UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017March 31, 2020

OR

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission File No.:001-34079
Rexahn Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)

Delaware 11-3516358
(State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization)organization) (I.R.S. Employer Identification No.)

15245 Shady Grove Road, Suite 455
Rockville, MD 20850
(Address of Principal Executive Offices, Including Zip Code)
Rockville, MD
20850
(Address of principal executive offices)(Zip Code)

Telephone: (240) 268-5300
(Registrant’s Telephone Number, Including Area Code)telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.0001 par valueREXNNasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☑ No ☐

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

Large accelerated filer☐Accelerated filer☑☐
Non-accelerated filer☐(Do not check if a smaller reporting company)☑Smaller reporting company☐☑
  Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐  No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 31,725,1144,019,141 shares as of November 3, 2017.May 7, 2020.

REXAHN PHARMACEUTICALS, INC.
TABLE OF CONTENTS

Page
PART I
FINANCIAL INFORMATION
  
Page
    
PART I
FINANCIAL INFORMATION
1
Item 1
Financial Statements (Unaudited)
1
 1)
Condensed Balance Sheet as of March 31, 2020 and December 31, 2019
1
 2)
Condensed Statement of Operations for the three months ended March 31, 2020 and 2019
2
 3)
Condensed Statement of Comprehensive Loss for the three months ended March 31, 2020 and 2019
3
 4)
Condensed Statement of Stockholders’ Equity for the three months ended March 31, 2020 and 2019
4
 5)
Condensed Statement of Cash Flows for the three months ended March 31, 2020 and 2019
5
 6)
Notes to the Condensed Financial Statements
6
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
Item 3
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4
Controls and Procedures
27
    
PART II
OTHER INFORMATION
28
Item 1A
Risk Factors
28
Item 6
Exhibits
28
    
SIGNATURES
29

1
Item 1
Financial Statements (Unaudited)
1
1)Condensed Balance Sheet as of September 30, 2017 and December 31, 2016
1
2)Condensed Statement of Operations for the three and nine months ended September 30, 2017 and 2016
2
3)Condensed Statement of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016
3
4)Condensed Statement of Cash Flows for the nine months ended September 30, 2017 and 2016
4
5)Notes to the Condensed Financial Statements
5
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3
Quantitative and Qualitative Disclosures About Market Risk
35
Item 4
Controls and Procedures
35
PART II
OTHER INFORMATION
36
Item 1A
Risk Factors
36
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
36
Item 6
Exhibits
36
SIGNATURES
37
PART I.
Financial Information
PART I. Financial Information
Item 1.
Item 1.
Financial Statements

REXAHN PHARMACEUTICALS, INC.
Condensed Balance Sheet
(Unaudited)

 September 30, 2017  December 31, 2016  March 31, 2020  December 31, 2019 
ASSETSASSETS ASSETS 
Current Assets:            
Cash and cash equivalents $8,226,189  $11,578,473  $10,998,096  $9,219,547 
Marketable securities  14,977,346   8,737,107  -  2,997,220 
Prepaid expenses and other current assets  1,277,604   608,517   290,756  447,206 
Total Current Assets  24,481,139   20,924,097  11,288,852  12,663,973 
Security Deposits  30,785   30,785  25,681  25,681 
Operating Lease Right-of-Use Assets 171,870  203,348 
Equipment, Net  79,056   88,650   66,515  75,770 
Total Assets $24,590,980  $21,043,532  $11,552,918  $12,968,772 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current Liabilities:              
Accounts payable and accrued expenses $2,338,777  $1,882,500  $1,237,007  $1,265,731 
        
Deferred Research and Development Arrangement  393,750   450,000 
        
Other Liabilities  61,557   79,204 
        
Deferred revenue 600,000  1,500,000 
Operating lease liabilities, current  144,610  139,765 
Total Current Liabilities 1,981,617  2,905,496 
Operating Lease Liabilities, non-current 25,790  63,605 
Warrant Liabilities  6,676,091   1,573,366   100,109  41,717 
        
Total Liabilities  9,470,175   3,985,070   2,107,516  3,010,818 
Commitments and Contingencies (note 14)
        
Commitments and Contingencies (note 11)
      
Stockholders’ Equity:              
Preferred stock, par value $0.0001, 10,000,000 authorized shares, none issued and outstanding  -   -  -  - 
Common stock, par value $0.0001, 50,000,000 authorized shares, 28,459,805 and 23,736,878 issued and outstanding  2,846   2,374 
Common stock, par value $0.0001, 75,000,000 authorized shares, 4,019,141 issued and outstanding 402  402 
Additional paid-in capital  151,858,173   132,086,419  173,354,446  173,278,144 
Accumulated other comprehensive loss  (13,965)  (6,122)
Accumulated other comprehensive income -  2,084 
Accumulated deficit  (136,726,249)  (115,024,209)  (163,909,446) (163,322,676)
              
Total Stockholders’ Equity  15,120,805   17,058,462   9,445,402  9,957,954 
              
Total Liabilities and Stockholders’ Equity $24,590,980  $21,043,532  $11,552,918  $12,968,772 

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.
Condensed Statement of Operations
(Unaudited)

 
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
  For the Three Months Ended March 31, 
 2017  2016  2017  2016  2020  2019 
Revenues: $-  $-  $-  $- 
Revenues $1,150,000  $- 
                      
Expenses:                      
General and administrative  1,574,323   1,418,990   5,004,832   4,490,145  1,256,006  1,695,523 
Research and development  2,644,999   2,298,585   7,451,656   8,004,193   456,790  2,242,229 
                      
Total Expenses  4,219,322   3,717,575   12,456,488   12,494,338   1,712,796  3,937,752 
                      
Loss from Operations  (4,219,322)  (3,717,575)  (12,456,488)  (12,494,338)  (562,796) (3,937,752)
                      
Other Income (Expense)                
Other Income      
Interest income  60,750   26,145   135,329   83,884  34,418  81,385 
Unrealized gain (loss) on fair value of warrants  3,120,500   967,637   (9,047,831)  3,941,682 
Financing expense  -   (143,203)  (333,050)  (313,090)
Total Other Income (Expense)  3,181,250   850,579   (9,245,552)  3,712,476 
Unrealized (loss) gain on fair value of warrants  (58,392) 1,513,371 
Total Other (Loss) Income  (23,974) 1,594,756 
                      
Net Loss Before Provision for Income Taxes  (1,038,072)  (2,866,996)  (21,702,040)  (8,781,862) (586,770) (2,342,996)
Provision for income taxes  -   -   -   - 
Provision for Income Taxes  -  - 
Net Loss $(1,038,072) $(2,866,996) $(21,702,040) $(8,781,862) $(586,770) $(2,342,996)
                      
Net loss per share, basic and diluted $(0.04) $(0.13) $(0.83) $(0.42) $(0.15) $(0.62)
                      
Weighted average number of shares outstanding, basic and diluted  28,459,316   21,644,182   26,121,160   21,075,847   4,019,141   3,779,953 

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.
Condensed Statement of Comprehensive Loss
(Unaudited)

 
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
  For the Three Months Ended March 31, 
 2017  2016  2017  2016  2020  2019 
                  
Net Loss $(1,038,072) $(2,866,996) $(21,702,040) $(8,781,862) $(586,770) $(2,342,996)
                      
Unrealized gain (loss) on available-for-sale securities  11,740   (6,983)  (7,843)  13,385 
Unrealized (loss) gain on available-for-sale securities  (2,084) 5,234 
                      
Comprehensive Loss $(1,026,332) $(2,873,979) $(21,709,883) $(8,768,477) $(588,854) $(2,337,762)

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.
Condensed Statement of Stockholders’ Equity
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)

  Common Stock             
  
Number of
Shares
  Amount  
Additional
Paid-in
Capital
  
Accumulated
Deficit
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Stockholders'
Equity
 
Balances at January 1, 2020  4,019,141  $402  $173,278,144  $(163,322,676) $2,084  $9,957,954 
Stock-based compensation  -   -   76,302   -   -   76,302 
Net loss  -   -   -   (586,770)  -   (586,770)
Other comprehensive loss  -   -   -   -   (2,084)  (2,084)
Balances at March 31, 2020  4,019,141  $402  $173,354,446  $(163,909,446) $-  $9,445,402 
                         
Balances at January 1, 2019  3,122,843  $312  $165,267,656  $(154,687,242) $(17,836) $10,562,890 
Issuance of common stock and units, net of issuance costs  895,834   90   7,553,738   -   -   7,553,828 
Common stock issued from vested restricted stock units  464   -   -   -   -   - 
Stock-based compensation  -   -   161,000   -   -   161,000 
Net loss  -   -   -   (2,342,996)  -   (2,342,996)
Other comprehensive income  -   -   -   -   5,234   5,234 
Balances at March 31, 2019  4,019,141  $402  $172,982,394  $(157,030,238) $(12,602) $15,939,956 

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.
Condensed Statement of Cash Flows
(Unaudited)

 
For the Nine Months Ended
September 30,
  
For the Three Months Ended
March 31,
 
 2017  2016  2020  2019 
Cash Flows from Operating Activities:            
Net loss $(21,702,040) $(8,781,862) $(586,770) $(2,342,996)
Adjustments to reconcile net loss to net cash used in operating activities:              
Compensatory stock  31,200   97,649 
Depreciation and amortization  30,963   24,123  9,255  11,533 
Loss on sale of equipment -  9,594 
Amortization of premiums and discounts on marketable securities, net  40,578   21,535  (4,864) (18,499)
Stock-based compensation  790,006   1,063,589  76,302  161,000 
Amortization of deferred research and development arrangement  (56,250)  (56,250)
Unrealized loss (gain) on fair value of warrants  9,047,831   (3,941,682) 58,392  (1,513,371)
Financing expense  333,050   313,090 
Amortization of deferred lease incentive  (9,333)  (9,333)
Deferred lease expenses  (8,314)  (8,787)
Changes in assets and liabilities:              
Prepaid expenses and other assets  (669,087)  419,765  156,450  73,367 
Accounts payable and accrued expenses  456,277   (875,574) (28,724) (906,350)
Deferred revenue (900,000) 150,000 
Other, net  (1,492) (4,373)
Net Cash Used in Operating Activities  (11,715,119)  (11,733,737)  (1,221,451) (4,380,095)
Cash Flows from Investing Activities:              
Purchase of equipment  (21,369)  (8,263) -  (13,181)
Sale of equipment -  5,500 
Purchase of marketable securities  (15,008,660)  (8,747,423) -  (8,887,566)
Redemption of marketable securities  8,720,000   8,560,000   3,000,000  3,000,000 
Net Cash Used in Investing Activities  (6,310,029)  (195,686)
Net Cash Provided by (Used in) Investing Activities  3,000,000  (5,895,247)
Cash Flows from Financing Activities:              
Issuance of common stock and units, net of issuance costs  9,241,271   10,122,223   -  7,653,828 
Proceeds from exercise of stock warrants  5,354,093   - 
Proceeds from exercise of stock options  77,500   - 
Net Cash Provided by Financing Activities  14,672,864   10,122,223   -  7,653,828 
Net Decrease in Cash and Cash Equivalents  (3,352,284)  (1,807,200)
Cash and Cash Equivalents – beginning of period  11,578,473   10,199,440 
Net Increase (Decrease) in Cash and Cash Equivalents 1,778,549  (2,621,514)
Cash and Cash Equivalents - beginning of period  9,219,547  8,744,301 
Cash and Cash Equivalents - end of period $8,226,189  $8,392,240  $10,998,096  $6,122,787 
Supplemental Cash Flow Information              
Operating cash flows paid for amounts included in the measurement of lease liabilities $38,262  $84,651 
Non-cash financing and investing activities:              
Warrants issued $4,107,488  $4,364,110  $-  $4,735,913 
Warrant liability extinguishment from exercise of warrants $8,052,594  $- 
Operating lease right-of-use assets obtained in exchange for lease obligations $-  $380,935 

(See accompanying notes to the condensed financial statements)

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

1.Operations and Organization

Operations
Rexahn Pharmaceuticals, Inc. (the “Company”), a Delaware corporation, is a biopharmaceutical company whose principal operations are the discovery, development and commercialization of innovative treatments for cancer.  The Company had an accumulated deficit of $136,726,249$163,909,446 at September 30, 2017March 31, 2020 and anticipates incurring losses through fiscal year 2017in the foreseeable future.  In September 2019, the Company commenced a process to explore and beyond.  The Company has not yet generated commercial revenuesevaluate strategic alternatives to enhance shareholder value and has funded its operating lossesengaged a financial advisory firm to date throughassist in the sale of shares of its common stock and warrants to purchase shares of its common stock, convertible debt, interest income from cash, cash equivalents and marketable securities, and proceeds from reimbursed research and development costs.  process.

