10KSB/A 1 form10ksba.txt FORM 10KSB/A U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A (Amendment No.1) (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number: 0-15070 REGENERX BIOPHARMACEUTICALS, INC. (Name of small business issuer in its charter) DELAWARE 52-1253406 (State or other jurisdiction of (I.R.S. Employer Identification number) incorporation or organization) 3 BETHESDA METRO CENTER, SUITE 700, BETHESDA, MARYLAND 20814 (Address of principal executive offices including zip code) Issuer's telephone number: 301-961-1992 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, $.001 par value ----------------------------- (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State the issuer's revenues for its most recent fiscal year: $0. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on the OTC Bulletin Board on March 2, 2004, was approximately $23,319,941. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) The number of shares of issuer's Common Stock outstanding as of March 2, 2004 was 32,542,548. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES NO X --- --- The primary purpose of this Amendment No. 1 to the Form 10-KSB for the year ended December 31, 2003, is to timely file required Part III information and to make other textual changes. The Part III information was originally expected to be incorporated from the proxy statement for the 2004 annual meeting, however, the proxy statement will not be filed until May. PART I ITEM 1. BUSINESS GENERAL RegeneRx Biopharmaceuticals, Inc. ("RegeneRx") was formed in 1982 and is a pharmaceutical research and development company focusing on the development of products to treat a variety of human diseases. RegeneRx's current primary business focus is the commercialization of Thymosin beta 4 ("T(beta)4"), a 43 amino acid peptide. RegeneRx is concentrating its efforts on the use of T(beta)4 for the treatment of injured tissue and non-healing wounds to enable more rapid repair and/or tissue regeneration. RegeneRx utilizes a virtual company strategy in order to effectively control costs while focusing on the clinical development of T(beta)4. RegeneRx uses this model for certain research and development, clinical trials, and manufacturing operations, as well as other functions critical to its mission. RegeneRx believes this approach enhances its ability to allocate resources rapidly to different projects. The strategy consists of (i) identifying, evaluating and licensing pharmaceutical product opportunities that appear to have a significant commercial potential; (ii) designing pre-clinical and/or clinical protocols to test such products; (iii) utilizing third party contract manufacturers to supply clinical grade material and third party contract research organizations to perform pre-clinical and/or clinical studies in accordance with its designed protocols; and (iv) pursuing sublicense arrangements with established pharmaceutical companies to support late stage clinical testing and ultimately marketing if regulatory approval is obtained. PRIMARY COMMERCIAL DEVELOPMENT FOCUS - THYMOSIN BETA 4 General. Originally isolated from the thymus, Thymosin beta 4 is a chemically synthesized copy of a natural human peptide that circulates in the blood and plays a vital role in the regeneration, remodeling and healing of tissues. Although it is recognized that wound healing is a complex process, most companies working to develop new drugs in this area have focused primarily on adding different growth factors to stimulate healing and have, to date, failed to demonstrate dramatic improvements in the healing process. T(beta)4 represents a new type of compound being developed to speed the healing of injured tissues, accelerate the growth of blood vessels and reduce inflammation. It represents a technology platform from which RegeneRx intends to investigate potential clinical uses beyond chronic dermal wounds. Unlike compounds such as Platelet-Derived Growth Factor, Keratinocyte Growth Factor, Epidermal Growth Factor, or basic Fibroblast Growth Factor, T(beta)4 is not a growth factor and, unlike Interleukin-1 or Tumor Necrosis Factor, T(beta)4 is not a cytokine. (Cytokines are proteins and peptides, which act as immune regulators and modulate the functional activities of individual cells and tissues.) Rather, it regulates the actin molecule and reduces inflammation in most mammalian cells and as such plays a vital role in the healing of injured or damaged tissues. Actin comprises up to 10% of the protein of non-muscle cells and plays a central role in cell structure (formation of the cytoskeleton) and in the movement of cells throughout the body. Research studies from the National Institute of Health ("NIH") established that T(beta)4 stimulates the migration of human keratinocytes (skin cells) and the migration of human endothelial cells. Endothelial cells are the major cell types responsible for the formation of blood vessels and other tissues. These studies were the first to document the important role of T(beta)4 in wound healing. Product Development. RegeneRx first began evaluating T(beta)4 in diseases associated with actin toxicity, such as cystic fibrosis. In March 1997, RegeneRx provided funding under a research contract with Vanderbilt University to determine the effect of T(beta)4 in a sheep model of Adult Respiratory Distress Syndrome, a syndrome associated with septic shock. In animal models of septic shock, Thymosin beta 4 has been shown to reduce endotoxin-induced death, presumably by modulating pathologic mediators of inflammation and cell death, including the depolymerization of actin. RegeneRx is considering additional studies for this use of Thymosin beta 4 and holds two patents related to this application. See "--Proprietary Rights" below. RegeneRx's main product development focus is the use of T(beta)4 for the treatment of non-healing wounds and similar medical problems, such as Epidermolysis Bullosa, chronic pressure ulcers and diabetic lower extremity ulcers. RegeneRx entered into a Material Transfer - Cooperative Research and Development Agreement with the 2 NIH during the second quarter of 1997. Under this agreement, RegeneRx received an option to elect an exclusive or non-exclusive commercialization license from the NIH for any patent rights that might result from the NIH research study that relate to the use of T(beta)4 as a tissue growth and repair factor. A provisional patent application was filed by NIH in July 1998, with a Patent Cooperation Treaty application filed in July 1999, pertaining to the work performed on T(beta)4. On February 6, 2001, RegeneRx executed an agreement with the NIH giving RegeneRx an exclusive worldwide license from the NIH for all claims to T(beta)4 within the patent application. In exchange for the exclusive license, RegeneRx must make certain royalty and milestone payments to the NIH. No assurance can be given as to whether or when a patent will be issued, or as to any conditions that might be attached to the patent. To date, the NIH has performed pre-clinical animal studies using T(beta)4, supplied by RegeneRx, which have indicated that T(beta)4 is effective in healing injured dermal and ocular tissue and improving wound healing and chemical burns in normal, elderly, diabetic, and steroid-suppressed rodents and other mammals. In December of 2002, RegeneRx initiated research under an Investigational New Drug Application ("IND"), from the U.S. Food and Drug Administration ("FDA") allowing it to begin Phase I human clinical trials. The Phase I study was successfully completed in September of 2003. For additional information regarding the regulatory approval process for RegeneRx's products, see "-- Government Regulation" below. Other areas RegeneRx may explore with T(beta)4 are the healing of eye injuries, including chemical burns and inflammatory processes, post surgical healing, and wound healing in patients undergoing steroidal therapy, among other indications. RegeneRx also is reconsidering the possible applications of T(beta)4 for the treatment of septic shock and cystic fibrosis, as well as other internal wound healing applications. All of RegeneRx's efforts to develop additional applications would likely require substantial additional capital or a strategic alliance or other partnership arrangement with a firm providing the capital and/or necessary expertise. RegeneRx has placed development of T(beta)4 for wound healing as its highest product development priority. For additional information regarding RegeneRx's efforts to commercialize Thymosin beta 4, see "--Proprietary Rights" below. MANUFACTURING RegeneRx, uses outside contract manufacturers to manufacture bulk T(beta)4 and formulate it into a final product, which product was used for its Phase I clinical trials and will be used for future clinical trials. Additional manufacturers have been identified for manufacturing of the bulk T(beta)4 as well as for the final T(beta)4 products. No agreements with these manufacturers have been entered into, however, and no assurance can be given that such agreements will be negotiated on terms favorable to RegeneRx, or at all. Contractors will be selected on the basis of their supply capability, ability to produce a drug substance in accordance with current Good Manufacturing Practice requirements of the FDA and to meet Company-established specifications. Although RegeneRx has enough bulk T(beta)4 for its currently scheduled clinical trials, there can be no assurance that RegeneRx will have sufficient funds to cover the costs of manufacturing additional materials for further development. COMPETITION RegeneRx is engaged in a business that is highly competitive. Research and development activities for the development of drugs to treat patients with cystic fibrosis, septic shock and non-healing wounds are being sponsored or conducted by private and public institutions and by major pharmaceutical companies located in the United States and a number of foreign countries. Most of these companies and institutions have financial and human resources that are substantially greater than those of RegeneRx, and that have extensive experience in conducting research and development activities and clinical testing and in obtaining the regulatory approvals necessary to market pharmaceutical products. With respect to wound healing, Johnson & Johnson has marketed Regranex(TM) for this purpose in patients with diabetes foot ulcers with some success. Other companies, such as Novartis, are developing and marketing artificial skins which could compete with RegeneRx's products in certain wound healing areas. Moreover, wound healing is a large and highly fragmented marketplace attracting many companies, large and small, to develop products for treating acute and chronic wounds. 