
 
(Zip Code)
 
 
(240) 268-5300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $.0001 par value per share
NYSE AMEX

Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. o
 


 
 
 

 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
    (Do not check if a smaller reporting company)  

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 the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: As of June 30, 2010, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $97,940,504 based on the closing price reported on NYSE Amex.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class
Outstanding at March 23, 2011
 
 
Common Stock, $.0001 par value per share
86,779,406 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document
Parts Into Which Incorporated
 
 
Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on June 6, 2011
Part III

 
 
 

 

REXAHN PHARMACEUTICALS, INC.

INDEX

 
 
 
 
PAGE
         
PART I      
  Item 1A.   Risk Factors 1
       
PART II
     
 
Item 8.
 
11
       
PART III
 
 
 
 
Item 15.
 
11
 
 
 
 
 
SIGNATURES
 
 
12

 
i

 
Explanatory Note – Amendment

Rexahn Pharmaceuticals, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Form 10-K/A”) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, which was originally filed with the Securities and Exchange Commission on March 16, 2011 (the “Original Filing”).

The purpose of this Form 10-K/A is to provide additional disclosure in the footnotes contained in Item 8 and Item 15 of the Form 10-K regarding terms of certain warrants issued by the Company and the Company’s (a) total comprehensive loss, (b) uninsured cash balance and (c) diluted earnings per share and diluted shares outstanding. These revised footnote disclosures have no material impact on the financial statements contained in Item 8 and Item 15 of the Form 10-K.  Additionally, this Form 10-K/A revises a risk factor regarding timing of FDA approval and adds a risk factor regarding marketing period exclusivity.

Other than as described above, none of the financial statements or other disclosures in the Original Filing have been amended or updated.  Among other things, forward looking statements made in the Original Filing have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing, and such forward-looking statements should be read in their historical context. Accordingly, this Form 10-K/A should be read in conjunction with the Company’s filings with the Securities and Exchange Commission subsequent to the Original Filing.  As required by Rule 12b-15 under the Securities and Exchange Act of 1934, new certifications of our principal executive officer, principal financial officer and principal accounting officer are being filed as exhibits to this Form 10-K/A.
 
Explanatory Note – Original Filing

The Company has restated herein our financial statements for the fiscal year ended December 31, 2009, and the quarters ended March 31, June 30, and September 30, 2010 to reflect management’s determination that the Company had misclassified warrants and a put feature on its common stock as equity. Management has determined that these instruments should have been classified as liabilities.

The Company’s Original Report reflect warrants to purchase 8,575,243 shares of the Company’s common stock as stockholders’ equity as of December 31, 2009. These warrant agreements contain a fundamental transaction provision in which the holders may opt for cash settlement upon the occurrence of a Rule 13e-3 transaction, and should have been classified as liabilities in accordance with ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”). In addition, these warrants were determined not to be indexed to the Company’s stock, and therefore, also require liability classification in accordance with ASC 815, “Derivatives and Hedging” (“ASC 815”) The resulting impact of this accounting change is a decrease in the Company’s net loss of $1,569,151 for the year ended December 31, 2009, a decrease in the Company’s accumulated deficit of $789,374 as of January 1, 2009, an increase in the Company’s liabilities of $3,099,476 as of December 31 2009, and a decrease in additional paid-in capital of $5,458,001 as of December 31, 2009. The foregoing adjustments reflect non-cash items in the Company’s financial statements.

The Company’s Original Report also included anti-dilution make whole provisions as stockholders’ equity as of December 31, 2009. On December 18, 2007 and March 20, 2008, the Company entered into Securities Purchase Agreements and extended anti-dilution make whole provisions on its common stock in the event the Company sells or issues shares below the effective purchase price paid by these investors. The investors would thereupon receive additional shares in a ratio outlined in the Securities Purchase Agreement. Management has determined that this provision is a written put and requires liability classification in accordance with ASC 480. The resulting impact of this accounting change is a decrease in the Company’s net loss of $1,915,179 for the year ended December 31, 2009, a decrease in the Company’s accumulated deficit of $302,647 as of January 1, 2009, an increase in the Company’s liabilities of $97,713 as of December 31, 2009, and a decrease in additional paid-in capital of $2,315,539 as of December 31, 2009. The foregoing adjustments reflect non-cash items in the Company’s financial statements.

The total impact of these accounting changes is a decrease in the Company’s net loss of $3,484,330 for the year ended December 31, 2009, a decrease in the Company’s accumulated deficit of $1,092,021 as of January 1, 2009, an increase in the Company’s liabilities of $3,197,189 as of December 31, 2009, and a decrease in additional paid-in capital of $7,773,540 as of December 31, 2009.