The Company believes that its cash and cash equivalents and marketable securitiesof approximately $11.0 million as of March 31, 2020 will be sufficient to cover its cash flow requirements for its current activities for at least the next 12 months from the date these financial statements were issued.  Management believes it has the capability of managing the Company’s operations within existing cash available by focusing on select research and development activities, selecting projects in conjunction with potential financings and milestones, and efficiently managing the Company’s general and administrative affairs.

Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements.  In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of September 30, 2017March 31, 2020 and December 31, 20162019 and of the results of operations, and comprehensive loss, for the three and nine months ended September 30, 2017 and 2016stockholders’ equity and cash flows for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 have been included.  Operating results for the three and nine months ended September 30, 2017March 31, 2020 are not necessarily indicative of results that may be expected for any other interim period or the full fiscal year ending December 31, 2017.2020. The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162019 (the “2016“2019 Form 10-K”).  Information included in the condensed balance sheet as of December 31, 20162019 has been derived from the Company’s audited financial statements for the year ended December 31, 20162019 included in the 20162019 Form 10-K.  The unaudited condensed financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 these estimates.  These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the period in which they become available.

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

COVID-19 Pandemic
The outbreak of the COVID-19 disease, which the World Health Organization declared a pandemic in March 2020, has led to disruption in the global economy and the biopharmaceutical industry. The extent of the COVID-19 pandemic’s impact on the Company’s business, financial condition and results of operations, as well as the Company’s ability to enter into and complete a strategic transaction, is highly uncertain and will depend on various factors, including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, other actions taken to contain the impact of the pandemic, and impacts on the Company’s ability or the ability of potential strategic partners to access the markets on favorable terms, or at all.

2.Recent Accounting Pronouncements Affecting the Company
Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company should recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services, and provides a revenue recognition framework in accordance with this principle.  On August 12, 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 by one year to December 15, 2017 for annual reporting periods beginning after that date and interim periods therein.  The Company expects to adopt this standard for the annual reporting period beginning January 1, 2018.   As the Company currently does not have revenue, contracts the Company does not expect the adoption of this standard to have a material impact on the operating results of the Company.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires an entity to recognize assets and liabilities arising from leases on the balance sheet and to provide additional disclosures about leasing arrangements.  ASU 2016-02 will be effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact the adoption of this guidance will have on its financial statements.

Compensation-Stock Compensation

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation: Improvements to Employee Share Based Payment Accounting,” which includes multiple provisions intended to simplify various aspects of accounting for share-based payments.  The guidance is effective for reporting periods beginning after December 15, 2016, with early adoption permitted.  The Company adopted this guidance for the three months ended March 31, 2017.  This pronouncement did not have a material impact on the financial statements.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

3.Marketable Securities

Marketable securities are considered “available-for-sale” in accordance with FASBFinancial Accounting Standards Board Accounting Standards Codification (“ASC”) 320, “Debt and Equity Securities,” and thus are reported at fair value in the Company’s accompanying balance sheet, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity.  Amounts reclassified out of accumulated other comprehensive income (loss) into realized gains and losses are accounted for on the basis of specific identification and are included in other income or expense in the statement of operations.  The Company classifies such investments as current on the balance sheet as the investments are readily marketable and available for use in current operations.

The Company had no marketable securities as of March 31, 2020.  The following table shows the Company’s marketable securities’ adjusted cost, gross unrealized gains and losses, and fair value by significant investment category as of September 30, 2017 and December 31, 2016:

  September 30, 2017 
  
Cost
Basis
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
Commercial Paper $3,230,566  $-  $(1,983) $3,228,583 
Corporate Bonds  11,760,745   142   (12,124)  11,748,763 
Total Marketable Securities $14,991,311  $142  $(14,107) $14,977,346 

  December 31, 2016 
  
Cost
Basis
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
Certificates of Deposit $720,000  $197  $-  $720,197 
Commercial Paper  3,987,424   -   (1,684)  3,985,740 
Corporate Bonds  4,035,805   -   (4,635)  4,031,170 
Total Marketable Securities $8,743,229  $197  $(6,319) $8,737,107 

The Company typically invests in highly-rated securities, with the primary objective of minimizing the potential risk of principal loss.  As of September 30, 2017, the Company had three investments of commercial paper with an aggregate fair value of $3,228,583 and unrealized losses of $1,983, and 11 corporate bonds with an aggregate fair value of $11,249,968 and unrealized losses of $12,124 all of which have been unrealized losses for less than 12 months.  The Company does not intend to sell its marketable securities in an unrealized loss position.  Based upon these securities’ fair value relative to the cost, high ratings, and volatility of fair value, the Company considers the declines in market value of its marketable securities to be temporary in nature, does not consider any of its investments other-than-temporarily impaired, and anticipates that it will recover the entire amortized cost basis.2019:

The amortized cost basis and fair value of marketable securities by contractual maturity are:
  December 31, 2019 
    
    
Cost
Basis
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair
Value
  
Commercial Paper $1,996,216  $1,184  $-  $1,997,400 
Corporate Bonds  998,920   900   -   999,820 
Total Marketable Securities $2,995,136  $2,084  $-  $2,997,220 
Maturity Cost Basis  Fair Value 
Less than 1 year $11,963,973  $11,955,906 
1 to 5 years  3,027,338   3,021,440 
Total Marketable Securities $14,991,311  $14,977,346 

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
3.Equipment, Net
  
March 31,
2020
  
December 31,
2019
 
       
Furniture and fixtures $67,650  $67,650 
Office and computer equipment  163,440   163,440 
Leasehold improvements  116,403   116,403 
         
Total equipment  347,493   347,493 
Less: Accumulated depreciation and amortization  (280,978)  (271,723)
         
Net carrying amount $66,515  $75,770 
4.Accounts Payable and Accrued Expenses

   
March 31,
2020
  
December 31,
2019
 
       
Trade payables $891,419  $488,285 
Accrued expenses  165,931   471,700 
Accrued research and development contract costs  125,992   221,170 
Payroll liabilities  53,665   84,576 
         
  $1,237,007  $1,265,731 

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

4.Prepaid Expenses and Other Current Assets
  
September 30,
2017
  
December 31,
2016
 
       
Deposits on contracts $611,550  $179,476 
Prepaid expenses and other current assets  666,054   429,041 
         
  $1,277,604  $608,517 

Deposits on contracts consist of deposits on research and development contracts for services that had not been incurred as of the balance sheet date.  Prepaid expenses and other assets include prepaid general and administrative expenses, such as insurance, rent, investor relations fees and compensatory stock issued for services not yet incurred as of the balance sheet date.

5.Equipment, NetLicense Agreements
  
September 30,
2017
  
December 31,
2016
 
       
Furniture and fixtures $78,794  $78,794 
Office and computer equipment  121,817   113,932 
Lab equipment  445,134   431,650 
Leasehold improvements  133,762   133,762 
         
Total equipment  779,507   758,138 
Less: Accumulated depreciation and amortization  (700,451)  (669,488)
         
Net carrying amount $79,056  $88,650 

6.Accounts Payable and Accrued Expenses
BioSense Global LLC
 
  
September 30,
2017
  
December 31,
2016
 
       
Trade payables $462,602  $430,013 
Accrued expenses  142,270   141,190 
Accrued research and development contract costs  1,163,545   499,889 
Payroll liabilities  570,360   811,408 
         
  $2,338,777  $1,882,500 
On March 10, 2020, the Company entered into an amendment to its collaboration and license agreement, (as amended, the “License and Assignment Agreement”) with BioSense Global LLC (“BioSense”) to advance the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “Territory”). Under the terms of the License and Assignment Agreement, upon payment in full of an upfront payment, the Company will (i) grant BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the Territory and (ii) assign and transfer all of the Company’s patents and patent applications related to RX-3117 in the Territory. The upfront payment consists of an aggregate of $1,650,000, of which $1,500,000 has been received to date. Under the License and Assignment Agreement, the Company is eligible to receive milestone payments in an aggregate of up to $84.5 million upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties in the mid-single digits to low tens on annual net sales in the Territory.
The Company has evaluated the License and Assignment Agreement under ASC 606, “Revenue from Contracts with Customers,” to determine the appropriate amount of revenue to be recognized as the Company fulfills its obligations under the License and Assignment Agreement.  The Company identified the exclusive license to develop RX-3117 and the supply of RX-3117 drug product, drug substance and intermediate materials (collectively, the “Transferred Materials”) as the distinct performance obligations in the contract.  The Company has determined that it will recognize revenue related to the exclusive license to develop RX-3117 and the supply of the Transferred Materials transfers to BioSense at a point in time when the exclusive license is conveyed and the Transferred Materials are made available for delivery to BioSense, respectively.
The Company has determined the transaction price contains both fixed and variable consideration.  The fixed consideration is equal to the upfront payment of $1,650,000.  The variable consideration relates to the milestone payments and future sales-based royalty payments.  The Company estimates the variable consideration in the contract using the most likely amount method.  The Company determined at the contract outset and as of March 31, 2020 that all milestone payments should be fully constrained, as it is not probable that a significant reversal of revenue will not occur in a future period, given the significance of the milestone payments and that the payments are earned based upon the achievement of events that are highly susceptible to factors outside of the Company’s control.  Future sales-based royalties related to the exclusive license to develop RX-3117 will be recognized in the period the underlying sales transaction occurs.
The $1,650,000 upfront payment has been allocated to the performance obligations on the basis of the relative standalone selling price estimated for each performance obligation. The Company has determined the standalone selling price of the exclusive license to develop RX-3117 using the adjusted market approach, which represents the price the market will bear based on the license rights granted and the state of the intellectual property, and has determined the standalone selling price of the supply of the Transferred Materials using a cost approach.  Accordingly, the Company has allocated $750,000 of the upfront transaction price to the exclusive license to develop RX-3117 and $900,000 to the supply of the Transferred Materials.  Additional transaction price recognized in future periods related to milestone payments and royalties will be allocated solely to the exclusive license to develop RX-3117, as these amounts relate to efforts associated with the development and commercialization of products related to the exclusive license to develop RX-3117.
 