3 GOVERNMENT REGULATION In the United States, the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, labeling, storage, recordkeeping, approval, advertising, and promotion of RegeneRx's products on a product-by-product basis. Regulation by governmental authorities in the United States and foreign countries will be a significant factor in the manufacturing and marketing of RegeneRx's products and in its ongoing research and product development activities. Any product developed by RegeneRx will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous pre-clinical and clinical testing and other approval procedures by the FDA and similar health authorities in foreign countries. The process of obtaining these approvals and the subsequent compliance with appropriate federal and state statutes and regulations require the expenditure of substantial resources. Any failure by RegeneRx to obtain regulatory approvals, or any delay in obtaining such approvals, could adversely affect the marketing of products being developed by RegeneRx, its ability to receive product or royalty revenues and its liquidity and capital resources. Pre-clinical testing in the laboratory must ordinarily be conducted to evaluate the potential efficacy and the safety of an investigational drug. The results of these studies are submitted to the FDA as part of an Investigational New Drug Application, or IND, which must be reviewed and allowed to go into effect by the agency before clinical testing can begin. Typically, clinical evaluation involves a three-stage process. In Phase I, trials are conducted with a small number of subjects to determine the safety profile, the pattern of drug distribution and metabolism. In Phase II, trials are conducted with small groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large scale, multi-center, comparative trials are generally conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and other regulatory authorities. The results of the pre-clinical and clinical testing with detailed information on manufacturing are submitted to the FDA in the form of a New Drug Application, or NDA, or Biologics License Application, or BLA, for approval to commence commercial sales. In responding to an NDA or BLA, the FDA may grant marketing approval, request additional information or deny the application if the FDA determines that the application does not satisfy its regulatory approval criteria. Therefore, even if RegeneRx completes Phase III clinical trials for certain of its products, and submits an NDA or BLA to the agency, there can be no assurance that the FDA will grant marketing approvals, or if granted, that they will be granted on a timely basis. If the FDA does approve a product, it may require, among other things, post-marketing testing, including potentially expensive Phase IV studies, and surveillance to monitor the safety and effectiveness of the drug. In addition, the FDA may in some circumstances impose restrictions on the use of the drug that may be difficult and expensive to administer. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Among the conditions for an NDA or a BLA approval is the requirement that the applicable manufacturing, clinical, pharmacovigilance, quality control and manufacturing procedures conform on an ongoing basis with current Good Clinical Practices, current Good Manufacturing Practices, and computer information system validation standards. Before approval of a BLA, the FDA will perform a prelicensing inspection of clinical sites, manufacturing facilities and the related quality control records to determine its compliance with these requirements. To assure compliance, applicants must continue to expend time, money and effort in the area of training, production and quality control. After the applicant is licensed for the manufacture of any product, manufacturers are subject to periodic inspections by the FDA. If a company fails to comply with FDA regulatory requirements, FDA may pursue a wide range of remedial actions. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress related to the regulation of drug products, and RegeneRx cannot predict the outcome or effect of such legislation on its business. In December 2002, RegeneRx requested T(beta)4 be designated an "Orphan Drug" under the Orphan Drug Act. Under the Act, the FDA may designate a product or products as having Orphan Drug status to treat "a rare disease or condition" which is a disease or condition that affects populations of less than 200,000 individuals in the United 4 States, or, if victims of a disease number more than 200,000, the sponsor establishes that it does not realistically anticipate its product sales will be sufficient to recover its costs. If a product is designated as an Orphan Drug, then the sponsor is entitled to receive certain incentives to undertake the development and marketing of the product. One such incentive is marketing exclusivity. The sponsor that obtains the first marketing for a designated Orphan Drug for a given indication is eligible to receive marketing exclusivity for a period of seven years. There may be multiple designations of Orphan Drug status for a given drug and for different indications. The sponsor of the first approved NDA (or BLA) for a given drug for its use in treating a given rare disease may receive marketing exclusivity for that specific use. Even if a sponsor of a product for an indication for use with an Orphan Drug designation is the first to obtain FDA approval of an NDA (or BLA) for that designation and obtains marketing exclusivity, another sponsor's application for the same drug product may be approved by the FDA during the period of exclusivity if the FDA concludes that it is clinically superior. In early 2003, RegeneRx received a response indicating that at that time there was insufficient information in order to base a grant of the designation. The FDA, however, recommended that RegeneRx resubmit a new application when additional scientific and/or clinical evidence had been obtained. RegeneRx is in the process of preparing such application for resubmission. PROPRIETARY RIGHTS Under a research agreement with The George Washington University ("GWU"), RegeneRx funded T(beta)4 research at GWU and was granted a sole and exclusive world-wide license to any patents that resulted from such research. While RegeneRx no longer funds research under this agreement, RegeneRx remains obligated under the research agreement to pay GWU a royalty of 4% of the net sales, if any, of specified products covered by patents issued in connection with the agreement. Pursuant to the research agreement, RegeneRx has exclusive rights to patent applications filed in the United States and in Europe disclosing the use of T(beta)4 for the treatment of septic shock and associated syndromes, including Adult Respiratory Distress Syndrome. Two U.S. patents have been issued. The first patent, No. 5,578,570, entitled "Method of Treating Septic Shock Using T(beta)4," issued on November 26, 1996 and expires in November 2013 and the second patent, No. 5,593,964, entitled "Method of Treating Septic Shock By Preventing Actin Polymerization," issued on January 14, 1997 and expires in October 2014. No sales have occurred and as a result, no royalty payments have yet been incurred or paid to GWU pursuant to the research agreement. RegeneRx has also filed numerous other patents related to T(beta)4 and related compounds and indications for their use. As discussed above under "--Primary Commercial Development Focus - Thymosin Beta 4 - Product Development," RegeneRx has obtained exclusive rights under a patent application filed by the NIH for the use of T(beta)4 in the treatment of non-healing wounds. Subsequently, RegeneRx has filed numerous additional patent applications covering various compositions, uses and other aspects of T(beta)4. Recently, RegeneRx was issued a patent in Australia on T(beta)4 and wound healing, entitled "Thymosin B4 Promotes Wound Repair" which expires twenty years from the filing date July 29, 1999. In addition, RegeneRx holds the rights to a U.S. patent relating to the treatment of an autoimmune skin disease that results in hair loss, Alopecia. The patent, No. 6,030,948, entitled "Hair Regeneration Compositions for Treatment of Alopecia and Method of Application Related Thereto," issued February 29, 2000 and expires in December of 2017. There can be no assurance that these, or any other future patent applications under which RegeneRx has rights, will result in the issuance of a patent or that any patent issued will not be subject to challenge. In the case of a claim of patent infringement by or against RegeneRx, there can be no assurance that RegeneRx will be able to afford the expense of any litigation that may be necessary to enforce its proprietary rights. EMPLOYEES RegeneRx utilizes a business strategy that involves contracting out research, development, manufacturing, and other functions to third parties partially in order to minimize the expense and overhead associated with the maintenance of a large infrastructure. Consistent with this strategy, RegeneRx currently utilizes several consultants, along with various other professional advisors, to advise its Chief Executive Officer and Board of Directors on all company matters. RegeneRx currently has three employees in addition to retaining several outside consultants and contractors. 