For a full description of the restatement, see Note 2 “Prior Period Adjustment” of the “Notes to the Financial Statements” that are included in Part II, Item 8 of this Form 10-K.

The Company has concluded that there was a material weakness in internal control over financial reporting as of December 31, 2009. The Company has implemented remedial measures to correct this material weakness as of December 31, 2010.

 
ii


PART I
 
Item 1A. Risk Factors.

You should carefully consider the risks described below together with the other information included in this Form 10-K/A. 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, have incurred negative cash flows from operations since inception, and will need to raise additional capital to operate our business.

To date, we have generated no product revenues and have incurred negative cash flow from operations. 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. Through the end of 2011, we expect to spend approximately $8.6 million on clinical development for Phase II clinical trials of Archexin, Serdaxin and Zoraxel™, $5.8 million on the development of preclinical compounds, $4.1 million on general corporate expenses and approximately $200,000 on facilities rent. We will need to raise additional money through debt and/or equity offerings in order to continue to develop our drug candidates. If we are not able to raise sufficient additional money, we will have to reduce our research and development activities. We will first reduce research and development activities associated with our preclinical compounds. To the extent necessary, we will then reduce our research and development activities related to some or all of our clinical drugs.

Additionally, 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 other new drug candidates, as well as other research and development projects.

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 or securities convertible into our equity securities, which may 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, 2010 and 2009 was $45,739,663 and $31,717,556, respectively. For the years ended December 31, 2010 and 2009, we had net losses of $14,022,107 and $2,903,098, respectively, partially 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:

 
·
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

 
1

 

 
·
hiring additional personnel.

We also expect to continue to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures. Until we have the capacity to generate revenues, we are relying upon outside funding resources to fund our cash flow requirements.

We have a limited operating history.

We are a development-stage company with a limited number of 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:

 
·
conducting pre-clinical and clinical trials;

 
·
participating in regulatory approval processes;

 
·
formulating and manufacturing products; and

 
·
conducting sales and marketing activities.

To date, our operations have been limited to organizing and staffing our company, acquiring, developing and securing our proprietary technology, drug candidate research and development 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, and we cannot guarantee how long it will take for FDA to review applications for 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 an 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 guarantee that any of our drug candidates will ultimately be approved by the FDA, if they will ultimately be reviewed on an expedited or priority basis by the FDA, or if an expedited or priority review will significantly shorten actual FDA review time.  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 drug candidates, Archexin and RX-0047, are antisense oligonucleotide (ASO) compounds. To date, although applications have been made by other companies, the FDA has not approved any NDAs for any ASO compounds for cancer treatment. In addition, each of Archexin, RX-0201-nano and RX-0047-nano is of a drug class (Akt inhibitor, in the case of Archexin and RX-0201-nano, and HIF inhibitor, in the case of RX-0047) that has not been approved by the FDA to date, nor have we submitted such NDA. 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.

There is no assurance as to the precise scope of our marketing exclusivity afforded under the Orphan Drug Act.

 
2

 

Even if we have orphan drug designation for a particular drug indication, we cannot guarantee that another company also holding orphan drug designation will not receive FDA approval for the same indication before we do.  If that were to happen, our applications for that indication may not be approved until the competing company’s seven-year period of exclusivity expired. Even if we are the first to obtain FDA approval for an orphan drug indication, there are certain circumstances under which a competing product may be approved for the same indication during our seven-year period of marketing exclusivity, such as if the later product is shown to be clinically superior to the orphan product.  Further, the seven-year marketing exclusivity would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug.

Our drug candidates are in the stages of clinical trials.

Our drug candidates are in the stage of development and require extensive clinical testing, which are very expensive, time-consuming and difficult to design. Archexin, our oncology drug candidate, is currently in Phase IIa trials for pancreatic cancer. In 2010, we initiated a Phase IIb clinical trial of Serdaxin for depression, with results expected in early 2012. We completed our Phase IIa clinical trial for Zoraxel, a sexual dysfunction drug candidate, and will initiate a Phase IIb clinical trial in the second half of 2011.

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 up to 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:

 
·
unforeseen safety issues;

 
·
determination of dosing issues;

 
·
lack of effectiveness during clinical trials;

 
·
change in the standard of care of the indication being studied

 
·
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.

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.

Additionally, we may have difficulty enrolling patients in our clinical trials. If we experience such difficulties, we may not be able to complete the clinical trial or we may experience significant delays in completing the clinical trial.
 