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

7.Deferred Research and Development Arrangement
As of March 31, 2020, $1,500,000 of the upfront payment had been paid, and the remaining $150,000 remained unpaid.  As of March 31, 2020, the Company had satisfied the performance obligation related to the Transferred Materials and therefore recognized $900,000 in revenue which was previously classified as deferred revenue.  As of March 31, 2020, the exclusive license had not been transferred and no revenue was recognized related to that performance obligation.  Therefore, the Company has recorded the additional $600,000 of transaction consideration received as of March 31, 2020 as deferred revenue on the Company’s balance sheet.
 
Rexgene BiotechZhejiang HaiChang Biotechnology Co., Ltd.
 
In 2003,On February 8, 2020, the Company entered into a collaborative researchan exclusive license agreement (the “HaiChang License Agreement”) with Rexgene BiotechZhejiang HaiChang Biotechnology Co., Ltd. (“Rexgene”HaiChang”) pursuant to which the Company granted HaiChang an exclusive (even as to the Company), a shareholder.  Rexgene is engaged in the development ofroyalty-bearing, sublicensable worldwide license to research, develop and commercialize pharmaceutical products comprising RX-0201 (subject to and limited by the exclusive rights of NEXT BT Co. Ltd (“Next BT”) with respect to RX-0201 in AsiaAsia), the nano-liposomal formulation of RX-0201 known as RX-0301, and RX-0047, a proprietary compound currently in preclinical development. HaiChang has agreed to assistuse commercially reasonable efforts to develop, seek regulatory approval for, and commercialize one product comprising RX-0301 and one product comprising RX-0047.

HaiChang paid a one-time upfront payment of $250,000 to the Company for certain materials to be transferred by the Company to HaiChang.  HaiChang will pay the Company development milestone payments in an aggregate of up to $63,000,000 with respect to RX-0201 and RX-0301 and up to $33,000,000 with respect to RX-0047, and royalties based on percentages of net sales in the research, developmentlow tens with respect to RX-0201 and clinical trials necessary for registrationRX-0301 and the mid-single digits with respect to RX-0047.  However, if HaiChang exclusively sublicenses its rights to a third party with respect to RX-0201 and RX-0301 or RX-0047 in a particular jurisdiction, instead of the Company’s drug candidate Archexin® in Asia.  This agreement provides Rexgene with exclusive rightsforegoing milestones and royalties to license, sublicense, make, have made, use, sellthe extent relating to such compound(s) and import Archexin in Asia.  In accordance with the agreement, Rexgene paidjurisdiction, HaiChang will pay the Company a one-time feepercentage of $1,500,000any sublicensing revenue received by HaiChang, provided that in 2003.  any event HaiChang will pay a milestone payment on initiation of a Phase 3 clinical trial that is subject to reduction by the amount of any sublicensing revenue paid with respect to the applicable compound(s) as of the time of initiation of the trial.

The agreement terminatesCompany accounts for the HaiChang License Agreement under ASC 606.  The Company has determined the performance obligations under the contract relate to the transfer of materials and the license of intellectual property.  Revenue associated with the materials and license are recognized at a point in time.  The Company has determined the transaction price contains both fixed and variable consideration.  The fixed consideration is equal to the upfront payment of $250,000.  At the outset of the contract, the value of the license was determined to be de minimis given the early stage of clinical development of the intellectual property, and allocated the entire fixed consideration to the materials.  The Company transferred the materials during the three months ended March 31, 2020 and therefore recognized the entire fixed consideration as revenue.  The variable consideration relates to the milestone payments, sublicense fees and future sales-based royalty payments.  The Company estimates variable consideration under the contract using the expected value method.  Given the early stage and the uncertain success of the development work to be performed by HaiChang, the Company has determined that the variable consideration in the contract should be fully constrained at the latercontract outset and as of 20 years or the term of the patent.  The amortization reduces research and development expenses for the periods presented.March 31, 2020.

The Company is using 20 years as its basis for recognition and accordingly, research and development expenses were reduced by $18,750 for each of the three month periods ended September 30, 2017 and 2016 and $56,250 for each of the nine month periods ended September 30, 2017 and 2016.  The remaining $393,750 and $450,000 to be amortized at September 30, 2017 and December 31, 2016, respectively, is reflected as a deferred research and development arrangement on the balance sheet.  The payment from Rexgene is being used in the cooperative funding of the costs of development of Archexin. Royalties of 3% of net sales of licensed products will become payable by Rexgene to the Company on a quarterly basis once commercial sales of Archexin begin in Asia.  The product is still under development and commercial sales in Asia are not expected to begin until at least 2018.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
8.Other Liabilities

Deferred Lease Incentive

In accordance with the Company’s office lease agreement, as amended and further discussed in Note 14, the Company has been granted leasehold improvement allowances from the lessor to be used for the construction cost of improvements to the leased property, which included architectural and engineering fees, government agency plan check, permit and other fees, sales and use taxes, testing and inspection costs and telephone and data cabling and wiring in the premises.  The Company accounted for the benefit of the leasehold improvement allowance as a reduction of rental expense over the term of the office lease.
The following table sets forth the cumulative deferred lease incentive:

  
September 30,
2017
  
December 31,
2016
 
       
Deferred lease incentive $154,660  $154,660 
Less accumulated amortization  (132,884)  (123,551)
         
Balance $21,776  $31,109 

Deferred Office Lease Expense
6.Leases

The Company leases 5,466 square feet of office space in Rockville, Maryland, with a lease term ending June 30, 2024.  Under the lease agreement, the Company pays its allocable portion of real estate taxes and common area operating charges, which are recorded as amended, providedvariable lease costs.  The lease has escalating rent payments for an initial annual base rent with annual increases overwhich the lease term.  The Company recognizes rentalrecords lease expense on a straight-line basis over the lease term, ofand an option to terminate the leased premises, without penalty, on June 30, 2021.  The Company is reasonably certain that it will not remain in these leased premises after the optional termination date, and therefore, is using the optional termination date in assessing the lease which resulted in a deferred rent liabilityterm.

The following table summarizes the right of $39,781use lease assets and $48,095lease liabilities as of September 30, 2017March 31, 2020:

Right-of-Use Assets $171,870 
     
Operating Lease Liabilities    
Current $144,610 
Long Term  25,790 
Total Operating Lease Liabilities $170,400 

The components of lease expense were as follows:

  
For the Three Months Ended
March 31,
 
  2020  2019 
Operating lease cost $36,771  $80,279 
Variable lease cost  5,693   16,012 
         
Total Lease Cost $42,464  $96,291 

The right-of-use asset and Decemberlease liability were calculated using an estimated incremental borrowing rate of 11%.  At March 31, 2016, respectively.2020, the weighted average lease term was 1.3 years.

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

The table below summarizes the Company’s scheduled future minimum lease payments recorded on the balance sheet, as of March 31, 2020:

Year Ending December 31:   
2020 (excluding the three months ended March 31, 2020) $117,018 
2021  65,364 
Minimum lease payments  182,382 
Less: Imputed interest  (11,982)
Present value of minimum lease payments  170,400 
Less: current maturities of lease obligations  (144,610)
Long-term lease obligations $25,790 

9.7.Net Loss per Common Share
 
Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period.  Diluted loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding, plus the number of common share equivalents that would be dilutive.  As of September 30, 2017March 31, 2020 and December 31, 2016,2019, there were stock options, restricted stock units and warrants to acquire, in the aggregate, 7,166,2092,070,511 and 7,142,7282,126,063 shares of the Company’s common stock, respectively, that are potentially dilutive. However, diluted loss per share is the same as basic loss per share for all periods presented because the inclusion of common share equivalents would be anti-dilutive.

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
10.Common Stock

The following transactions occurred during the nine months ended September 30, 2017:

Reverse Stock Split

On May 5, 2017 the Company effected a one-for-ten reverse stock split of the outstanding shares of the Company’s common stock, together with a corresponding proportional reduction in the number of authorized shares of the Company’s capital stock.  Each ten shares of the Company’s common stock, par value $0.0001 per share, issued and outstanding at the effective time of the reverse stock split were reclassified and combined into one share of common stock par value $0.0001 per share. The number of shares of common stock and preferred stock the Company is authorized to issue was reduced to 50 million and 10 million, respectively.  All share and per share amounts of common stock, stock options, stock warrants and restricted stock units have been restated for all periods to give retroactive effect to the reverse stock split.  Accordingly, an amount equal to the par value of the decreased shares resulting from the reverse stock split was reclassified from “Common stock” to “Additional paid-in capital.”

Warrant Exercises

During the nine months ended September 30, 2017, warrant holders exercised warrants to purchase shares of the Company’s common stock for cash of $5,354,093 and the Company issued 1,652,623 shares.

Stock Option Exercises

During the nine months ended September 30, 2017, a stock option holder exercised options to purchase shares of the Company’s common stock for cash of $77,500 and the Company issued 25,000 shares.

Compensatory Shares

During the nine months ended September 30, 2017, the Company issued 15,000 shares to a privately held investor relations firm in exchange for investor relations services.  The aggregate market value of the stock issued was $31,200.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

Registered Direct Offering

On June 12, 2017 the Company closed a registered direct public offering of 3,030,304 shares of common stock and warrants to purchase up to 1,515,152 shares of common stock.  The common stock and warrants were sold in units, consisting of a share of common stock and a warrant to purchase 0.5 shares of common stock, at a price of $3.30 per unit, with an exercise price for the warrants of $4.00 per share.  The total gross proceeds of the offering were $10,000,003.  The warrants issued will become exercisable beginning six months after the closing date, and will remain exercisable until the five-year anniversary of the initial exercise date, and were recorded as liabilities at fair value.

A summary of the allocation of the proceeds of the offering is shown below:
Gross Proceeds: $10,000,003 
     
Allocated to warrant liabilities  3,673,168 
Allocated to common stock and additional paid-in capital  6,326,835 
     
Total allocated gross proceeds: $10,000,003 

The Company also issued warrants to purchase up to an aggregate 181,818 shares of common stock to the placement agent in the offering.  The closing costs for the offering of $1,193,052 included $434,320 for the placement agent warrants and $758,732 for placement agent and other fees.  Based on the estimated fair value of the stock and warrants in the units, the Company allocated $333,050 to financing expense for the warrants and $860,002 as stock issuance costs.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

11.8.Stock-Based Compensation

As of September 30, 2017,March 31, 2020, the Company had 1,830,443149,022 options to purchase common stock and 47,300 restricted stock units (“RSUs”) outstanding.