5 CLINICAL TRIALS Under its current business model, RegeneRx uses a Contract Research Organization, or CRO, to conduct all facets related to clinical trials. This includes any preclinical pharmacokinetics, toxicology, and formulation work required for human clinical trials. The CRO is also responsible for the conduct of clinical trials on behalf of RegeneRx. This enables RegeneRx to efficiently perform high quality clinical trials without the need to build infrastructure to support such trials and without giving up any rights to its products. The FDA accepted RegeneRx's IND application in December 2002 and TherImmune Research Corporation , a CRO, completed Phase I human clinical trials in September 2003 on behalf of RegeneRx. Phase I enrolled 15 subjects. RegeneRx has raised additional capital for certain Phase II clinical trials. Phase II trials are scheduled to begin in the second quarter of 2004. RegeneRx has entered into an agreement with PAREXEL International, LLC, another CRO, to conduct its Phase II trials. MATERIAL AGREEMENTS RESEARCH, DEVELOPMENT AND LICENSING AGREEMENTS RegeneRx has a research agreement with The George Washington University, whereby RegeneRx funded T(beta)4 research at GWU and was granted a sole and exclusive world-wide license to any patents that resulted from such research. While RegeneRx no longer funds research under this agreement, RegeneRx remains obligated under the research agreement to pay GWU a royalty of 4% of the net sales, if any, of specified products covered by patents issued in connection with the agreement. Pursuant to the research agreement, RegeneRx has exclusive rights to patent applications filed in the United States and in Europe disclosing the use of T(beta)4 for the treatment of septic shock and associated syndromes, including Adult Respiratory Distress Syndrome. Two U.S. patents have been issued. No sales have occurred and as a result, no royalty payments have yet been incurred or paid to GWU pursuant to the research agreement. National Institute of Health RegeneRx entered into a Material Transfer - Cooperative Research and Development Agreement with the National Institute of Health during the second quarter of 1997. Under this agreement, RegeneRx received an option to elect an exclusive or non-exclusive commercialization license from the NIH for any patent rights that might result from the NIH research study that relate to the use of T(beta)4 as a tissue growth and repair factor. A provisional patent application was filed by NIH in July 1998, with a Patent Cooperation Treaty application filed in July 1999, pertaining to the work performed on T(beta)4. On February 6, 2001, RegeneRx executed an agreement with the NIH giving RegeneRx an exclusive worldwide license from the NIH for all claims to T(beta)4 within the patent application. In exchange for the exclusive license, RegeneRx must make certain royalty and milestone payments to the NIH. Although the initial patent under the Agreement was issued in Australia in February 2004, no assurance can be given as to whether or when any other such patents will be issued, or as to any conditions that might be attached to the patent. To date, the NIH has performed non-clinical animal studies using T(beta)4, supplied by RegeneRx, which have indicated that T(beta)4 is effective in healing injured dermal and ocular tissue and improving wound healing and chemical burns in normal, elderly, diabetic, and steroid-suppressed rodents and other mammals. In December of 2002, RegeneRx initiated research under an Investigational New Drug Application, from the U.S. Food and Drug Administration allowing it to begin Phase I human clinical trials. The Phase I study was successfully completed in September of 2003 Defiante Farmaceutica, L.d.a. On January 22, 2004, RegeneRx exclusively licensed certain European rights to T(beta)4 to Defiante Farmaceutica, L.d.a., a Portuguese company that is a wholly owned subsidiary of Sigma-Tau, S.p.A., a pharmaceutical company headquartered in Rome, Italy. Defiante will develop T(beta)4 for internal and external wounds in Europe and certain other contiguous and geographically relevant countries. The Agreement expires on a country-by-country basis upon the later of the expiration of the last to expire of any granted patent in the territory having at 6 least one valid claim covering the products then on the market, the expiration of any other exclusive or proprietary marketing rights or twelve years from the effective date. Under the Agreement, Defiante will pay RegeneRx a royalty on commercial sales and will purchase all required T(beta)4 from RegeneRx. When RegeneRx completes positive Phase II clinical trials in the United States, Defiante must either pay RegeneRx $5 million or initiate pivotal Phase III clinical trials in Europe to maintain the license. Defiante also will be obligated to attain future clinical and regulatory milestones in the licensed territory. As those milestones are obtained, certain performance criteria regarding commercial registration and minimum annual royalties will be required in each licensed country. The agreement does not prevent RegeneRx from sublicensing the technology in countries outside the licensed territory, and has no impact on any U.S. rights. CONTRACT RESEARCH ORGANIZATION AGREEMENTS In general, RegeneRx enters into a master services agreement with a CRO that describes the general scope of the relationship and a protocol for specific tasks within the agreement. Then, the work is done and the payments are made according to task orders that the company signs with the CRO. RegeneRx had previously engaged TherImmune Research Corporation (which was acquired by GeneLogic, Inc. in April 2003), a CRO, to completed its Phase I trials of T(beta)4. RegeneRx paid a total of approximately $1.2 million to TherImmune for their work on the Phase I trials completed in September of 2003. RegeneRx recently entered into a masters services agreement in March 2004 with PAREXEL International, LLC to conduct its Phase II trials to begin in the second quarter of 2004. RegeneRx will pay up to approximately $2 million for the contemplated Phase II clinical trials, although it is under no obligation to undertake any such trials at this time. The Master Services Agreement is in effect until the sooner of the completion of the services related to the clinical trials under the agreement or five years. It may be terminated upon prior written notice to the other party with differing terms when either party is in breach of the agreement. ITEM 2. PROPERTIES RegeneRx's corporate headquarters are located in Bethesda, Maryland where it leases office space in an executive office suite. RegeneRx entered into the lease agreement for this property in April 2002. The lease agreement provides for a twelve-month term, which automatically renews upon expiration for an additional twelve months unless either RegeneRx or the lessor provides notice of termination as described in the agreement. For additional information, see Note 8 of the Notes to Financial Statements included in this annual report. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS In March 2001, RegeneRx's common stock began trading on the OTC Bulletin Board under the symbol RGRX. Prior to that date, and during 2000 and 1999, RegeneRx's common stock traded in the over-the-counter market in the "pink sheets." RegeneRx also has outstanding classes of warrants to purchase RegeneRx common stock for which there is no public market. The following table sets forth the high and low bid prices for RegeneRx's common stock for the periods indicated as reported by myhdvest.com. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. 7 FOR THE YEAR ENDED HIGH LOW DECEMBER 31, 2003: First Quarter $.55 $.27 Second Quarter $1.70 $.40 Third Quarter $1.30 $.70 Fourth Quarter $1.25 $1.08 DECEMBER 31, 2002: First Quarter $.68 $.15 Second Quarter $.72 $.35 Third Quarter $.53 $.22 Fourth Quarter $.60 $.28 As of December 31, 2003, there were approximately 1,035 holders of record of RegeneRx's common stock. RegeneRx has never paid a cash dividend on its common stock and does not anticipate that any cash dividends will be paid on the common stock in the foreseeable future due to RegeneRx's limited funds for operations. EQUITY COMPENSATION PLAN INFORMATION The following table gives information about RegeneRx's common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans as of December 31, 2003.