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.

 
3

 

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. In addition, standard of care treatments may change which would require additional studies to be done.

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:

 
·
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.

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 and toxicology studies. This business practice is typical for the pharmaceutical industry and companies like us. For example, the Phase I clinical trials of Archexin were conducted at the Lombardi Comprehensive Cancer Center of Georgetown Medical Center and the University of Alabama at Birmingham, with the assistance of Amarex, LLC, a pharmaceutical clinical research service provider who is responsible for creating the reports that will be submitted to the FDA. We also relied on TherImmune Research Corporation (now named Bridge Global Pharmaceutical Services, Inc.), a discovery and pre-clinical service provider, to summarize Archexin‘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. 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. These collaborators may also have relationships with other commercial entities, some of which may compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed.

 
4

 

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 UPM Pharmaceuticals, 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:

 
·
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 of formulation patents .

 
·
A third party manufacturer may gain knowledge from working with us that could be used to supply one of our competitors with a product that competes with ours.

Each of these risks could delay our clinical trials, drug approval and commercialization and potentially result in higher costs and/or reduced revenues.

Two of our clinical stage product candidates, Serdaxin and Zoraxel, are based on the same active ingredient, and if safety concerns arise with the active ingredient, then it may delay or prevent further development, regulatory approval or successful commercialization of both product candidates.

Two of our clinical stage product candidates, Serdaxin and Zoraxel, contain the same active ingredient. If safety concerns arise or any other material adverse events occur involving the active ingredient, it may result in delays, prevent the further development or adversely impact our ability to obtain necessary FDA and other regulatory approvals and to successfully commercialize both of these product candidates. Any such delay or inability to further develop and commercialize one or both of Serdaxin and Zoraxel would harm our business and our prospects.

Serdaxin and Zoraxel may be subject to early generic competition or early off-label use of the active ingredient shared by both clinical stage product candidates.

 
5

 

Two of our clinical stage product candidates, Serdaxin and Zoraxel, are based upon the same active ingredient that has previously been approved by the FDA for use in combination with antibiotics. Because we do not have a patent that claims this active ingredient chemical structure and because we are not likely to be able to obtain new chemical entity market exclusivity for this active ingredient, we may be rapidly subject to early generic competition or early off-label use of the active ingredient, which may adversely impact our ability to successfully commercialize one or both of Serdaxin or Zoraxel and may harm our financial condition, results of operations and business.

We have no experience selling, marketing or distributing products and currently 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 develop global 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 our 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, such as Keryx Biopharmaceuticals, Genta Incorporated and Imclone Systems Incorporated, as well as academic institutions, government agencies and other public and private research organizations. 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:

 
·
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.

Large pharmaceutical companies such as Bristol-Myers Squibb, Eli-Lilly, Novartis, Pfizer and Glaxo-SmithKline currently sell both generic and proprietary compounds for the treatment of cancer, depression and erectile dysfunction. In addition, companies pursuing different but related fields represent substantial competition. Many of these organizations have substantially greater capital resources, larger research and development staff 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.

 
6

 

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 an active patent protection program that includes filing patent applications on new compounds to treat cancer and other conditions, formulations, delivery systems, and methods of making and using products, and prosecuting these patent applications in the United States and abroad. As patents issue, we also file continuation applications for some of them. Through these actions, we are building a patent portfolio of patents assigned to and licensed to the company. Further, Rexahn is developing proprietary research and platforms to strengthen and expand our innovative pipelines. However, we cannot predict:

 
·
the degree and range of protection any patents will afford us against competitors, including whether third parties find ways to invalidate or otherwise circumvent our licensed patents;

 
·
if and when patents will issue in the United States or any other country;

 
·
whether or not others will obtain patents claiming aspects similar to those covered by our licensed patents and patent applications;

 
·
whether we will need to initiate litigation or administrative proceedings which may be costly whether we win or lose;

 
·
whether our patents will be challenged by our competitors alleging that a patent is invalid or unenforceable and, if opposed or litigated, the outcome of any administrative or court action as to patent validity, enforceability, or scope;

 
·
whether a competitor will develop a similar compound that is outside the scope of protection afforded by a patent or whether the patent scope is inherent in the claims modified due to interpretation of claim scope by a court;

 
·
whether there were activities previously undertaken by a licensor that could limit the scope, validity, or enforceability of licensed patents and intellectual property;

 
·
whether there will be challenges or litigation brought by a licensor alleging breach of a license agreement and its effect on our ability to practice particular technologies and the outcome of any such challenge or litigation; or

 
·
whether a competitor will assert infringement of its patents or intellectual property, whether or not meritorious, and what the outcome of any related litigation or challenge may be.