At the Company’s Annual Meeting of Shareholders held onIn June 10, 2013, the Company’s shareholders voted to approve the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan (the “2013 Plan”).  Under the 2013 Plan, the Company grants equity awards to key employees, directors and consultants of the Company.  The Company initiallyhas reserved 1,700,000283,333 shares of common stock for issuance pursuant to the 2013 Plan, and on April 11, 2017, the Company’s shareholders approved an increase of 1,700,000 shares of common stock reserved for issuance pursuant to the 2013 Plan. As of September 30, 2017,March 31, 2020, there were 1,483,443144,366 options and 47,300 RSUs outstanding under the 2013 Plan, and 1,868,507136,936 shares were available for issuance.

On August 5, 2003, the Company  In addition, as of March 31, 2020, there were 4,656 options outstanding under a previously established a stock option plan (the “2003 Plan”).  Under the 2003 Plan, the Company granted stock options to key employees, directors and consultants of the Company.  With the adoption of the 2013 Plan,under which no new stock options may be issued under the 2003 Plan, but previously issued options under the 2003 Plan remain outstanding until their expiration.  As of September 30, 2017, there were 335,000 options outstanding under the 2003 Plan.granted.

In March 2016, the Company granted to a third party an option to purchase up to 12,000 shares of the Company’s common stock.  These were the only Company stock options outstanding as of September 30, 2017, that were not issued pursuant to the 2013 Plan or the 2003 Plan.

Accounting for Awards

Stock-based compensation expense is the estimated fair value of options and RSUs granted amortized on a straight-line basis over the requisite vesting service period for the entire portion of the award. Total stock-based compensation recognized by the Company for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 is as follows:
 
 
For the Three Months
Ended September 30,
  
For the Nine Months
Ended September 30,
  
For the Three Months Ended
March 31,
 
 2017  2016  2017  2016  2020  2019 
Statement of operations line item:                  
General and administrative $184,914  $232,951  $580,812  $673,064  $72,420  $116,679 
Research and development  42,700   136,451   209,194   390,525   3,882  44,321 
                      
Total $227,614  $369,402  $790,006  $1,063,589  $76,302  $161,000 

No income tax benefit has been recognized in the statement of operations for stock-based compensation arrangements as the Company has provided for a 100% valuation allowance on its deferred tax assets.

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

Summary of Stock Option Transactions

There were 483,260 stock options granted at exercise prices ranging from $1.84 to $6.18 with an aggregate fair value of $738,937 during the nine months ended September 30, 2017.  There were  587,637 stock options granted at exercise prices ranging from $2.60 to $3.70 with an aggregate fair value of $1,150,513 during the nine months ended September 30, 2016.

The majority of the option grants to employees vest over a four-year period from the grant date. The vesting period is either (i) 30%, 30% and 40% on the first, second and third anniversaries of the grant date, respectively, or (ii) 25% each on the first four anniversaries of the grant date.  With the exception of the options granted in March 2016, which have a three-year term, options generally expire ten years from the date of grant. For the majority of grants to non-employee consultants of the Company, the vesting period is between one and three years, subject to the fulfillment of certain conditions in the individual stock agreements, or 100% upon the occurrence of certain events specified in the individual stock agreements.

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model.  The Company took into consideration guidance under ASC 718, “Compensation-Stock Compensation” and Staff Accounting Bulletin No. 107 (“SAB 107”) when reviewing and updating assumptions.  The expected volatility is based upon historical volatility of the Company’s stock.  The expected term is based upon the simplified method as allowed under SAB 107.

The assumptions made in calculating the fair values of options are as follows:
  Nine Months Ended September 30, 
  2017  2016 
Black-Scholes assumptions      
Expected dividend yield  0%  0%
Expected volatility  69-79%  31-75%
Risk free interest rate  1.8-2.0%  0.8 -1.4%
Expected term (in years) 5.5-6 years  2-6 years 
 
A summary of stock option activity for the ninethree months ended September 30, 2017March 31, 2020 is as follows:

  
Number of
Options
  
Weighted
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Term
 
Aggregate
 Intrinsic
Value
 
Outstanding, January 1, 2017  1,690,037  $6.20 7.3 years $- 
Granted  483,260  $2.37      
Exercised  (25,000) $3.10      
Expired  (15,000) $16.07      
Cancelled  (302,854) $5.00      
              
Outstanding, September 30, 2017  1,830,443  $5.35 7.4 years $194,644 
Exercisable, September 30, 2017  1,068,630  $6.60 6.3 years $- 
 
14
  
Number of
Options
  
Weighted
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Term
 
Aggregate
Intrinsic
Value
 
Outstanding, January 1, 2020
  
204,574
  
$
35.60
 7.3 years 
$
-
 
Granted
  
-
  
$
-
      
Exercised
  
-
  
$
-
      
Expired
  
(2,498
)
 
$
159.60
      
Cancelled
  
(53,054
)
 
$
60.40
      
              
Outstanding, March 31, 2020
  
149,022
  
$
24.69
 7.8 years 
$
-
 
Exercisable, March 31, 2020
  
75,304
  
$
37.16
 7.0 years 
$
-
 
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

The total intrinsic value of options exercised was $97,872 for the nine months ended September 30, 2017.  There were no stock options exercised during the three months ended September 30, 2017 or the three and nine months ended September 30, 2016.  The weighted average fair value of the options granted was $1.53 and $1.96 for the nine months ended September 30, 2017 and 2016, respectively.
A summary of the Company’s unvested options as of September 30, 2017March 31, 2020 and changes during the ninethree months ended September 30, 2017March 31, 2020 is presented below:

 2017  2020 
 Number of Options  
Weighted Average Fair
Value at Grant Date
    
Unvested at January 1, 2017  897,123  $3.21 
 
Number of
Options
  
Weighted Average Fair
Value at Grant Date
 
Unvested at January 1, 2020 81,311  $7.90 
Granted  483,260  $1.53  -  $- 
Vested  (458,968) $3.12  (7,593) $8.34 
Cancelled  (159,602) $2.27   -  $- 
              
Unvested at September 30, 2017  761,813  $2.41 
Unvested at March 31, 2020  73,718  $7.85 
 
As of September 30, 2017March 31, 2020, there was $1,487,756$501,655 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average vesting period of 2.61.7 years.
Summary of Restricted Stock Unit Transactions
The Company began granting RSUs to employees in 2017.  There were 62,300 RSUs granted with an aggregate fair value of $114,632 during the nine months ended September 30, 2017.  The fair value of an RSU award is the closing price of the Company’s common stock on the date of grant.
A summary of RSU activity for the nine months ended September 30, 2017 is as follows:

  Number of RSUs  
Weighted
Average Grant
Date Fair Value
 
Outstanding, January 1, 2017  -  $- 
Granted  62,300  $1.84 
Vested and Released  -  $- 
Cancelled  (15,000) $1.84 
         
Outstanding, September 30, 2017  47,300  $1.84 
As of September 30, 2017, there was $72,824 of total unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average vesting period of 3.4 years.

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

12.9.Warrants
 
As of September 30, 2017,The following table summarizes the Company’s outstanding warrants to purchase up to 5,288,466 shares were outstanding, having exercise prices ranging from $3.00 to $12.80common stock as of March 31, 2020 and expiration dates ranging from December 4, 2017 to December 12, 2022.31, 2019:

  2017  2016 
  
Number of
warrants
  
Weighted
average exercise
price
  
Number of
warrants
  
Weighted average
exercise price
 
Balance, January 1  5,452,691  $4.92   2,649,199  $7.97 
Issued during the period  1,696,970  $4.01   3,194,000  $3.47 
Exercised during the period  (1,861,195) $3.51   -  $- 
Expired during the period  -  $-   (390,508) $13.72 
                 
Balance, September 30  5,288,466  $5.13   5,452,691  $4.92 
  Number of Warrants:       
Warrant Issuance March 31, 2020  
December 31,
2019
  Exercise Price 
Expiration
Date
Liability-classified Warrants              
November 2015 Investors  104,168   104,168  $63.60 May 2021
November 2015 Placement Agent  279   279  $63.60 Nov. 2020
March 2016 Investors  50,651   50,651  $50.40 Sept. 2021
September 2016 Investors  67,084   67,084  $36.00 Mar. 2022
June 2017 Investors  126,264   126,264  $48.00 Dec. 2022
June 2017 Placement Agent  15,153   15,153  $49.50 June 2022
October 2017 Investors  136,058   136,058  $34.20 Apr. 2023
October 2017 Placement Agent  16,327   16,327  $36.72 Oct. 2022
Total liability classified warrants  515,984   515,984        
                   
Equity-classified Warrants                 
October 2018 Investors  480,771   480,771  $20.04 Apr. 2024
October 2018 Placement Agent  28,848   28,848  $19.50 Oct. 2023
January 2019 Investors  895,886   895,886  $9.60 Jan. 2024
Total equity-classified warrants  1,405,505   1,405,505        
                   
Total outstanding warrants  1,921,489   1,921,489        
 
The following table summarizes the Company’s warrant activity for the three months ended March 31, 2020:
  Number of Warrants    
  
Liability-
classified
  
Equity-
classified
  Total  
Weighted
average
exercise price
 
Balance, January 1, 2020  515,984   1,405,505   1,921,489  $22.10 
Issued during the period  -   -   -  $- 
Exercised during the period  -   -   -  $- 
Expired during the period  -
   -   -  $- 
                 
Balance, March 31, 2020  515,984   1,405,505   1,921,489  $22.10 
At September 30, 2017March 31, 2020, the weighted average remaining contractual life of the outstanding warrants was 3.83.4 years.

The warrants issued to investors in the December 2012, November 2015, March 2016 and September 2016 offerings contain a provision for net cash settlement in the event of a fundamental transaction (contractually defined to include a merger, sale of substantially all assets, tender offer or share exchange).  Pursuant to the November 2015, March 2016, and September 2016 warrants, if fundamental transaction occurs, then the warrant holder has the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant.  The option is available to holders of the December 2012 warrants only if the consideration issued in the fundamental transaction consists of cash or stock in a non-public company.  Due to these contingent redemption provisions, the warrants require liability classification in accordance with ASC 480, “Distinguishing Liabilities from Equity,” and are recorded at fair value.   The June 2017 warrants contain a provision that allows the holder to opt for cash settlement in a fundamental transaction that was approved by, or required to be approved by, the board of directors of the Company. All of the Company’s outstanding warrants provide the holder the option as to the type of consideration received if the holders of common stock receive an option as to their consideration. In addition, all of the Company’s outstanding warrants contain a cashless exercise provision that is exercisable only in the event that a registration statement is not effective. That provision may not be operative if an effective registration statement is not available because an exemption under the U.S. securities laws may not be available to issue unregistered shares.  As a result, net cash settlement may be required, and the warrants require liability classification.

ASC 820, “Fair Value Measurements and Disclosures,” provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition.  Fair values for warrants were determined using the Binomial Lattice (“Lattice”) valuation technique. The Lattice model provides for dynamic assumptions regarding volatility and risk-free interest rates within the total period to maturity. Accordingly, within the contractual term, the Company provided multiple date intervals over which multiple volatilities and risk free interest rates were used. These intervals allow the Lattice model to project outcomes along specific paths that consider volatilities and risk free rates that would be more likely in an early exercise scenario.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

Significant assumptions are determined as follows:
Trading market values—Published trading market values;
Exercise price—Stated exercise price;
Term—Remaining contractual term of the warrant;
Volatility—Historical trading volatility for periods consistent with the remaining terms; and
Risk-free rate—Yields on zero coupon government securities with remaining terms consistent with the remaining terms of the warrants.