NUMBER OF SECURITIES REMAINING AVAILABLE FOR NUMBER OF SECURITIES TO WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER BE ISSUED UPON EXERCISE EXERCISE PRICE OF EQUITY COMPENSATION PLANS OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A)) PLAN CATEGORY (A) (B) (C) Equity compensation plans 1,225,000 0.32 1,275,000 approved by stockholders Equity compensation plans not 0 0 0 approved by stockholders Total 1,225,000 0.32 1,275,000
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION PLAN OF OPERATION FOR THE NEXT 12 MONTHS Since its inception in 1982, RegeneRx's activities had consisted of conducting research and development, sponsoring clinical trials of its proprietary products, the construction and equipping of laboratory and production 8 facilities, and the manufacture of products for research, testing and clinical trials. In 2000, RegeneRx adopted a modified business plan calling on the outsourcing of most of the activities necessary to its mission of developing its Thymosin beta 4, or T(beta)4, technology for the treatment of chronic wounds. This business model allows for the rapid and effective deployment of necessary resources without the burden of expensive and unwieldy infrastructure. It also allows RegeneRx to expand or contract its efforts depending on capital resources or other circumstances. RegeneRx has not generated revenues from operations and does not anticipate generating product revenues or other revenues from operations for the foreseeable future. During 2003 and 2002, Company earned no revenues. RegeneRx's accumulated deficit of $39,179,190 through December 31, 2003 has been funded primarily by the proceeds from the issuance of equity securities (and interest earned on such funds), the licensing of technology developed or acquired by RegeneRx, limited product sales and royalties, and the sale of royalty rights. RegeneRx will require substantial funding in order to complete research and development activities, manufacturing for clinical trials, and the eventual marketing of any products that RegeneRx intends to develop. On June 11, 2003, RegeneRx completed the sale of 3,184,713 shares of restricted common stock pursuant to a private placement at a price of $.628 per share to Defiante Farmaceutica, L.d.a., a Portuguese company that is a wholly owned subsidiary of Sigma-Tau, S.p.A., a pharmaceutical company headquartered in Rome, Italy. RegeneRx received approximately $2.0 million in proceeds. In addition, RegeneRx granted Defiante warrants to purchase up to $1.5 million of additional restricted common stock of RegeneRx at prices ranging from $1.00 to $1.25 per share (or higher under certain circumstances) over a period of 18 months. On January 23, 2004, RegeneRx completed the sale of 2,393,580 shares of common stock pursuant to a private placement at a price of $.95 per share to Defiante and several private investors. RegeneRx received approximately $2.3 million in proceeds. In addition, RegeneRx granted investors warrants to purchase 1 share of common stock for every 4 shares of common stock purchased in the offering at a price of $1.50 per share over a period of 30 months. Although RegeneRx has no products that have received regulatory approval to date, RegeneRx's Investigational New Drug Application was accepted by the United States Food and Drug Administration in December 2002 allowing RegeneRx to commence the human testing of T(beta)4 for dermal wounds. RegeneRx initiated a Phase I human clinical trial in March 2003, which studies were designed to establish safety in human subjects, and successfully completed the trial in September 2003. There were no significant adverse events associated with the drug in Phase I and results demonstrated it was well tolerated by all subjects. RegeneRx has recently raised additional capital for Phase II trials that are expected to begin in the first half of 2004. RegeneRx believes the Phase II trials, which it hopes to conduct in a somewhat parallel fashion, will take approximately 12-15 months each and will cost just over $2 million. RegeneRx plans to independently develop T(beta)4 in the United States for chronic dermal wounds through completion of Phase III clinical trials. On January 22, 2004, RegeneRx exclusively licensed certain European rights to T(beta)4 to Defiante. Defiante will develop T(beta)4 for internal and external wounds in Europe and certain other contiguous and geographically relevant countries. The Agreement expires on a country-by-country basis upon the later of the expiration of the last to expire of any granted patent in the territory having at least one valid claim covering the products then on the market, the expiration of any other exclusive or proprietary marketing rights or twelve years from the effective date. Under the Agreement, Defiante will pay RegeneRx a royalty on commercial sales and will purchase all required T(beta)4 from RegeneRx. When RegeneRx completes positive Phase II clinical trials in the United States, Defiante must either pay RegeneRx $5 million or initiate pivotal Phase III clinical trials in Europe to maintain the license. Defiante also will be obligated to attain future clinical and regulatory milestones in the licensed territory. As those milestones are obtained, certain performance criteria regarding commercial registration and minimum annual royalties will be required in each licensed country. The agreement does not prevent RegeneRx from sublicensing the technology in countries outside the licensed territory, and has no impact on any U.S. rights. At December 31, 2003, RegeneRx had cash and cash equivalents totaling $1,019,889 and working capital of $890,166 and total assets were $1,109,818. RegeneRx believes that its cash balances, and an additional $2,300,000 from the January 2004 private placement, will be sufficient to sustain current operations at least through December 31, 2004. RegeneRx is currently pursuing several potential financing alternatives for continuation of its 9 research, development and clinical trials programs. There is no assurance that RegeneRx will be able to raise additional capital necessary to timely execute its current plan of operation or continue such plan of operation beyond December 2004 unless substantial additional capital is raised. As RegeneRx utilizes a virtual company strategy it does not currently expect to purchase or sell any properties or significant equipment and does not expect to have significant changes in the number of its employees. For more information about RegeneRx's virtual company strategy, see "Item 1. Business - General." 10 ITEM 7. FINANCIAL STATEMENTS The following audited financial statements and related documents are presented herein on the following pages: PAGE INDEPENDENT AUDITORS' REPORT 9 FINANCIAL STATEMENTS BALANCE SHEETS 13 STATEMENTS OF OPERATIONS 14 STATEMENTS OF STOCKHOLDERS' EQUITY 15 STATEMENTS OF CASH FLOWS 16 NOTES TO FINANCIAL STATEMENTS 17 11 [REZNICK FEDDER & SILVERMAN LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Board of Directors RegeneRx Biopharmaceuticals, Inc. We have audited the accompanying balance sheets of RegeneRx Biopharmaceuticals, Inc. as of December 31, 2003 and 2002, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RegeneRx Biopharmaceuticals, Inc. as of December 31, 2003 and 2002, the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Reznick Fedder & Silverman Bethesda, Maryland February 1, 2004 12 RengeneRx Biopharmaceuticals, Inc. BALANCE SHEETS December 31, 2003 and 2002
2003 2002 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 1,019,889 $ 474,338 Due from related parties 26,897 24,817 Other current assets 36,428 18,929 ------------ ------------ Total current assets 1,083,214 518,084 Fixed assets, net of accumlated depreciation of $7,613 and $5,300 3,377 3,836 Proprietary rights, net of accumulated amortization of $2,973 and $1,187 23,227 25,013 ------------ ------------ Total assets $ 1,109,818 $ 546,933 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 81,268 $ 138,984 Accrued expenses 91,734 78,116 Letter agreements with vendors 20,046 20,046 ------------ ------------ Total current liabilities 193,048 237,146 ------------ ------------ Commitments -- -- Stockholders' equity Preferred stock, $.001 par value per share, 1,000,000 authorized; no shares issued -- -- Common stock, par value $.001 per share, 100,000,000 shares authorized; 30,098,968 and 26,965,479 issued and outstanding 30,099 26,966 Additional paid-in capital 40,065,861 38,102,136 Accumulated deficit (39,179,190) (37,519,315) Stock subscriptions -- (300,000) ------------ ------------ Total stockholders' equity 916,770 309,787 ------------ ------------ Total liabilities and stockholders' equity $ 1,109,818 $ 546,933 ============ ============
The accompanying notes are an integral part of these financial statements 13 RegeneRx Biopharmaceuticals, Inc. STATEMENTS OF OPERATIONS Years ended December 31, 2003 and 2002
2003 2002 ------------ ------------ Revenue $ -- $ -- ------------ ------------ Expenses Research and development 775,752 885,631 General and administrative 848,743 559,641 ------------ ------------ Total expenses 1,624,495 1,445,272 ------------ ------------ Operating loss (1,624,495) (1,445,272) ------------ ------------ Other income (expense) Other income -- 10,648 Interest income 7,57 1 30,077 Interest expense (42,951) -- ------------ ------------ Total other income (expense) (35,380) 40,725 ------------ ------------ Net loss $ (1,659,875) $ (1,404,547) ============ ============ Basic and diluted net loss per common share $ (0.06) $ (0.05) ------------ ------------ Weighted average number of common shares outstanding 28,522,042 25,560,301 ============ ============
The accompanying notes are an integral part of these financial statements 14 RegeneRx Biopharmaceuticals, Inc. STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2003 and 2002
Common Stock Total ------------------------ Additional Accumulated Stock stockholders' Shares Amount paid-in capital deficit subscriptions equity ------ ------ --------------- ------- ------------- ------ Balance, December 31, 2001 19,477,429 $ 19,477 $ 36,415,289 $(36,114,768) $ (300,000) 19,998 Issuance of common stock 7,346,383 7,347 1,665,621 -- -- 1,672,968 Exercise of warrants 141,667 142 18,275 -- -- 18,417 Stock option compensation -- -- 2,951 -- -- 2,951 Net loss -- -- -- (1,404,547) -- (1,404,547) ---------- -------- ------------ ------------ ------------ ---------- Balance, December 31, 2002 26,965,479 26,966 38,102,136 (37,519,315) (300,000) 309,787 Issuance of common stock 3,184,713 3,185 1,986,815 -- -- 1,990,000 Issuance of warrants -- 40,648 -- -- 40,648 Exercise of options and warrants 306,500 306 30,345 -- -- 30,651 Repayment and modification of subscription receivable (357,724) (358) (109,642) -- 300,000 190,000 Stock option compensation -- -- 15,559 -- -- 15,559 Net loss -- -- -- (1,659,875) -- (1,659,875) ---------- ------ ------------ ------------ ------------ ---------- Balance, December 31, 2003 30,098,968 $ 30,099 $ 40,065,861 $(39,179,190) $ -- $ 916,770 ========== ======== ============ ============ ============ ==========