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:

 
7

 

 
·
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 our obligations under the agreement, 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, including Serdaxin and Zoraxel, 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 the 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, Chief Executive Officer, Chief Science Officer and regulatory expert, could result in delays in product development and diversion of management resources, which could adversely affect our operating results. Dr. Ahn plans to step down as Chief Executive Officer, but will remain with the Company as our Chief Science Officer. 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.

 
8

 

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, 2010 and 2009 was $45,739,663 and $31,717,556, respectively. For the years ended December 31, 2010 and 2009, we had net losses of $14,022,107 and $2,903,098, respectively, partially 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;

 
·
changes in our relationships with our licensors or other strategic partners;

 
·
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 declared or paid, and do not expect to declare or pay, any cash dividends on our common stock 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 of CPRD and Rexahn, Corp 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, an affiliated person who has held restricted shares for a period of six months 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 700,000 shares) during a three-month period. Non-affiliates may sell restricted securities after six months without any limits on volume.

Our common stock is currently listed on the NYSE AMEX under the trading symbol “RNN”. However, 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.

 
9

 

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 transactions in penny stock are suitable 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 periodic 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.

We may require additional capital funding the receipt of which may impair the value of our common stock.

If we expand more rapidly than currently anticipated or if our working capital needs exceed our current expectations, we may need to raise additional capital through public or private equity offerings or debt financings. Our future capital requirements depend on many factors including our research, development, sales and marketing activities. We do not know whether additional financing will be available when needed, or will be available on terms favorable to us. If we cannot raise needed funds on acceptable terms, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution and the new equity securities may have greater rights, preferences or privileges than our existing common stock.

We have not paid dividends to our stockholders in the past, and we do not anticipate paying dividends to our stockholders in the foreseeable future.

We have not declared or paid cash dividends on our common stock. We currently intend to retain all future earnings, if any, to fund the operation of our business, and therefore we do not anticipate paying dividends on our common stock in the foreseeable future.

Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.

Effective internal control over financial reporting and disclosure controls and procedures are necessary in order for us to provide reliable financial and other reports and effectively prevent fraud. These types of controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the proper preparation of our financial statements, as well as regarding the timely reporting of material information. If we cannot maintain effective internal control or disclosure controls and procedures, or provide reliable financial or Securities and Exchange Commission (“SEC”) reports or prevent fraud, investors may lose confidence in our reported financial information, our common stock could be subject to delisting on the stock exchange where it is traded, our operating results and the trading price of our common stock could suffer, and we might become subject to litigation.

While our management will continue to review the effectiveness of our internal control over financial reporting and disclosure controls and procedures, there is no assurance that our disclosure controls and procedures or our internal control over financial reporting will be effective in accomplishing all control objectives, including the prevention and detection of fraud, all of the time. We have determined that there was a material weakness over financial reporting as of December 31, 2009, however, we implemented remedial measures and believe that our internal controls are effective as of December 31, 2010.

 
10

 
 
PART II

Item 8. Financial Statements and Supplementary Data.

Our financial statements and financial statement schedule and the Report of Independent Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this Form 10-K/A beginning on page F-1.

PART III

Item 15. Exhibits, Financial Statement Schedules.

(a)
The following documents are filed as a part of this Form 10-K/A:
(b)

(1)   Financial Statements:
 
Page
 
 
 
Report of ParenteBeard LLC
 
F-1
 
 
 
Balance Sheets at December 31, 2010 and December 31, 2009
 
F-2
 
 
 
Statement of Operations for the years ended December 31, 2010 and December 31, 2009 and cumulative from March 19, 2001 (Inception) to December 31, 2010
 
F-3
 
 
 
Statements of Stockholders’ Equity and Comprehensive Loss from March 19, 2001 (Inception) to December 31, 2010
 
F-4
 
 
 
Statement of Cash Flows for the years ended December 31, 2010 and December 31, 2009 and cumulative from March 19, 2001 (Inception) to December 31, 2010
 
F-6
 
 
 
Notes to the Financial Statements
 
F-8

(2)

All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because the required information is either presented in the financial statements or notes thereto, or is not applicable, required or material.

(3)   Exhibits:

The documents listed below are filed with this Form 10-K/A as exhibits:
   
Exhibit Number
Exhibit Description
23
Consent of ParenteBeard LLC, independent registered public accounting firm.
24
Power of Attorney
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
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.