Due to the fundamental transaction provision, which could provide for early redemption of the warrants, the model also considered the probability the Company would enter into a fundamental transaction during the remaining term of the warrant. Because the Company is not yet achieving positive cash flow, management believes the probability of a fundamental transaction occurring over the term of the warrant is unlikely and therefore estimates the probability of entering into a fundamental transaction to be 5%.  For valuation purposes, the Company also assumed that if such a transaction did occur, it was more likely to occur towards the end of the term of the warrants.

The significant unobservable inputs used in the fair value measurement of the warrants include management’s estimate of the probability that a fundamental transaction may occur in the future.  Significant increases (decreases) in the probability of occurrence would result in a significantly higher (lower) fair value measurement.
 
The following table summarizes the fair value of the liability-classified warrants as of the respective balance sheet dates:

  Fair Value as of: 
Warrant Issuance: September 30, 2017  December 31, 2016 
December 2012 Investor Warrants $10  $49 
July 2013 Investor Warrants  57,422   2,060 
October 2013 Investor Warrants  106,316   3,708 
January 2014 Investor Warrants  125,862   714 
November 2015 Investor Warrants  1,564,850   260,500 
November 2015 Placement Agent Warrants  3,882   13,542 
March 2016 Investor Warrants  862,700   358,945 
March 2016 Placement Agent Warrants  -   21,320 
September 2016 Investor Warrants  1,289,457   854,640 
September 2016 Placement Agent Warrants  -   57,888 
June 2017 Investor Warrants  2,395,683   - 
June 2017 Placement Agent Warrants  269,909   - 
Total: $6,676,091  $1,573,366 
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

The following table summarizes the number of shares indexed to the warrants as of the respective balance sheet dates:
  Fair Value as of: 
    
Warrant Issuance:
 March 31, 2020  December 31, 2019 
November 2015 Investors
 $971  
$
55
 
November 2015 Placement Agent
  -   
-
 
March 2016 Investor
  1,240   
439
 
September 2016 Investors
  14,639   
3,196
 
June 2017 Investors
  30,364   
11,736
 
June 2017 Placement Agent
  2,574   
845
 
October 2017 Investors
  46,178   
23,772
 
October 2017 Placement Agent
  4,143   
1,674
 
Total: $100,109  
$
41,717
 

  Number of Shares indexed as of: 
Warrant Issuance September 30, 2017  December 31, 2016 
December 2012 Investor Warrants  17,430   17,430 
July 2013 Investor Warrants  200,000   200,000 
October 2013 Investor Warrants  231,732   231,732 
January 2014 Investor Warrants  476,193   476,193 
November 2015 Investor Warrants  1,250,001   1,250,001 
November 2015 Placement Agent Warrants  3,334   83,335 
March 2016 Investor Warrants  607,806   1,171,875 
March 2016 Placement Agent Warrants  -   78,125 
September 2016 Investor Warrants  805,000   1,800,000 
September 2016 Placement Agent Warrants  -   144,000 
June 2017 Investor Warrants  1,515,152   - 
June 2017 Placement Agent Warrants  181,818   - 
Total:  5,288,466   5,452,691 
The assumptions used in calculating the fair values of the liability-classified warrants are as follows:

 September 30, 2017  December 31, 2016  March 31, 2020  December 31, 2019 
Trading market prices $2.42  $1.40  $1.80  $1.91 
Estimated future volatility  104%  104% 100% 102%
Dividend  -   -  -  - 
Estimated future risk-free rate  1.06-2.25%  1.06-2.44% 0.20-0.41% 1.57-1.72%
Equivalent volatility  56-109%  51-60% 113-129% 85-94%
Equivalent risk-free rate  0.72-1.52%  0.59-1.25% 0.13-0.19% 1.57-1.59%
Fundamental transaction likelihood 50% 50%
Fundamental transaction timing July 2020  April 2020 

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

Changes in the fair value of the warrant liabilities, carried at fair value, reported as “unrealized (loss) gain (loss) on fair value of warrants” in the statement of operations:
  
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Expired Warrants $-  $-  $-  $2,590 
December 2012 Investor Warrants  7,306   2,212   39   9,490 
July 2013 Investor Warrants  125,686   22,040   (55,362)  115,940 
October 2013 Investor Warrants  135,683   30,264   (102,608)  159,871 
January 2014 Investor Warrants  177,900   12,190   (125,148)  129,905 
November 2015 Investor Warrants  797,688   409,125   (1,304,350)  1,613,750 
November 2015 Placement Agent Warrants  1,691   24,683   (366,694)  104,842 
March 2016 Investor Warrants  356,472   425,625   (2,873,309)  1,677,891 
March 2016 Placement Agent Warrants  -   26,283   (351,899)  112,188 
September 2016 Investor Warrants  506,353   12,780   (4,807,246)  12,780 
September 2016 Placement Agent Warrants  -   2,435   (503,150)  2,435 
June 2017 Investor Warrants  894,076   -   1,277,485   - 
June 2017 Placement Agent Warrants  117,645   -   164,411   - 
Total: $3,120,500  $967,637  $(9,047,831) $3,941,682 

19
  For the Three Months Ended March 31, 
    
  2020  2019 
November 2015 Investors $(916) $197,084 
November 2015 Placement Agent  -   380 
March 2016 Investors  (801)  114,799 
September 2016 Investors  (11,443)  217,869 
June 2017 Investors  (18,628)  388,391 
June 2017 Placement Agent  (1,729)  41,911 
October 2017 Investors  (22,406)  496,501 
October 2017 Placement Agent  (2,469)  56,436 
Total: $(58,392) $1,513,371 
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

13.10.Income Taxes
 
No provision for federal and state income taxes was required for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 due to the Company’s operating losses and increased deferred tax asset valuation allowance.  At September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company had unused net operating loss carry-forwards of approximately $123,515,000$157,964,000 and $111,605156,586,000 respectively, which portions of expire at various dates through 2037.beginning in 2021.  Some of this amount may be subject to annual limitations under certain provisions of the Internal Revenue Code related to “changes in ownership.”
 
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the deferred tax assets related to the aforementioned carry-forwards have been fully offset by valuation allowances, because significant utilization of such amounts is not presently expected in the foreseeable future.
 
Deferred tax assets and valuation allowances consist of:

 
September 30,
2017
  
December 31,
2016
  
March 31,
2020
  
December 31,
2019
 
            
Net Operating Loss Carryforwards $48,171,000  $43,526,000  $44,230,000  $43,844,000 
Stock Compensation Expense  1,947,000   1,968,000  551,000  1,191,000 
Book tax differences on assets and liabilities  425,000   547,000 
Book Tax Differences on Assets and Liabilities 163,000  464,000 
Valuation Allowance  (50,543,000)  (46,041,000)  (44,944,000) (45,499,000)
              
Net Deferred Tax Assets $-  $-  $-  $- 

The Company files income tax returns in the U.S. federal and Maryland state jurisdictions.  Tax years for fiscal 20142016 through 20162019 are open and potentially subject to examination by the federal and Maryland state taxing authorities.

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

14.11.Commitments and Contingencies
 
 a)The Company has contracted with various vendors for services, with terms that require payments over the terms of the agreements, usually ranging from two to 36 months. The costs to be incurred are estimated and are subject to revision. As of September 30, 2017,March 31, 2020, the total estimated cost to complete these agreements was approximately $10,750,000.$800,000.  All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements.
 

b)On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology (“KRICT”) to acquire the rights to all intellectual property related to quinoxaline-piperazine derivatives that were synthesized under a Joint Research Agreement.  The initial license fee was $100,000, all of which was paid as of December 31, 2009.  The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of the first commercial product arising out of or in connection with the use of KRICT’s intellectual property.  As of September 30, 2017,March 31, 2020, the milestone has not occurred.
 

c)Office Space Lease
On June 5, 2009, the Company entered into a commercial lease agreement for 5,466 square feet of office space in Rockville, Maryland.  The lease was amended on June 7, 2013 to extend the term until June 30, 2019.
On July 26, 2014 the lease was amended to add 1,727 square feet of office space for a term beginning on September 1, 2014 and ending on August 31, 2015, which was subsequently renewed through June 30, 2019. Under the lease agreement, the Company pays its allocable portion of real estate taxes and common area operating charges.
Rent paid under the Company’s lease during the three months ended September 30, 2017 and 2016 was $52,172 and $51,823, respectively, and rent paid during the nine months ended September 30, 2017 and 2016 was $153,968 and 154,426, respectively.
Laboratory Lease
On April 20, 2015, the Company signed a five-year lease agreement for 2,552 square feet of laboratory space commencing on July 1, 2015 and ending on June 30, 2020.  Under the lease agreement, the Company pays its allocable portion of real estate taxes and common area operating charges. Rent paid under this lease during the three months ended September 30, 2017 and 2016 was $16,244 and $15,771, respectively, and rent paid during the nine months ended September 30, 2017 and 2016 was $47,787 and $46,395, respectively.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

Future rental payments over the next five years for all leases are as follows:
For the remaining three months ending December 31:2017 $68,943 
For the year ending December 31:2018  279,274 
 2019   176,080 
 2020  34,468 
      
 Total $558,765 
d)
The Company has established a 401(k) plan for its employees.  The Company has elected to match 100% of the first 3% of an employee’s compensation plus 50% of an additional 2% of the employee’s deferral. Expense related to this matching contribution aggregated to $31,453$11,229 and $29,114 $27,879 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $102,536 and $92,203 for the nine months ended September 30, 2017 and 2016,2019, respectively.
 

e)d)In July 2013,On February 5, 2018, the Company entered into an exclusive licenseand Next BT terminated a research collaboration agreement withbetween the UniversityCompany and Rexgene Biotech Co., Ltd, a predecessor in interest to Next BT.  The Company agreed to pay Next BT a royalty in the low single digits of Maryland, Baltimore for a novel drug delivery platform, Nano-Polymer Drug Conjugate Systems.  RX-21101 isany net sales of RX-0201 the Company makes in Asia and 50% of the Company’s first drug candidate utilizing this platform.  The agreement requireslicensing revenue related to licensing of RX-0201 in Asia, up to an aggregate of $5,000,000.  As of March 31, 2020, the Company to makehas not made any royalty payments to the University of Maryland if RX-21101 or any products from the licensed delivery platform achieve development milestones.  As of September 30, 2017, no development milestones have occurred.Next BT.
f)In October 2013, the Company signed an exclusive license agreement with the Ohio State Innovation Foundation, for a novel oligonucleotide drug delivery platform, Lipid-Coated Albumin Nanoparticle.  The agreement requires the Company to make payments to the Ohio State Innovation Foundation if any products from the licensed delivery platform achieve development milestones.  As of September 30, 2017, no development milestones have occurred.
 