The accompanying notes are an integral part of these financial statements 15 RegeneRx Biopharmaceuticals, Inc. STATEMENTS OF CASH FLOWS Years ended December 31, 2003 and 2002
2003 2002 ----------- --------- Cash flows from operating activities: Net loss (1,659,875) $(1,404,547) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,099 3,289 Compensation expense - stock options 15,559 2,951 Interest expense related to issuance of warrants 40,648 -- Write-off of accounts payable -- (43,329) Changes in operating assets and liabilities: Increase in other current assets (3,336) (6,298) Increase in due from related party (2,080) (15,619) Increase (decrease) in accounts payable (57,716) 123,601 Increase (decrease) in accrued expenses 13,618 52,823 ----------- --------- Net cash used in operating activities (1,649,083) (1,287,129) ----------- --------- Cash flows from investing activities: Purchase of fixed assets (1,854) (4,208) Purchase of license agreement -- (5,000) ----------- --------- Net cash used in investing activities (1,854) (9,208) ----------- --------- Cash flows from financing activities: Proceeds from exercise of warrants 30,651 18,417 Proceeds from issuance of common stock 1,990,000 1,717,000 Repayment of subscription receivable 190,000 -- Deferred stock offering costs (14,163) (65,232) ----------- --------- Net cash provided by financing activities 2,196,488 1,670,185 ----------- --------- Net increase in cash and cash equivalents 545,551 373,848 Cash and cash equivalents at beginning of period 474,338 100,490 ----------- --------- Cash and cash equivalents at end of period $ 1,019,889 $ 474,338 =========== =========== Supplemental disclosure of significant noncash investing and financing activities: Modification of subscription receivable $ 110,000 $ -- =========== =========== Issuance of common stock for license agreement $ -- $ 21,200 =========== ===========
The accompanying notes are an integral part of these financial statements 16 REGENERx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 1. ORGANIZATION AND BUSINESS Organization and Nature of Operations RegeneRx Biopharmaceuticals, Inc. (the "Company"), a Delaware corporation, was incorporated in 1982. The Company operates predominantly in a single industry segment, the biotechnology industry, which consists of researching and developing new pharmaceutical products for the treatment of diseases or conditions that arise as a result of immune system disorders, including chronic viral infections, cancer and autoimmune disease. During 1997, the Company entered into a Material Transfer Agreement - Cooperative Research and Development Agreement ("MTA-CRADA") with the National Institutes of Health ("NIH"), pursuant to which an NIH investigator used Thymosin beta 4, provided by the Company, in several studies including clinical trials, for the treatment of non-healing wounds. In exchange for providing the product and other data, the Company received an option to elect to negotiate for an exclusive or non-exclusive commercialization license from NIH pursuant to a patent application filed by NIH in 1998. The Company's option expired on February 11, 1999. The Company's Chairman is a co-inventor on the patent application filed by the NIH. As a result, he had an equal, undivided interest in the intellectual property described in the patent which he subsequently assigned to the Company on May 1, 2000, resulting in full but non-exclusive rights to the Company. On February 6, 2001, the Company signed an exclusive licensing agreement with NIH whereby the Company obtained on exclusive worldwide license to Thymosin beta 4 as a wound-healing drug. In exchange for the exclusive license, the Company must make certain royalty and milestone payments to NIH. The Company anticipates incurring additional losses in the future as it continues development of Thymosin Beta 4 and expands clinical trials for other indications of Thymosin Beta 4. To achieve profitability, the Company, alone or with others, must successfully develop and commercialize its technologies and proposed products, conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. The time required to reach profitability is highly uncertain, and there can be no assurance that the Company will be able to achieve profitability on a sustained basis, if at all. The Company has incurred negative cash flows from operations since its inception. The Company has expended and expects to continue to expend in the future, substantial funds to complete its planned product development efforts. The Company expects that its existing capital resources will be adequate to fund the Company's projected operations beyond the year ending December 31, 2004, based on current and projected expenditure levels. Management plans to continue to refine its operations, control expenses, evaluate alternative methods to conduct its business, and seek available and attractive sources of financing and sharing of development costs through strategic collaboration agreements or other resources. Should appropriate sources of financing not be available, management would delay certain clinical trials and research activities until such time as appropriate financing was available. There can be no assurance that the Company's financing efforts will be successful. If adequate funds are not available, our financial condition and results of operations will be materially and adversely affected. Should the Company obtain substantial additional funding, other factors including competition, dependence on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of peptides and technology obsolescence could have a significant impact on the Company and its operations. 17 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents. The Company primarily invests excess cash in high-quality, liquid money market instruments (principally government and government agency notes and bills) maintained by financial institutions. Cash and cash equivalents are stated at cost which approximates fair value. Fixed Assets ------------ Fixed assets are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs which do not significantly prolong the useful lives of the assets are charged to expense. Depreciation is computed using the straight-line method over the estimated useful lives of two to ten years. Proprietary Rights ------------------ Proprietary rights are stated at cost and amortized using the straight-line method over the remaining life of approximately 15 years. Revenue Recognition ------------------- The Company will recognize revenue from royalties from sales when received. The Company will recognize consulting revenue as the consulting services are performed. Research and Development ------------------------ Research and development costs are expensed as incurred. Income Taxes ------------ The Company accounts for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying and tax bases of assets and liabilities. A valuation allowance is recorded if, based upon the evidence available, it is more likely than not that some portion or all of the deferred tax assets will not be realized. 18 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Letter Agreements with Vendors ------------------------------ The Company has entered into letter agreements with two vendors as settlement for past due trade payables. The letter agreements are due on demand. As of December 31, 2003 and 2002, $20,046 remains payable to these vendors. Fair Value of Financial Instruments ----------------------------------- The estimated fair values of the Company's cash and cash equivalents, due from related parties, accounts payable, letter agreements with vendors and accrued expenses approximate their carrying values, due to their short-term nature. Loss Per Share -------------- 2003 2002 ------------ ------------ Net loss available for common shareholders (A) $ (1,659,875) $ (1,404,547) ============ ============ Average outstanding: Common stock (B) 28,522,042 25,560,301 Stock options and warrants -- -- ------------ ------------ Common stock and stock equivalents (C) 28,522,042 25,560,301 ============ ============ Loss per share: Basic (A/B) $ (0.06) $ (0.05) Diluted (A/C) $ (0.06) $ (0.05) Unexercised employee stock options and warrants, which were previously granted, to purchase 3,431,797 and 2,528,297 shares of the Company's common stock as of December 31, 2003 and 2002, respectively, were not included in the computations of diluted earnings per share. The Company incurred a net loss for the years ended December 31, 2003 and 2002, therefore, all potential common shares are antidilutive and not included in the calculation of diluted net loss per share. Stock Based Compensation ------------------------ The Company uses the intrinsic-value method in accounting for its employee stock options rather than the alternative fair value accounting method. Companies that follow the intrinsic-value method must provide pro forma disclosure of the impact of applying the fair-value method. Transactions with nonemployees in which consideration is received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. 19 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Based Compensation (Continued) ------------------------ Effective January 1, 2003, the Company adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS 123." SFAS No. 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 also mandates certain new disclosures that are incremental to those required by SFAS No. 123. The following table summarizes relevant information as to reported results under the Company's intrinsic-value method of accounting for stock awards, with supplemental information as if the fair value recognition provisions had been applied: For the Years Ended December 31, 2003 2002 ----------- ----------- Net loss, as reported $(1,659,875) $(1,404,547) Less: stock-based compensation (97,973) (98,034) ----------- ----------- Adjusted net loss $(1,757,848) $(1,502,581) =========== =========== Basic and diluted loss per share - as reported $ (0.06) $ (0.05) Basic and diluted loss per share - as adjusted $ (0.06) $ (0.06) The fair value for each option granted was estimated as the date of grant using the Black-Scholes option-pricing model, assuming no expected dividends and the following assumptions: 2003 2002 ----------- ----------- Risk free rate of return 3.72% 3.98% Expected life (in years) 10 10 Volatility 145.98% 191.37% Recent Accounting Pronouncements -------------------------------- In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. The adoption of FIN 45 did not have a material impact on either the operating results or financial position of the Company. The Company has complied with the disclosure provisions of FIN 45. 