 
11

 
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 23rd day of March 2011.

 
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 23rd day of March 2011 by the following persons on behalf of the issuer and in the capacities indicated:

Name
 
Title
 
 
 
 
/s/ Chang H. Ahn*
 
Chairman and Chief Executive Officer
(Principal Executive Officer)
Chang H. Ahn
 
 
 
 
 
 
/s/ Tae Heum Jeong*
 
Chief Financial Officer, Secretary and Director
(Principal Financial and Accounting Officer)
Tae Heum Jeong
 
 
 
 
 
/s/ Peter Brandt*
 
Director
Peter Brandt
 
 
 
 
 
/s/ David McIntosh*
 
Director
David McIntosh
 
 
 
 
 
/s/ Charles Beever*
 
Director
Charles Beever
 
 
 
 
 
/s/ Kwang Soo Cheong*
 
Director
Kwang Soo Cheong
 
 
 
 
 
/s/ Richard Kivel*
 
Director
Richard Kivel
 
 

* By: /s/ Tae Heum Jeong, Attorney-in Fact
Tae Heum Jeong, Attorney-in-Fact**

** By authority of the power of attorney filed as Exhibit 24 hereto.

 
12


EXHIBIT INDEX
 
Consent of ParenteBeard LLC, independent registered public accounting firm.
Power of Attorney.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
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.

 
13


Report of Independent Registered Public Accounting Firm
 
 
To the Board of Directors
Rexahn Pharmaceuticals, Inc.
Rockville, Maryland

We have audited the accompanying balance sheet of Rexahn Pharmaceuticals, Inc. (the “Company”) (a development stage company) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the two years in the period ended December 31, 2010 and the amounts in the cumulative from March 19, 2001 (inception) to December 31, 2010 column in the statements of operations and cash flows. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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 also 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 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. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2010 and the cumulative period from March 19, 2001 (inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Rexahn Pharmaceuticals, Inc. internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2011 expressed an unqualified opinion.

As discussed in Note 2 to the financial statements, the 2009 financial statements have been restated to correct a material misstatement.

 
/s/ PARENTEBEARD LLC
 
 
New York, New York
March 16, 2011
 
 
F-1


REXAHN PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheet

 
 
December 31, 2010
 
 
December 31, 2009
(Restated)
 
ASSETS
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,340,239
 
 
$
7,298,032
 
Marketable securities (note 4)
 
 
2,451,620
 
 
 
175,000
 
Research tax credit receivable (note 16)
 
 
145,513
 
 
 
-
 
Prepaid expenses and other current assets (note 5)
 
 
706,649
 
 
 
320,935
 
Note receivable – current portion (note 6)
 
 
28,023
 
 
 
-
 
Total Current Assets
 
 
15,672,044
 
 
 
7,793,967
 
Restricted Cash Equivalents (note 17)
 
 
401,893
 
 
 
2,026,060
 
Note Receivable (note 6)
 
 
18,682
 
 
 
-
 
Equipment, Net (note 7)
 
 
123,565
 
 
 
168,978
 
Total Assets
 
$
16,216,184
 
 
$
9,989,005
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current Liabilities:
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses (note 8)
 
$
1,820,900
 
 
$
785,904
 
 
 
 
 
 
 
 
 
 
Deferred Revenue (note 9)
 
 
900,000
 
 
 
975,000
 
 
 
 
 
 
 
 
 
 
Other Liabilities (note 10)
 
 
133,117
 
 
 
128,501
 
 
 
 
 
 
 
 
 
 
Warrant Liabilities (note 14)
 
 
2,966,710
 
 
 
3,099,476
 
 
 
 
 
 
 
 
 
 
Put Feature on Common Stock (note 15)
 
 
-
 
 
 
97,713
 
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
5,820,727
 
 
 
5,086,594
 
Commitments and Contingencies (note 17)
 
 
 
 
 
 
 
 
Stockholders’ Equity (note 12):
 
 
 
 
 
 
 
 
Preferred stock, par value $0.0001, 100,000,000 authorized  shares, none issued and outstanding
 
 
-
 
 
 
-
 
Common stock, par value $0.0001, 500,000,000 authorized  shares, 84,175,054 (2009 – 71,938,701) issued and outstanding 84,160,849 (2009 – 71,924,496)
 
 
8,418
 
 
 
7,194
 
Additional paid-in capital
 
 
56,157,452
 
 
 
36,641,183
 
Accumulated other comprehensive loss
 
 
(2,340
)
 
 
-
 
Accumulated deficit during the development stage
 
 
(45,739,663
)
 
 
(31,717,556
)
Treasury stock, 14,205 shares, at cost
 
 
(28,410
)
 
 
(28,410
)
 
 
 
 
 
 
 
 
 
Total Stockholders’ Equity
 
 
10,395,457
 
 
 
4,902,411
 
 
 
 
 
 
 
 
 
 
Total Liabilities and Stockholders’ Equity
 
$
16,216,184
 
 
$
9,989,005
 

(See accompanying notes to financial statements.)