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

15.12.Fair Value Measurements
 
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs.  ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels are described below:

Level 1 Inputs
—
Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company;
   
Level 2 Inputs
—
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and
   
Level 3 Inputs
—
Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

The following tables present assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

Fair Value Measurements at March 31, 2020 
  Total  Level 1  Level 2  Level 3 
Liabilities:            
Warrant Liabilities $100,109  $-  $-  $100,109 

Fair Value Measurements at December 31, 2019 
  Total  Level 1  Level 2  Level 3 
Assets:            
Commercial Paper $1,997,400  $-  $1,997,400  $- 
Corporate Bonds  999,820   -   999,820   - 
Total Assets: $2,997,220  $-  $2,997,220  $- 
                 
Liabilities:                
Warrant Liabilities $41,717  $-  $-  $41,717 

There have been no changes in the methodologies used at September 30, 2017March 31, 2020 and December 31, 2016.2019, and no transfers between Level 1, 2 and 3 during the three months ended March 31, 2020.
de
Fair Value Measurements at September 30, 2017 
  Total  Level 1  Level 2  Level 3 
Assets:            
Commercial Paper  3,228,583   -   3,228,583   - 
Corporate Bonds  11,748,763   -   11,748,763   - 
Total Assets: $14,977,346  $-  $14,977,346  $- 
                 
Liabilities:                
Warrant Liabilities $6,676,091  $-  $-  $6,676,091 
Fair Value Measurements at December 31, 2016 
  Total  Level 1  Level 2  Level 3 
Assets:            
Certificates of Deposit $720,197  $-  $720,197  $- 
Commercial Paper  3,985,740   -   3,985,740   - 
Corporate Bonds  4,031,170   -   4,031,170   - 
Total Assets: $8,737,107  $-  $8,737,107  $- 
                 
Liabilities:                
Warrant Liabilities $1,573,366  $-  $-  $1,573,366 

REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)

The reconciliation of changes to the fair value of the Company’s Level 2 marketable securitieswarrant liabilities for the three months ended March 31, 2020 is determined by using quoted prices from independent pricing services that use market data for comparable securities in active or inactive markets.  A variety of data inputs, including benchmark yields, interest rates, known historical trades and broker dealer quotes are used with pricing models to determine the quoted prices.as follows:

The fair value methodology
  Warrant Liabilities 
Balance at January 1, 2020 $41,717 
Unrealized losses, net  58,392 
Balance at March 31, 2020 $100,109 

13.Subsequent Event

On April 7, 2020, the Company notified Merck Sharp & Dohme B.V. (“Merck”) that it was terminating the Clinical Trial Collaboration and Supply Agreement dated as of August 16, 2018, by and between the Company and Merck, effective immediately, in connection with the Company’s determination to discontinue development of RX-5902 for the warrant liabilities is disclosed in Note 12.treatment of metastatic triple negative breast cancer.

The carrying amounts reported in the financial statements for cash and cash equivalents (Level 1), approximate fair value because of the short term maturity of these financial instruments.

The following table sets forth a reconciliation of changes for the nine months ended September 30, 2017 and 2016 in the fair value of the liabilities classified as Level 3 in the fair value hierarchy:
  Warrant Liabilities 
Balance at January 1, 2017 $1,573,366 
Additions  4,107,488 
Unrealized losses, net  9,047,831 
Transfers out of level 3  (8,052,594)
Balance at September 30, 2017 $6,676,091 
  Warrant Liabilities 
Balance at January 1, 2016 $2,739,163 
Additions  4,364,110 
Unrealized gains, net  (3,941,682)
Transfers out of level 3  - 
Balance at September 30, 2016 $3,161,591 

Additions consist of the fair value of warrant liabilities upon issuance.  Transfers out of Level 3 for warrant liabilities consist of warrant exercises, where the liability is converted to additional paid-in capital upon exercise.  The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstance that caused the transfer.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
16.Subsequent Events
On October 17, 2017 the Company closed a registered direct public offering of 3,265,309 shares of common stock and warrants to purchase up to 1,632,654 shares of common stock.  The common stock and warrants were sold in units, consisting of a share of common stock and a warrant to purchase 0.5 shares of common stock, at a price of $2.45 per unit, with an exercise price for the warrants of $2.85 per share.  The total gross proceeds of the offering were $8,000,007.  The warrants issued will become exercisable beginning six months after the closing date, and will remain exercisable until the five-year anniversary of the initial exercise date.  The Company also issued warrants to purchase up to 195,919 shares of the Company’s common stock, at an exercise price of $3.06 per share, to designees of the placement agent in the offering.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

The following discussion should be read in conjunction with the unaudited condensed financial statements and notes thereto set forth in Item 1 of this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016.2019 (the “2019 Form 10-K”).

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties.  We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  In this Quarterly Report on Form 10-Q, words such as “believe”, “estimate”, “expect”, “anticipate”, “will”, “may”, “intend” and other similar expressions, are intended to identify forward-looking statements.  We caution that forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors that are, in many instances, beyond our control.  Actual results, performance or achievements may differ materially from those contemplated, expressed or implied by the forward-looking statements.

Although we believe that the expectations reflected in our forward-looking statements are reasonable as of the date we make them, actual results could differ materially from those currently anticipated due to a number of factors, including risks relating to:


·●uncertainties about the exploration and evaluation of strategic alternatives, including that they may not result in a definitive transaction or enhance shareholder value and may create a distraction or uncertainty that may adversely affect our operating results, business, or investor perceptions;


●uncertainties about the paths of our programs and our ability to evaluate and identify a path forward for those programs, particularly given the constraints we have as a small company with limited financial, personnel and other operating resources;


●the impact of the COVID-19 pandemic on the economy, our industry, and our financial condition and results of operations, as well as our ability to enter into and complete a strategic transaction;


●our understandings and beliefs regarding the role of certain biological mechanisms and processes in cancer;


·●our drugproduct candidates being in early stages of development, including in pre-clinicalpreclinical development;


·our ability to initially develop drug candidates for orphan indications to reduce the time-to-market and take advantage of certain incentives provided by the U.S. Food and Drug Administration;

·our ability to transition from our initial focus on developing drug candidates for orphan indications to candidates for more highly prevalent indications;

·●our ability to successfully and timely complete clinical trials for our drug candidates in clinical development;


·●uncertainties related to the timing, results and analyses related to our drug candidates in pre-clinicalpreclinical development;


·●our ability to obtain the necessary U.S. and international regulatory approvals for our drug candidates;



·●our reliance on third-party contract research organizations and other investigators and collaborators for certain research and development services;


·●our ability to maintain or engage third-party manufacturers to manufacture, supply, store and distribute supplies of our drug candidates for our clinical trials;
 

·●our ability to form strategic alliances and partnerships with pharmaceutical companies and other partners for development, sales and marketing of certain of our product candidates;


·●demand for and market acceptance of our drug candidates;


·●the scope and validity of our intellectual property protection for our drug candidates and our ability to develop our candidates without infringing the intellectual property rights of others;


·●our lack of profitability and the need for additional capital to operate our business; and


·●other risks and uncertainties, including those set forth herein and in our Annual Report onthe 2019 Form 10-K for the year ended December 31, 2016 under the caption “Risk Factors” and those detailed from time to time in our filings with the Securities and Exchange Commission.

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.

We are a clinical stage biopharmaceutical company dedicateddeveloping innovative therapies to improve patient outcomes in cancers that are difficult to treat. Our pipeline features two clinical-stage product candidates and additional compounds in preclinical development.

●
RX-3117 is a novel, investigational oral, small molecule nucleoside compound.  Once intracellularly activated (phosphorylated) by the enzyme UCK2, it is incorporated into the DNA or RNA of cells and inhibits both DNA and RNA synthesis, which induces apoptotic cell death of tumor cells.  RX-3117 is the subject of a Phase 2a clinical trial in combination with Celgene’s Abraxane® (paclitaxel protein-bound particles for injectable suspension) as a first-line treatment in patients newly diagnosed with metastatic pancreatic cancer.  The trial reached its target enrollment in February 2019.  As of July 24, 2019, an overall response rate of 23% had been observed in 40 patients that had at least one scan on treatment.  Preliminary and unaudited data indicates that the median progression free survival for patients in the study is approximately 5.4 months.  Complete data from the trial is expected to be available in 2020.  We do not plan to conduct or sponsor any additional trials with RX-3117.

On March 10, 2020, we amended our collaboration and license agreement (as amended, the discovery,“License and Assignment Agreement”) with BioSense Global LLC (“BioSense”) to advance the development and commercialization of innovative treatmentsRX-3117 for cancer. Our mission isall human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “Territory”). Under the terms of the License and Assignment Agreement, upon payment in full of an upfront payment, we will grant BioSense an exclusive license to improvedevelop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the livesTerritory and assign and transfer to BioSense all of cancer patients by developing next-generation cancer therapies thatour patents and patent applications related to RX-3117 in the Territory. The upfront payment consists of an aggregate of $1,650,000, of which $1,500,000 has been received to date. Under the License and Assignment Agreement, we are designedeligible to maximize efficacy while minimizingreceive milestone payments in an aggregate of up to $84.5 million upon the toxicityachievement of development, regulatory and side effects traditionally associated with cancer treatment. Our clinical pipeline features three oncology product candidatescommercial goals and will also be eligible to receive tiered royalties in Phase II clinical development and additional compoundsthe mid-single digits to low tens on annual net sales in pre-clinical development. Our strategy is to continue building a significant pipelinethe Territory.
22


·●
RX-3117 is a small molecule nucleoside compound that we believe has therapeutic potential in a broad range of cancers, including pancreatic, bladder, colon, and lung cancer. RX-3117 is being evaluated as monotherapy in a multi-center Phase IIa clinical trial in metastatic pancreatic cancer in patients who are refractory to, or have relapsed after, multiple prior rounds of chemotherapy.  We are also planning to evaluate RX-3117 in combination with Abraxane® (nab-paclitaxel) as first line treatment in patients who are newly-diagnosed with metastatic pancreatic cancer and have not had prior cytotoxic treatment.  In 2016, we commenced enrollment in another Phase IIa trial in patients with locally advanced or metastatic bladder cancer.  This Phase IIa clinical trial is a multi-center open label, single agent study of RX-3117 being conducted at 10 clinical centers in the United States.  RX-3117 has received orphan drug designation from the U.S. Food and Drug Administration (the “FDA”) for pancreatic cancer.  Orphan drug designation in the United States provides tax incentives for clinical research and a waiver from user fees under certain circumstances. In addition, an orphan drug generally receives seven years of exclusivity after approval for a designated use, during which period the FDA generally cannot approve another product with the same active moiety for the same indication.  Rexahn has also received a positive opinion from the European Medicines Agency recommending orphan drug designation in pancreatic cancer.