20 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 3. LICENSES In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures financial instruments. The standard is effective for new or modified contracts after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on either the operating results or financial position of the Company. On April 23, 2002, the Company issued 40,000 shares of common stock pursuant to a license agreement with Morris A. Mann, M.D. through which the Company obtained an exclusive world-wide license to a certain patent related to Thymosin beta 4. In addition, the Company paid a license fee of $5,000 and will be required to pay royalties on future revenues related to the licensed patent. As of December 31, 2003, no such royalties have been incurred or paid by the Company. The Company has a worldwide license to certain uses of Thymosin beta 4 under a research agreement with George Washington University ("GWU") under which the Company is obligated to pay GWU a royalty of 4% on commercial sales. No such royalties have been incurred or paid as of December 31, 2003. 4. RELATED PARTY TRANSACTIONS The Company had entered into a note receivable agreement with the Chairman of the Company in the original amount of $115,617. The note bore interest at 11.5% and was repayable in equal monthly installments. Payments on the note receivable were recognized as income by the Company when received and a total of $22,000 in payments were received in 2002. In March 2002, the Board of Directors agreed to forgive the remaining balance of $42,000 on the loan. In addition to his position with the Company, the Chairman of the Company is also Chairman of the Department of Biochemistry and Molecular Biology at GWU. The Company has not funded any research personally conducted by the Chairman, and anticipates that any future funding, if any, will also be limited to research projects performed by principal investigators at GWU other than Chairman. No funding was provided during 2003 or 2002. The Company has made advances to two officers which are non-interest bearing and due on demand. At December 31, 2003 and 2002, $26,897 and $24,817, respectively, are due from the officers. In February 2003, the Board of Directors approved the modification of the subscription notes receivable agreements between the Company and two officers totaling $150,000 for the purchase of Common Stock. Under the modified agreements, the two officers paid a total of $40,000 and returned 357,724 shares of Common Stock to the Company. In September 2003, the Company entered into a consulting agreement for a term of one year with an affiliate of an outside director of the Company. As consideration for certain business consulting services, the Company agreed to pay $4,000 per month. During the year ended December 31, 2003, the Company paid $16,000 under the agreement. 21 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS Fixed assets consist of the following: December 31, ----------------- 2003 2002 ------- ------- Furniture and equipment $10,990 $ 9,136 Less: accumulated depreciation 7,613 5,300 ------- ------- $ 3,377 $ 3,836 ======= ======= Accrued expenses consist of the following: December 31, ----------------- 2003 2002 ------- ------- Directors' bonus $ -- $43,060 Directors' fees -- 9,082 Professional fees 84,612 24,000 Other 7,122 1,974 ------- ------- $91,734 $78,116 ======= ======= 6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY Common Stock and Warrants ------------------------- During 1997, the Company completed a private placement of Units in which it sold a total of five Units at a price of $50,000 per Unit. Each Unit consisted of (i) 500,000 shares of Common Stock and (ii) 165,000 Class D Warrants, each of which is exercisable to purchase one share of Common Stock at an exercise price of $.10 per share and has a term of 10 years. In June 1997, the Company entered into an agreement with an unrelated third party to provide financial advisory services. The agreement stipulated compensation for services to be performed at $10,000 and warrants to purchase 360,000 shares of the Company's Common Stock. The warrants became exercisable one year after the date of grant at a price equal to the 20-day average price per share for the period immediately prior to the grant date. The warrants expire five years subsequent to the grant date. During the year ended December 31, 2002, $7,424 of accrued expenses for services performed were written off. Notes Payable and Warrants -------------------------- During October 1997, the Company received a $60,000 unsecured loan bearing interest of 8% per annum. The note was paid in full during 1999, including accrued interest. Additionally, during July 1997, the Company received a $50,000 unsecured loan from an individual to provide additional operating capital. The terms of the loan agreement provided for repayment within six months with interest at the rate of 8% per annum. 22 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued) Additionally, the noteholder received a warrant to purchase 100,000 shares of the Company's Common Stock at $.13 per share. The warrant has a term of five years. In January 1998, the terms of the note were amended to provide for monthly repayment of the loan in equal amounts from January through June 1998. In consideration of the amended terms, the noteholder received an additional warrant to purchase 41,666 shares of the Company's Common Stock at $.13 per share with a term of five years. The note principal and accrued interest was repaid in full during 1998. During the year ended December 31, 2002, the warrants were exercised. Shareholders Rights Plan ------------------------ In April 1994, the Board of Directors adopted a Shareholders Rights Plan, pursuant to which it declared a dividend distribution of one Preferred Stock Purchase Right ("Right") for each outstanding share of Common Stock. The dividend distribution was payable to stockholders of record at the close of business April 29, 1994. The Rights can become exercisable only if a person or group acquires more than 25% of the Common Stock or announces a tender offer, the consummation of which would result in ownership by a person or group of more than 25% of the Common Stock. Each Right would then entitle the holder to purchase one-hundredth (1/100) of a share of a new series of preferred stock at an exercise price of $16.00. If the Company is acquired in a merger or other business combination transaction with, or a significant portion of the Company's business is acquired by, a person or group that has acquired more than 25% of its outstanding Common Stock, each Right will entitle its holder (other than such person or group or any of their affiliates or associates) to purchase, at the then-current exercise price of the Right, a number of the acquiring company's common shares having a value that is twice such exercise price. In addition, if a person or group acquires more than 25% of the Company's outstanding Common Stock, each Right will entitle its holder (other than such person or group or any of their affiliates or associates) to purchase, at the then-current exercise price of the Right, a number of shares of Common Stock having a market value that is twice such exercise price. Prior to the time that the Rights become exercisable, they are redeemable at the option of the Board of Directors at a redemption price of $0.01 per Right. The Board of Directors is required to redeem the Rights in the event of an all-cash tender offer for all of the outstanding shares of the Common Stock that meets certain requirements. The Rights will expire on April 29, 2004. Sales of Common Stock --------------------- In March 2002, the Company completed a private placement of its common stock. Under the terms of the private placement, the Company sold 7,346,383 restricted shares of its common stock at a price of $.235 per share. The total funds raised, net of offering costs, in the private placement amounted to $1,672,968. In June 2003, the Company completed the sale of 3,184,713 shares of its common stock pursuant to a private placement at a price of $.628 per share to Defiante Farmaceutica, L.d.a. ("Defiante"), a Portuguese company that is a wholly owned subsidiary of Sigma-Tau, S.p.A., a pharmaceutical company headquartered in Rome, Italy. The Company received proceeds, net of offering costs, of $1,990,000. In addition, the Company granted Defiante warrants to purchase 750,000 shares of its common stock at a price of $1.00 per share, exercisable through December 2005 and 600,000 shares of its common stock at a price of $1.25, exercisable between December 11, 2003 and December 11, 2004. 23 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued) Bridge Loan Agreements ---------------------- In May 2003, the Company entered into Bridge Loan Agreements (the "Bridge Loans") with certain shareholders. The Bridge Loans totaling $400,000, accrued interest at 10% per annum and were scheduled to mature in November 2005. In addition, the Company issued warrants to purchase 200,000 shares of its common stock at $.10 per share. The principal and accrued interest were repaid in June 2003. The Company recorded interest expense of $40,648 related to the issuance of the warrants. Stock Based Compensation ------------------------ The Company accounts for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price on the Company's Common Stock at the date of the grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. Generally, the Company's policy is to grant options with an exercise price equal to the quoted market price of the Company's Common Stock on the grant date. Effective January 1, 2003, the Company adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS 123." The following table summarizes relevant information as to reported results under the Company's intrinsic-value method of accounting for stock awards, with supplemental information as if the fair value recognition provisions had been applied:
For the Years Ended December 31, -------------------------- 2003 2002 ----------- ----------- Net loss, as reported $(1,659,875) $(1,404,547) Less: stock-based compensation (97,973) (98,034) ----------- ----------- Adjusted net loss $(1,757,848) $(1,502,581) =========== =========== Basic and diluted loss per share - as reported $ (0.06) $ (0.05) Basic and diluted loss per share - as adjusted $ (0.06) $ (0.06)