 
 
F-2


REXAHN PHARMACEUTICALS, INC.
(A Development Stage Company)
Statement of Operations

 
 
For the Year Ended December 31,
 
 
Cumulative from March 19, 2001 (Inception) to December 31,
 
 
 
2010
 
 
2009
 
 
2010
 
 
 
 
 
 
(Restated)
 
 
(Restated)
 
Revenues:
 
 
 
 
 
 
 
 
 
Research
 
$
75,000
 
 
$
75,000
 
 
$
600,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
 
 
5,990,624
 
 
 
2,944,103
 
 
 
23,799,166
 
Research and development
 
 
4,009,701
 
 
 
3,251,971
 
 
 
20,493,516
 
Patent fees
 
 
329,925
 
 
 
303,220
 
 
 
1,554,978
 
Depreciation and amortization
 
 
50,659
 
 
 
41,604
 
 
 
595,467
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Expenses
 
 
10,380,909
 
 
 
6,540,898
 
 
 
46,443,127
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from Operations
 
 
(10,305,909
)
 
 
(6,465,898
)
 
 
(45,843,127
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
Realized gain (loss) on marketable securities .
 
 
-
 
 
 
11,025
 
 
 
(9,341
)
Interest income
 
 
133,268
 
 
 
67,445
 
 
 
1,312,067
 
Interest expense
 
 
-
 
 
 
-
 
 
 
(301,147
)
Other income
 
 
56,047
 
 
 
-
 
 
 
56,047
 
Unrealized (loss) gain on fair value of warrants
 
 
(3,823,146
)
 
 
1,793,101
 
 
 
(1,102,345
)
Unrealized gain on fair value of put feature on common stock
 
 
97,713
 
 
 
1,915,179
 
 
 
2,315,539
 
Financing expense
 
 
(180,080
)
 
 
(223,950
)
 
 
(542,356
)
Beneficial conversion feature
 
 
-
 
 
 
-
 
 
 
(1,625,000
)
Total Other Income (Expense)
 
 
(3,716,198
)
 
 
3,562,800
 
 
 
103,464
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss Before Provision for Income Taxes
 
 
(14,022,107
)
 
 
(2,903,098
)
 
 
(45,739,663
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for Income Taxes
 
 
-
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
$
(14,022,107
)
 
$
(2,903,098
)
 
$
(45,739,663
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
 
$
(0.18
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding, basic and diluted
 
 
78,662,495
 
 
 
61,411,442
 
 
 
 
 

(See accompanying notes to financial statements.)

 
 
F-3

 
REXAHN PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit) and Comprehensive Loss
Period from March 19, 2001 (Inception) to December 31, 2010 (Restated)

 
 
Common Stock
 
 
Additional
 
 
Accumulated Deficit During the
 
 
Treasury Stock
 
 
Accumulated Other
 
 
Total Stockholders’
 
 
 
Number of
shares
 
 
Amount
 
 
Paid in
Capital
 
 
Development
Stage
 
 
Number of
stock
 
 
Amount
 
 
Comprehensive
Loss
 
 
Equity
(Deficit)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Opening balance, March 19, 2001
 
 
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
 
-
 
 
$
-
 
 
$
-
 
 
$
-
 
Common stock issued
 
 
7,126,666
 
 
 
71,266
 
 
 
4,448,702
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
4,519,968
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(625,109
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(625,109
)
Balances at, December 31, 2001
 
 
7,126,666
 
 
 
71,266
 
 
 
4,448,702
 
 
 
(625,109
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3,894,859
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1,181,157
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1,181,157
)
Balances at, December 31, 2002
 
 
7,126,666
 
 
 
71,266
 
 
 
4,448,702
 
 
 
(1,806,266
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2,713,702
 
Common stock 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
)
Balances at, December 31, 2003
 
 
7,626,666
 
 
 
76,266
 
 
 
6,981,776
 
 
 
(4,581,341
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2,476,701
 
Common stock issued
 
 
1,500
 
 
 