·
Supinoxin, or RX-5902 is a potential first-in-class small molecule inhibitormodulator of phosphorylated-p68, a protein that we believethe Wnt/beta-catenin pathway which plays a key role in cancer cell growth, progressionproliferation and metastasis through its interactiontumor growth.  In August 2018, we entered into a Clinical Trial Collaboration and Supply Agreement (the “Collaboration Agreement”) with beta-catenin. In February, 2017 we initiatedMerck Sharp & Dohme B.V. (“Merck”) to evaluate the combination of RX-5902 and Merck’s anti-PD-1 therapy, KEYTRUDA® (pembrolizumab) in a Phase IIa clinical study of Supinoxin2 trial in patients with metastatic triple negative breast cancer (“TNBC”). On April 7, 2020, we notified Merck that we were terminating the Collaboration Agreement, effective immediately, in connection with our determination to discontinue development of RX-5902 for the treatment of TNBC. We are evaluating development options for RX-5902 and may or may not sponsor additional clinical trials with the compound.


·●
ArchexinRX-0301 is a potential best-in-class, potent inhibitor of the synthesis of the protein kinase Akt-1, which we believe plays a critical role in cancer cell proliferation, survival, angiogenesis, metastasis, and drug resistance.  Archexin has received orphan drug designation from the FDA for renal cell carcinomaRX-0301 is currently in preclinical development by Zhejiang HaiChang Biotechnology Co., Ltd. (“RCC”HaiChang”) as a nano-liposomal formulation of RX-0201 (Archexin®) using HaiChang’s proprietary QTsome™ technology On February 8, 2020, we entered into an exclusive license agreement with HaiChang (the “HaiChang License Agreement”) pursuant to which we granted HaiChang an exclusive (even as to us), glioblastoma, ovarian cancer, stomach cancerroyalty-bearing, sublicensable worldwide license to research, develop and pancreatic cancer. We are currently conductingcommercialize RX-0201 and RX-0301. The HaiChang License Agreement supersedes a prior agreement with HaiChang to develop RX-0301 under which HaiChang was to conduct certain preclinical and clinical activities through completion of a Phase IIa2a proof-of-concept clinical trial of Archexin in patients with metastatic renal cell carcinoma to evaluate its safety and efficacy in combination with AFINITOR® (everolimus).hepatocellular carcinoma.

Since our inception, our efforts and resources have been focused primarily on developing our pharmaceutical technologies, raising capital and recruiting personnel.  We have no product sales to date, and we will not generate 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 and public financings and licensing and collaboration agreements with our partners.  In September 2019, we commenced a process to explore and evaluate strategic investorsalternatives to enhance shareholder value, and partners.have engaged Oppenheimer and Co. Inc. as our financial advisor to assist us in this process.  Potential strategic alternatives include an acquisition, merger, reverse merger, other business combination, sales of assets, licensing, or other strategic alternatives.  In connection with the evaluation of strategic alternatives, we are evaluating opportunities to extend our resources and have reduced our headcount to five employees.

On May 5, 2017 the Company effected a one-for-ten reverse stock splitThe outbreak of the outstanding sharesCOVID-19 disease, which the World Health Organization declared a pandemic in March 2020, has led to disruption in the global economy and the biopharmaceutical industry. The extent of the Company’s common stock, together withCOVID-19 pandemic’s impact on our business, financial condition and results of operations, as well as on our ability to enter into and complete a corresponding proportional reduction instrategic transaction, is highly uncertain and will depend on various factors, including the number of authorized sharesduration and scope of the Company’s capital stock.  See Note 10, “Common Stock—Reverse Stock Split,” inpandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, other actions taken to contain the Notesimpact of the pandemic, and impacts on our ability or the ability of potential strategic partners to Consolidated Financial Statements.
Recently Issued Accounting Standards

See Note 2, “Recent Accounting Pronouncements Affectingaccess the Company,” in the Notes to Condensed Financial Statements for a discussion of recent accounting pronouncements.markets on favorable terms, or at all.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2017March 31, 2020 and September 30, 2016March 31, 2019

Total Revenues

We recorded revenues of $1,150,000 during the three months ended March 31, 2020, consisting of $250,000 earned from the HaiChang License Agreement and $900,000 from the BioSense License and Assignment Agreement.  We had no revenues for the three and nine months ended September 30, 2017 or 2016.March 31, 2019.

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, investor relations, and general legal activities.

General and administrative expenses increaseddecreased approximately $155,000,$440,000, or 10.9%25.9%, to $1,574,000approximately $1,256,000 for the three months ended September 30, 2017March 31, 2020 from $1,419,000$1,696,000 for the three months ended September 30, 2016.  General and administrative expenses increased approximately $515,000, or 11.4%, to $5,005,000 for the nine months ended September 30, 2017 from $4,490,000 for the nine months ended September 30, 2016.March 31, 2019.  The increasesdecreases were primarily attributable to higherdecreased personnel and operating costs and professional fees in 2017.resulting from the streamlining of operations.
Research and Development Expenses

Research and development expenses increased approximately $346,000, or 15.1%,costs are expensed as incurred.  These costs consist primarily of salaries and related personnel costs, and amounts paid to $2,645,000contract research organizations, hospitals and laboratories for the three months ended September 30, 2017, from $2,299,000provision of services and materials for the three months ended September 30, 2016.  drug development and clinical trials.  Our research and development expenses are currently related to our oncology drug candidates.

Research and development expenses decreased approximately $552,000,$1,785,000, or 6.9%79.6%, to $7,452,000approximately $457,000 for the ninethree months ended September 30, 2017,March 31, 2020, from $8,004,000approximately $2,242,000 for the ninethree months ended September 30, 2016.  In both the three and nine-month periods ended September 30, 2017, we experienced increased clinical trial costs compared to the prior year periods, partially offset by a decrease in personnel expenses.  In the three-month period ended September 30, 2017, a new drug manufacturing campaign that began in the third quarter together with the increased clinical trial costs contributed to the overall increase in research and development expenses in the period.  Conversely, the increased clinical trial costs in the nine-month period ended September 30, 2017 were more than offset by lower drug manufacturing costs as a result of supplies that were available from earlier manufacturing campaigns.  During the nine months ended September 30, 2017, we incurred approximately $1,324,000 of drug manufacturing costs, primarily asMarch 31, 2019.  The decreases are a result of the drug manufacturing campaign that began in the third quarter, compared to approximately $2,325,000 during the nine months ended September 30, 2016, primarily from large manufacturing campaigns in the early months of 2016.  Because the volume and timingcompletion of our drug manufacturing does not correlate directly with the levelRX-3117 and timing of clinical trial activity, we expect expenses related to drug manufacturing costs to vary from period to period based not only on the progress of clinical trials, but also when we engage in manufacturing activities.  We expect research and development expenses to increase in the remaining quarter of 2017 compared to the quarter ended September 30, 2017 due to continued patient enrollment in ourRX-5902 clinical trials, and newdecreased drug manufacturing campaigns.costs.

The table below summarizes the approximate amounts incurred in each of our research and development projects for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:

 
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
  
For the Three Months Ended
March 31,
 
 2017  2016  2017  2016  2020  2019 
Clinical Candidates:                  
RX-3117 $1,245,500  $510,000  $3,134,000  $1,944,700  $326,900  $1,078,400 
Supinoxin  492,000   513,300   1,189,800   1,842,700 
Archexin  123,200   337,600   422,000   1,421,200 
RX-5902 4,200  342,400 
RX-0201 1,800  115,800 
                      
Preclinical, Personnel and Overhead  784,299   937,685   2,705,856   2,795,593  123,890  705,629 
                        
Total Research and Development Expenses $2,644,999  $2,298,585  $7,451,656  $8,004,193  $456,790  $2,242,229 

We expect total research and development expenses to decrease in the remainder of 2020 as compared to the three months ended March 31, 2020 as we complete our Phase 2a clinical trial of RX-3117 with Abraxane and explore and evaluate strategic alternatives.

Interest Income

Interest income increaseddecreased approximately $35,000 and $51,000$47,000, or 132.4% and $61.3%, respectively57.7% for the three and nine months ended September 30, 2017, respectively,March 31, 2020, compared to the same periodsperiod in 2016.2019.  The increasesdecreases were primarily attributable to higher aggregatelower interest rates and balances of cash, and cash equivalents and marketable securities and higher interest rates on marketable securities for the three and nine months ended September 30, 2017March 31, 2020 compared to the same periodsperiod in 2016.2019.
Unrealized (Loss) Gain (Loss) on Fair Value of Warrants

Our warrants are recorded as liabilities at fair value, and the warrants are valued using a lattice model.  Changes in the fair value of warrants are recorded as an unrealized gain or loss in our statement of operations.  During the three months ended September 30, 2017March 31, 2020 and 2016,2019, we recorded unrealized (losses) gains on the fair value of our warrants of approximately $3,121,000$(58,000) and $968,000.  During the nine months ended September 30, 2017, we recorded unrealized (losses) gains on the fair value of warrants of approximately ($9,048,000) and $3,942,000$1,513,000, respectively.  Estimating fair values of warrants requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the warrants due to related changes to external market factors.  The large unrealized gain for the three months ended September 30, 2017March 31, 2019 primarily resulted from a significant decrease in the stock price of the underlying common stock at September 30, 2017the end of this period compared to June 30, 2017.  The large unrealized loss for the nine months ended September 30, 2017 primarily resulted from a significant increase in the stock pricebeginnings of the underlying common stock at September 30, 2017 compared to December 31, 2016.  An increase in volatility of the common stock during that period and the large number of outstanding warrants also had an impact on the large unrealized loss for the nine months ended September 30, 2017.

Financing Expense

We incurred approximately $333,000 and $313,000 of financing expenses during the nine months ended September 30, 2017, and 2016, respectively related to our registered direct offerings in June 2017, September 2016 and March 2016.  We incurred approximately $143,000 of financing expenses during the three months ended September 30, 2016, related to our registered direct offering in September 2016.  We did not incur financing expenses during the three months ended September 30, 2017.this period.

Net Loss

As a result of the above, net loss for the three and nine months ended September 30, 2017March 31, 2020 was approximately $1,038,000 and $21,702,000,$587,000 or $0.04 and $0.83$0.15 per share, respectively, compared to approximately $2,867,000 and $8,782,000,$2,343,000, or $0.13 and $0.42 per share, respectively,$0.62 for the three and nine months ended September 30, 2016.  As previously discussed, included in the net loss for the three and nine months ended September 30, 2017 are non-cash charges of approximately $3,121,000 and ($9,048,000) in unrealized gains (losses) on the fair value of warrants, compared to unrealized gains of $968,000 and $3,942,000 for the three and nine months ended September 30, 2016.
Research and Development ProjectsMarch 31, 2019.

Research and development costs are expensed as incurred.  These costs 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 that have no alternative future uses are expensed as incurred.  Our research and development programs are related to our oncology clinical stage drug candidates, RX-3117, Supinoxin and Archexin, and our pre-clinical stage drug candidate, RX-21101.  As we expand our clinical studies, we expect to 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 candidates, RX-3117, Supinoxin and Archexin, is uncertain, and because RX-21101 is 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 any.  If these projects are not completed as planned, our results of operations and financial condition would be negatively affected.

RX-3117
 RX-3117 is a novel, investigational oral small molecule nucleoside compound.  We believe RX-3117 has therapeutic potential in a broad range of cancers including pancreatic, bladder, cervical, non-small cell lung cancer and colon cancer.  We previously identified the MTD of RX-3117, which we are evaluating in Phase IIa proof-of-concept clinical trials in patients with relapsed or refractory metastatic pancreatic cancer and patients with locally advanced or metastatic bladder cancer.