During 2002, the Company granted 900,000 options to members of the Board of Directors and 85,000 options to members of the Medical Advisory Board. During 2003, the Company granted 15,000 options to an employee and 15,000 options to a consultant. The grant price was equal or greater than the fair market price of the common stock at the date of the grant. 2000 Stock Options and Incentive Plan ------------------------------------- During 2000, a Stock Option and Incentive Plan was approved under which a Board of Directors committee may grant options to purchase shares of common stock of the Company up to 1,000,000 shares. The number of options that can be granted may increase based on shares repurchased by the Company or surrendered to the Company in payment of the exercise prices of options granted under the plan. Options may be granted only to 24 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued) directors, officers or employees of or consultants or advisors to the Company and options granted to any participant cannot exceed 100,000 shares in any one year. The exercise price of the options are to be determined by the Plan committee but shall never be less than the fair market value of the Common Stock on the date of the grant. During 2002, the Board of Directors of the Company approved the amended and restated 2000 Stock Option and Incentive Plan increasing the number of options that can be granted annually to an individual from 100,000 to 450,000 and increasing number of authorized shares reserved for issuance under the plan increased from 1,000,000 to 2,500,000. Directors Stock Option Plan --------------------------- The Directors Stock Option Plan was adopted by the Board of Directors and approved by the stockholders in 1987. Under the Plan, options to purchase 10,000 shares of Common Stock are granted automatically to each person who becomes a director after April 10, 1987, and who, at the time such person becomes a director, is not an employee of the Company. Options granted under the Plan have an exercise price per share equal to the fair market value of the Common Stock on the date of the grant. In 1992, the Plan was amended, with the approval of stockholders at the 1992 Annual Meeting (i) to add an automatic annual grant to each non-employee director of an option to purchase 5,000 shares of Common Stock if the individual is re-elected as a Director at the Annual Meeting, and (ii) to increase to 200,000 the number of shares of Common Stock issuable under the Plan. Options granted under the Plan have a ten-year term and become exercisable in 20% increments beginning on the date of the grant and on each anniversary date thereafter. The Plan expired in 1997. As of December 31, 2003, 10,000 options were outstanding under the Plan. Options, Warrants and Rights Outstanding And Exercisable -------------------------------------------------------- The following table summarizes the Company's stock options activity for 2003 and 2002: Weighted Number Exercise average of shares price range exercise price --------- --------------- -------------- Outstanding, December 31, 2001 230,000 $ 0.28 to $10.50 $ 1.14 Granted 985,000 0.25 to 0.45 0.27 Exercised -- -- -- Terminated (10,000) 9.50 9.50 --------- --------------- --------- Outstanding, December 31, 2002 1,205,000 $0.085 to $10.50 0.27 Granted 30,000 0.40 to 1.07 0.74 Exercised -- -- -- Terminated (10,000) 10.50 10.50 --------- --------------- --------- Outstanding, December 31, 2003 1,225,000 $ 0.04 to $10.50 $ 0.28 ========= =============== ========= 25 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued) Options, Warrants and Rights Outstanding And Exercisable (Continued) -------------------------------------------------------------------- The following table summarizes information about the options outstanding at December 31, 2003:
Options, warrants and rights Options, warrants and outstanding rights exercisable -------------------------------------------------------------- Weighted average remaining contractual Weighted Weighted Number life average Number average Range of exercise prices Outstanding (Years) exercise Outstanding exercise ------------------------ ----------- ------- -------- ----------- -------- $0.085 25,000 7.01 $ 0.085 25,000 $ 0.085 0.10 to 0.53 1,185,000 7.72 0.28 717,450 0.27 1.07 15,000 9.52 1.07 15,000 1.07 --------- --------- 1,225,000 757,450 ========= ==========
In August 1999, the Company granted 7,500,000 options, at an exercise price of $0.04. All 7,500,000 of these options were exercised in 2000 with payment in the form of four subscription notes receivable agreements totaling $300,000 and consulting services valued at $7,500. The notes bore interest at the rate of 6.09% with interest paid quarterly. The Company earned interest income of $18,270 on these notes, and as of December 31, 2002, there was a stock subscription receivable of $300,000. The notes matured in February 2003, at which time, two of the subscription notes receivable totaling $150,000 were repaid and the Board of Directors approved the modification of the subscription notes receivable agreements between the Company and two officers totaling $150,000 for the purchase of common stock. Under the modified agreements, the two officers paid a total of $40,000 and returned 357,724 shares of common stock to the Company. The following table summarizes the Company's warrants activity for 2003 and 2002: Weighted Number Exercise average of shares price range exercise price --------- --------------- -------------- Outstanding, December 31, 2001 1,326,666 $0.10 to $0.13 $ 0.11 Granted 138,297 0.35 0.35 Exercised (141,666) 0.13 0.13 Terminated -- -- -- --------- --------------- --------- Outstanding, December 31, 2002 1,323,297 $0.10 to $0.35 0.13 Granted 1,550,000 0.10 to 1.25 0.98 Exercised (306,500) 0.10 0.10 Terminated (360,000) 0.12 0.12 --------- --------------- --------- Outstanding, December 31, 2003 2,206,797 $0.10 to $1.25 $ 0.73 ========= =============== ========= 26 7. INCOME TAXES Deferred tax assets are comprised of the following: December 31, ---------------------------- 2003 2002 ------------ ------------ Net operating loss carryforwards $ 14,168,000 $ 13,873,000 Capital loss carryforward 200,000 231,000 Research and development tax credit 602,000 614,000 ------------ ------------ 14,970,000 14,718,000 Valuation allowance (14,970,000) (14,718,000) ------------ ------------ Net deferred tax assets $ -- $ -- ============ ============ 27 RegeneRx Biopharmaceuticals, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED Years ended December 31, 2003 and 2002 7. INCOME TAXES (Continued) The Company has provided a full valuation allowance for deferred tax assets since realization of these future benefits cannot be reasonably assured as a result of recurring operating losses. If the Company achieves profitability, these deferred tax assets would be available to offset future income tax liabilities and expense, subject to certain limitations. At December 31, 2003, the Company had net operating loss, capital loss and research and development tax credit carryforwards of approximately $37.8 million, $.6 million and $.6 million, respectively, for income tax purposes which expire in various years through 2023. Certain substantial changes in the Company's ownership would result in an annual limitation on the amount of the net operating loss carryforwards which can be utilized. 8. COMMITMENTS Lease ----- In August 1999, the Company entered into an agreement to lease office space in Bethesda, Maryland. The lease was for a period of three months and expired on November 30, 1999. Under the terms of the lease agreement, the lease automatically renewed upon expiration for an additional three months, unless either the Company or the lessor provided notice of termination of the lease 60 days prior to expiration. In April 2002, the Company entered into an agreement to lease additional office space. The lease was for a period of twelve months. Under the terms of the lease agreement, the lease renewed automatically upon expiration for an additional twelve months, unless either the Company or the leaser provides notice of termination of the lease as described in the agreement. In December 2003, the Company entered into a new one-year lease agreement which included all existing office space plus additional office space required by the Company. The Company's rent expense for 2003 and 2002 was $38,892 and $32,961, respectively. The future minimum lease payments for the year ending December 31, 2004 are $27,192. Employment Continuity Agreements -------------------------------- The Company has entered into employment contracts with two executives. The agreements are three years in length and provide for minimum salary levels, an option to purchase shares of the Company's stock and include incentive bonuses determined by the Board of Directors of the Company. The aggregate minimum commitment for future salaries, excluding bonuses, as of December 31, 2003 is approximately $285,000. 9. SUBSEQUENT EVENTS License and Supply Agreement ---------------------------- On January 22, 2004, the Company entered into a Thymosin Beta 4 License and Supply Agreement (the Agreement) with Defiante, to grant to Defiante the exclusive right to use Thymosin Beta 4 to conduct research and development activities in Europe. Under the Agreement, the Company will receive fees and royalty payments based on a percentage of sales of Thymosin Beta 4 - related products by Defiante, as defined. The term of the Agreement is the later of the expiration of any patents developed under the Agreement, any marketing rights or 2016. 28 Sale of Common Stock and Issuance of Warrants --------------------------------------------- On January 23, 2004, the Company completed a private placement of its common stock. Under the terms of the private placement, the Company sold 2,393,580 shares of common stock at $.95 per share. In addition, the Company granted 598,397 warrants, each of which is exercisable immediately to purchase one share of common stock at an exercise price of $1.50 per share and has a term of 30 months. The total funds raised in the private placement totaled approximately $2.3 million. 29 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES As of a date within 90 days of the filing date of this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) the chief executive and financial officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. There were no significant changes in the Company's internal controls or in any other factors that could significantly affect those controls subsequent to the date of the most recent evaluation of the Company's internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT RegeneRx's Board of Directors consists of five directors. RegeneRx's bylaws allow for not less than three and not more than seven Directors. Directors are elected annually to serve one-year terms. The following table sets forth, with respect to each director and executive officer, his name and age, the year in which he first became a director of RegeneRx, and his principal occupation and business experience during the past five years.