15
 
 
 
1,785
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,800
 
Stock option compensation
 
 
-
 
 
 
-
 
 
 
230,770
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
230,770
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(3,273,442
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(3,273,442
)
Balances at, 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 stock issued in connection with merger
 
 
3,397,802
 
 
 
340
 
 
 
(340
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Common stock issued for cash
 
 
4,175,000
 
 
 
417
 
 
 
8,349,565
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
8,349,982
 
Common stock issued on conversion of convertible debt
 
 
650,000
 
 
 
65
 
 
 
1,299,935
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,300,000
 
Exercise of stock options
 
 
40,000
 
 
 
4
 
 
 
9,596
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
9,600
 
Common stock issued in exchange for services
 
 
7,000
 
 
 
1
 
 
 
21,876
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
21,877
 
Beneficial conversion feature
 
 
-
 
 
 
-
 
 
 
1,625,000
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,625,000
 
Stock option compensation
 
 
-
 
 
 
-
 
 
 
436,748
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
436,748
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(6,349,540
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(6,349,540
)
Balances at, December 31, 2005
 
 
46,410,632
 
 
 
4,641
 
 
 
19,029,178
 
 
 
(14,204,323
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
4,829,496
 
Exercise of stock options
 
 
61,705
 
 
 
6
 
 
 
14,802
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
14,808
 
Common stock issued on conversion of convertible debt
 
 
3,850,000
 
 
 
385
 
 
 
3,849,615
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3,850,000
 
Purchase of treasury stock
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
14,205
 
 
 
(28,410
)
 
 
-
 
 
 
(28,410
)
Stock option compensation
 
 
-
 
 
 
-
 
 
 
1,033,956
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,033,956
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(6,486,003
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(6,486,003
)
Balances at, December 31, 2006
 
 
50,322,337
 
 
$
5,032
 
 
$
23,927,551
 
 
$
(20,690,326
)
 
 
14,205
 
 
$
(28,410
)
 
$
-
 
 
$
3,213,847
 

(See accompanying notes to financial statements.)

 
 
F-4

 
REXAHN PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit) and Comprehensive Loss (Continued)
Period from March 19, 2001 (Inception) to December 31, 2010 (Restated)

 
 
Common Stock
 
 
Additional
 
 
Accumulated Deficit During the
 
 
Treasury Stock
 
 
Accumulated Other
 
 
Total Stockholders’
 
 
 
Number of
shares
 
 
Amount
 
 
Paid-in
Capital
 
 
Development
Stage
 
 
Number of
shares
 
 
Amount
 
 
Comprehensive
Loss
 
 
Equity
(Deficit)
 
Balances at December 31, 2006
 
 
50,322,337
 
 
$
5,032
 
 
$
23,927,551
 
 
$
(20,690,326
)
 
 
14,205
 
 
$
(28,410
)
 
 
-
 
 
$
3,213,847
 
Common stock issued
 
 
4,857,159
 
 
 
486
 
 
 
6,799,538
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
6,800,024
 
Stock options exercised
 
 
127,500
 
 
 
12
 
 
 
59,988
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
60,000
 
Stock option compensation
 
 
-
 
 
 
-
 
 
 
1,121,646
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,121,646
 
Stock issuance costs
 
 
-
 
 
 
-
 
 
 
(139,674
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(139,674
)
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(4,304,005
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(4,304,005
)
Balances at December 31, 2007
 
 
55,306,996
 
 
 
5,530
 
 
 
31,769,049
 
 
 
(24,994,331
)
 
 
14,205
 
 
 
(28,410
)
 
 
-
 
 
 
6,751,838
 
Common stock issued
 
 
642,858
 
 
 
65
 
 
 
899,936
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
900,001
 
Stock options exercised
 
 
90,000
 
 
 
9
 
 
 
31,191
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
31,200
 
Stock option compensation
 
 
-
 
 
 
-
 
 
 
484,684
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
484,684
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(4,912,148
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(4,912,148
)
Unrealized loss on securities available-for -sale
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(550,480
)
 
 
(550,480
)
Balances at December 31, 2008
 
 
56,039,854
 
 
 
5,604
 
 
 
33,184,860
 
 
 
(29,906,479
)
 
 
14,205
 
 
 
(28,410
)
 
 
(550,480
)
 
 
2,705,095
 
Prior period adjustment (Note 2)
 
 
-
 
 
 
-
 
 
 
(6,399,805
)
 
 
1,092,021
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(5,307,784
)
Balances at January 1, 2009, as adjusted
 