Expenses related to RX-3117 increased during the three and nine months ended September 30, 2017 compared to the same period in 2016 due to increased clinical trial and patient enrollments resulting from the progression of our pancreatic and bladder cancer clinical trials, as well as manufacturing costs for new campaigns. We expect that expenses related to RX-3117 will increase in the remainder of 2017 compared to the three and nine months ended September 30, 2017 due to patient enrollment costs, continued manufacturing costs for new campaigns, and the commencement of a combination Phase IIa clinical trial with Abraxane in pancreatic cancer.

Supinoxin (RX-5902)
Supinoxin is a potential first-in-class small molecule inhibitor of phosphorylated p68, a protein that we believe plays a key role in cancer growth, progression and metastasis through its interaction with beta-catenin. Phosphorylated p68 results in up-regulation of cancer-related genes and a subsequent proliferation of cancer cells and tumor growth.  In February 2017, we initiated a Phase IIa clinical study of Supinoxin in patients with metastatic TNBC.

Expenses related to Supinoxin decreased during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016.  The decrease is primarily attributable to decreased manufacturing costs due to a significant supply of drug product already available from earlier manufacturing campaigns.  However, we expect that expenses related to Supinoxin will increase in the remainder of 2017 compared to the three and nine months ended September 30, 2017 due to patient enrollment costs associated with our Phase IIa trial in patients with metastatic TNBC and new manufacturing campaigns.
Archexin

Archexin is a potential best-in-class, potent inhibitor of the protein kinase Akt-1, which we believe plays a critical role in cancer cell proliferation, survival, angiogenesis, metastasis and drug resistance.  We are currently conducting a Phase IIa proof-of-concept clinical trial of Archexin in patients with metastatic RCC to evaluate its safety and efficacy in combination with AFINITOR (everolimus).

Expenses related to Archexin decreased during the three and nine months ended September 30, 2017 compared to the same periods in 2016.  The decrease is primarily attributable to decreased manufacturing costs due to a significant supply of drug product already available.  We expect that expenses related to Archexin will remain flat for the remainder of 2017 compared to the three and nine months ended September 30, 2017 as we continue the ongoing Archexin clinical trial.

Pre-clinical Pipeline

Expenses related to our pre-clinical candidates increased for the three and nine months ended September 30, 2017 compared to the same periods in 2016 primarily as a result of increased research activities.  We expect that expenses related to our pre-clinical pipeline, including RX-21101, will remain flat for the remainder of 2017 compared to the three and nine months ended September 30, 2017 as we continue testing and development.

Research and Development Process
We have engaged third-party contract research organizations and other investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical studies, toxicology studies and clinical trials.  Engaging third-party contract research organizations is typical practice in our industry. However, relying on such organizations means that the clinical trials and other studies described above are being conducted at external locations and that the completion of these trials and studies is not within our direct control. Trials and studies may be delayed due to circumstances outside our control, and such delays may result in additional expenses for us.
Liquidity and Capital Resources

Current and Future Financing Needs

We have incurred negative cash flow from operations since we started our business.  We expect to continue to incur negative cash flow and operating losses as we explore strategic alternatives.  We have spent, and subject to our exploration of strategic alternatives, 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 development efforts.  Subject to the result of our exploration of strategic alternatives, we will need to raise additional capital through public or private equity or debt offerings or through arrangements with strategic partners or other sources in order to continue to develop our drug candidates.  In conjunction with our exploration of strategic alternatives, we are exploring opportunities to extend our resources.  We believe that our cash and cash equivalents of approximately $11.0 million as of March 31, 2020 will be sufficient to cover our cash flow requirements for our current activities for at least the next 12 months following the issuance of the financial statements contained in this Quarterly Report. However, our resource requirements could materially change to the extent we identify and enter into any strategic transaction.  Our ability to enter into a strategic transaction could also be impacted by our, or any potential partner’s ability to, raise additional capital.

Cash Flows

Cash used in operating activities was approximately $11,715,000$1,221,000 for the ninethree months ended September 30, 2017.March 31, 2020.  The operating cash flows during the ninethree months ended September 30, 2017March 31, 2020 reflect a net loss of $21,702,000, offset byapproximately $587,000, a net decrease of cash components of working capital and non-cash charges totaling $634,000. Cash used in operating activities was approximately $4,380,000 for the three months ended March 31, 2019.  The operating cash flows during the three months ended March 31, 2019 reflect a net loss of approximately $2,343,000, an unrealized lossgain on the fair value of warrants of $9,048,000approximately $1,514,000, and a net increase of cash components of working capital and non-cash charges totaling $939,000.  approximately $523,000.

Cash used in operatingprovided by investing activities was approximately $11,734,000$3,000,000 from the redemption of marketable securities for the ninethree months ended September 30, 2016.  The operating cash flows during the nine months ended September 30, 2016 reflect our net loss of $8,782,000, an unrealized gain on the fair value of warrants of 3,942,000 and a net increase of cash components of working capital and other non-cash charges totaling $990,000.

March 31, 2020.  Cash used in investing activities was approximately $6,310,000$5,895,000 for the ninethree months ended September 30, 2017,March 31, 2019 which consisted of $15,009,000approximately $8,888,000 and $21,000 forapproximately $13,000 from the purchases of marketable securities and equipment, respectively, offset by $8,720,000approximately $6,000 from the redemptionsale of marketable securities. Cash used in investing activities was approximately $196,000 for the nine months ended September 30, 2016, which consisted of $8,748,000equipment and $8,000 for the purchases of marketable securities and equipment, respectively offset by $8,560,000$3,000,000 from the redemption of marketable securities.

32
There was no cash provided by financing activities for the three months ended March 31, 2020.  Cash provided by financing activities was approximately $14,673,000$7,654,000 for the ninethree months ended September 30, 2017, which consisted of net proceeds of $9,241,000 from our registered direct public offering in June 2017 and $5,354,000 and $78,000 from the exercise of stock warrants and options, respectively.  Cash provided by financing activities was approximately $10,122,000 for the nine months ended September 30, 2016,March 31, 2019, which consisted of net proceeds from our registered direct public offeringsunderwritten offering in March 2016 and September 2016.

After September 30, 2017, on October 17, 2017, we closed a registered direct public offering of 3,265,309 shares of common stock and warrants to purchase up to 1,632,654 shares of common stock, resulting in gross proceeds to us of approximately $8,000,000.January 2019.

Contractual Obligations

We have a variety of contractual obligations, as more fully described in our 2016the 2019 Form 10-K.  These obligations include, but are not limited to, contractual obligations in connection with license agreements (including related milestone payments), lease payments, employee compensation and incentive program expenses, and contracts with various vendors for services.  As of September 30, 2017,March 31, 2020, the total estimated cost to complete our contracts with vendors for research and development services was approximately $10,750,000$800,000 under the terms of the applicable agreements.  All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements.

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 development efforts.  We will need to raise additional capital through public or private equity or debt offerings or through arrangements with strategic partners or other sources in order to continue to develop our drug candidates.  There can be no assurance that additional capital will be available when needed or on terms satisfactory to us, if at all.  If we are not able to raise sufficient additional capital, we will have to reduce our research and development activities. We believe our cash, cash equivalents, and marketable securities will be sufficient to cover our cash flow requirements for our current activities for at least the next 12 months from the date these financial statements were issued.

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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or holdings in variable interest entities.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk, refer to “Quantitative and Qualitative Disclosures About Market Risk” in our 2016 Form 10-K.  Our exposures to market risk have not changed materially since December 31, 2016.Not required.

Item 4.
Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”)principal executive officer and Chief Financial Officer (“CFO”),principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our CEOprincipal executive officer and CFOprincipal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”) rules and forms and (ii) accumulated and communicated to our management, including our CEOprincipal executive officer and CFO,principal financial officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Overover Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.
PART II.
Other Information

Item 1A.
Risk Factors.

Investing in our stock involves a high degree of risk.You should carefully consider the following discussion of risk factors in its entirety. In addition to the other information set forth in this report, you should carefully consider the factors set forth in the Risk Factors section of our 20162019 Form 10-K, as well as other information contained in the 20162019 Form 10-K and in other reports we file with the SEC. We do not believe that there have been any material changes

Our business is subject to risks arising from the ongoing COVID-19 pandemic.

The outbreak of COVID-19, which the World Health Organization declared a pandemic in March 2020, has spread across the globe and has led to disruption in the global economy and the biopharmaceutical industry. COVID-19 poses the risk that we or our employees, licensees, and other partners may be prevented from or restricted in conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities. We have reduced our headcount to five employees and are dependent on the efforts of our President and Chief Executive Officer, Douglas J. Swirsky, and other key professionals. The loss of Mr. Swirsky or any of our other key professionals as a result of illness or otherwise in connection with the COVID-19 pandemic could materially and adversely affect our business and our prospects. In addition, as the COVID-19 pandemic continues to disrupt the economy, our future access to capital on favorable terms and our ability to enter into and complete a strategic transaction may be adversely impacted.
The extent to which the COVID-19 pandemic impacts our business, financial condition and results of operations as well as on our ability to enter into and consummate a strategic transaction is highly uncertain and will depend on various factors, disclosed inincluding the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, the other actions that may be taken to contain its impact, and impacts on our 2016 Form 10-K.ability or the ability of potential strategic partners to access the markets on favorable terms, or at all.

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

Pursuant to a consulting agreement, we issued 7,500 shares of common stock during the three months ended September 30, 2017 to a privately held investor relations firm in consideration for investor relations services.  The shares of common stock were not registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the exemption from registration requirements provided by Section 4(a)(2) of the Securities Act, as a transaction not involving a public offering.

Item 6.Exhibits.

Exhibit No.
Description
Form of Warrant, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 13, 2017, is incorporated herein by reference.
  
**10.1
Form of Securities PurchaseAmendment No. 2 to Collaboration and License Agreement, dated as of October 13, 2017, byMarch 10, 2020 between BioSense Global LLC and between Rexahn Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 13 2017, is incorporated herein by reference.
  
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) / 15d-14(a).
 
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) / 15d-14(a)
  
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
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The following materials from Rexahn Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q, formatted in Extensible Business Reporting Language (“XBRL”): (i) Condensed Balance Sheet; (ii) Condensed Statement of Operations; (iii) Condensed Statement of Comprehensive Loss; (iv) Condensed Statement of Stockholders’ Equity; (v) Condensed Statement of Cash Flows; and (v)(vi) Notes to the Financial Statements.
**Portions of this exhibit have been omitted in compliance with Item 601 of Regulation S-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  
REXAHN PHARMACEUTICALS, INC.
  (Registrant)
   
 By:/s/ Peter D. SuzdakDouglas J. Swirsky
Date: November 3, 2017May 7, 2020 Peter D. SuzdakDouglas J. Swirsky
  
Chief Executive Officer
(principal executive officer)
and President
  
By:/s/ Tae Heum Jeong
Date: November 3, 2017Tae Heum Jeong
Chief Financial Officer and Secretary
(principal executive, financial and accounting officer)


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