 
56,039,854
 
 
 
5,604
 
 
 
26,785,055
 
 
 
(28,814,458
)
 
 
14,205
 
 
 
(28,410
)
 
 
(550,480
)
 
 
(2,602,689
)
Issuance of common stock and units
 
 
15,883,847
 
 
 
1,588
 
 
 
9,996,015
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
9,997,603
 
Stock options exercised
 
 
15,000
 
 
 
2
 
 
 
3,600
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3,602
 
Stock issuance costs
 
 
-
 
 
 
-
 
 
 
(641,018
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(641,018
)
Stock option compensation
 
 
-
 
 
 
-
 
 
 
497,531
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
497,531
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(2,903,098
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(2,903,098
)
Reversal of unrealized loss on securities available-for-sale
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
550,480
 
 
 
550,480
 
Balances at December 31,  2009
 
 
71,938,701
 
 
 
7,194
 
 
 
36,641,183
 
 
 
(31,717,556
)
 
 
14,205
 
 
 
(28,410
)
 
 
-
 
 
 
4,902,411
 
Issuance of common stock and units
 
 
6,666,667
 
 
 
667
 
 
 
8,198,534
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
8,199,201
 
Stock issuance costs
 
 
-
 
 
 
-
 
 
 
(681,773
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(681,773
)
Common stock issued in exchange for services
 
 
1,700,000
 
 
 
170
 
 
 
2,107,830
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2,108,000
 
Stock options exercised
 
 
155,500
 
 
 
16
 
 
 
107,224
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
107,240
 
Stock warrants exercised
 
 
3,714,186
 
 
 
371
 
 
 
9,199,797
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
9,200,168
 
Stock option compensation
 
 
-
 
 
 
-
 
 
 
584,657
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
584,657
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(14,022,107
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(14,022,107
)
Unrealized loss on securities available-for -sale
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(2,340
)
 
 
(2,340
)
Balances at December 31,  2010
 
 
84,175,054
 
 
$
8,418
 
 
$
56,157,452
 
 
$
(45,739,663
)
 
 
14,205
 
 
$
(28,410
)
 
$
(2,340
)
 
$
10,395,457
 

(See accompanying notes to financial statements.)

 
 
F-5

 
REXAHN PHARMACEUTICALS, INC.
(A Development Stage Company)
Statement of Cash Flows

 
 
For the Year Ended
December 31,
 
 
Cumulative From March 19, 2001 (Inception) to December 31,
 
 
 
2010
 
 
2009
 
 
2010
 
Cash Flows from Operating Activities:
 
 
 
 
(Restated)
 
 
(Restated)
 
Net loss
 
$
(14,022,107
)
 
$
(2,903,098
)
 
$
(45,739,663
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Beneficial conversion feature
 
 
-
 
 
 
-
 
 
 
1,625,000
 
Compensatory stock
 
 
2,108,000
 
 
 
-
 
 
 
2,129,877
 
Depreciation and amortization
 
 
50,659
 
 
 
41,604
 
 
 
595,467
 
Stock option compensation
 
 
584,657
 
 
 
497,531
 
 
 
4,939,022
 
Amortization of deferred revenue
 
 
(75,000
)
 
 
(75,000
)
 
 
(600,000
)
Note receivable
 
 
(46,705
)
 
 
-
 
 
 
(46,705
)
Realized (gains) losses on marketable securities
 
 
-
 
 
 
(11,025
)
 
 
9,341
 
Amortization of deferred lease incentive
 
 
(20,000
)
 
 
(10,000
)
 
 
(30,000
)
Unrealized loss (gain) on fair value of warrants
 
 
3,823,146
 
 
 
(1,793,101
)
 
 
1,102,345
 
Unrealized gain on fair value of put feature on common stock
 
 
(97,713
)
 
 
(1,915,179
)
 
 
(2,315,539
)
Financing expense
 
 
180,080
 
 
 
223,950
 
 
 
542,356
 
Deferred lease expenses
 
 
24,616
 
 
 
38,501
 
 
 
63,117
 
Loss on impairment of intangible assets
 
 
-
 
 
 
286,132
 
 
 
286,132
 
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
 
(385,714
)
 
 
45,830
 
 
 
(706,649
)
Research tax credit receivable
 
 
(145,513
)
 
 
-
 
 
 
(145,513
)
Accounts payable and accrued expenses
 
 
1,034,996
 
 
 
427,010
 
 
 
1,820,900
 
Net Cash Used in Operating Activities
 
 
(6,986,598
)
 
 
(5,146,845
)