-------------------------------------------------------------------------------------------------------------------- NAME, YEAR FIRST BECAME DIRECTOR PRINCIPAL OCCUPATION AND OF COMPANY, TITLE AGE BUSINESS EXPERIENCE -------------------------------------------------------------------------------------------------------------------- J.J. Finkelstein, 2002 52 RegeneRx's President and CEO since 2002 and a member of the Board President and CEO of Directors since 2002. Mr. Finkelstein has been a chief executive officer and consultant in the bioscience industry for the past twenty years, having served as Chief Executive Officer of three biomedical companies since 1982, including as CEO of RegeneRx from 1984 to 1989 and as Vice-Chairman from 1989 to 1991. -------------------------------------------------------------------------------------------------------------------- Allan L. Goldstein, 1982 66 Chairman of the Board of RegeneRx since 1982; Chief Executive Chairman and Chief Scientific Officer of RegeneRx from 1982 to 1986, and 1999 to 2002; Chief Officer Scientific Advisor of RegeneRx from 1982 to present; Professor and Chairman of Department of Biochemistry and Molecular Biology at The George Washington University School of Medicine and Health Sciences from 1978 to present. -------------------------------------------------------------------------------------------------------------------- Albert Rosenfeld, 1982 83 Secretary - Treasurer of RegeneRx from 1999 to present; Consultant Secretary and Treasurer on Future Programs for March of Dimes Birth Defect --------------------------------------------------------------------------------------------------------------------
30
-------------------------------------------------------------------------------------------------------------------- NAME, YEAR FIRST BECAME DIRECTOR PRINCIPAL OCCUPATION AND OF COMPANY, TITLE AGE BUSINESS EXPERIENCE -------------------------------------------------------------------------------------------------------------------- Foundation from 1973 to present; Adjunct Assistant Professor, Department of Human Biological Chemistry and Genetics at University of Texas Medical Branch, from 1974 to 1998; author and lecturer on scientific matters. -------------------------------------------------------------------------------------------------------------------- Richard J. Hindin, 2002 61 Director of Chicken Out Rotisserie Inc., founded in 1991, which operates 28 restaurants in four states and the District of Columbia, with annual sales in excess of $30 million. In 1967, he co-founded Britches of Georgetown, Inc., (Britches) a clothing retailer specializing in the sale of upscale men's and women's apparel and accessories. Mr. Hindin also serves as Chairman of the Board of The Institute of Advanced Studies in Immunology and Geriatric Medicine, a non-profit 501(c)(3) corporation that specializes in disseminating medical information to the public as well as providing the pharmaceutical industry with an independent source for testing vaccines and drugs for the elderly. Mr. Hindon is also President of Hinsilblon Laboratories Ltd., a company based in Cape Coral, Florida which sells odor neutralization products and delivery systems. -------------------------------------------------------------------------------------------------------------------- Joseph C. McNay, 1987 69 Managing Principal, Chairman and Chief Investment Officer of Essex Investment Management Company, LLC, a registered investment advisor, from 1976 to present; Director of Softech, Inc. and MPSI System, Inc. --------------------------------------------------------------------------------------------------------------------
MEDICAL AND SCIENTIFIC ADVISORY BOARD RegeneRx has an advisory board called the Medical and Scientific Advisory Board. RegeneRx's Medical and Scientific Advisory Board consists of experts in various medical and scientific fields who advise RegeneRx on key aspects of its wound-healing technology platform, based on T(beta)4. They advise RegeneRx in such areas as potential therapeutic uses for T(beta)4, strategies for clinical development, and evaluation of new scientific or medical data. In addition, the members also introduce RegeneRx to companies who might be interested in working with it on its technology. All outside MSAB members receive options for 30,000 shares of stock at the trailing 20-day average bid, which vest over three years. They also receive $1,000 for each MSAB annual meeting they attend plus all travel expenses. The MSAB has had no annual meetings to date. The members of the MSAB are Allan L. Goldstein (Chairman); Albert Rosenfeld; Herve Byron, MD; Barrett Katz, MD, MBA; Steve Kovacs, MD, MBA; Claudio De Simone, Ph.D.; Jo-David Fine, MD, MPH. 31 BOARD OF DIRECTORS' MEETINGS AND COMMITTEES The Company's Board of Directors met 5 times in fiscal 2003. During 2003, no director of the Company attended fewer than 75% of the aggregate of the total number of Board meetings and the total number of meetings held by the committees of the Board of Directors on which he served. The Board of Directors of the Company has standing Audit, Compensation and Stock Option committees. The Audit Committee seeks to ensure that appropriate audits of the Company are conducted, as well as the adequacy of the internal accounting controls and the integrity of financial reporting. The members of the Audit Committee are Directors McNay and Rosenfeld. The Audit Committee met once during fiscal 2003. For additional information regarding the audit committee, see "Audit Committee Matters" below. The Compensation Committee is responsible for the determination of compensation paid to executive officers. The members of the Compensation Committee are Directors McNay and Rosenfeld. The Compensation Committee met once in fiscal 2003. The Stock Option Committee is responsible for administering the Company's stock option plans and in this capacity approves stock option grants. Each director is a member of the Stock Option Committee. The Stock Option Committee met once in fiscal 2003. The entire Board of Directors of the Company acts as the Nominating Committee for selecting nominees for election to the Board. The Nominating Committee generally meets once per year to make nominations. While the Nominating Committee will consider nominees recommended by stockholders, the Nominating Committee has not actively solicited such nominations. Pursuant to the Company's bylaws, nominations for election as directors by stockholders at an Meeting must be made in writing and delivered to the Company's Secretary not less than fourteen days nor more than fifty days prior to the date of the meeting. If, however, notice of the meeting is given to stockholders less than twenty-one days prior to the meeting, the nominations must be received by the close of business on the seventh day following the day on which notice of the meeting was mailed to stockholders. AUDIT COMMITTEE MATTERS Audit Committee Report. The Audit Committee has issued the following report with respect to the audited financial statements of the Company for the year ended December 31, 2003: o The Audit Committee has reviewed and discussed with the Company's management the Company's 2003 audited financial statements; o The Audit Committee has discussed with the Company's independent auditors (Reznick Fedder & Silverman, P.C.) the matters required to be discussed by Statement on Auditing Standards No. 61; o The Audit Committee has received the written disclosures and letter from the independent auditors required by Independence Standards Board No. 1 (which relates to the auditors' independence from the Company) and has discussed with the auditors their independence from the Company; and o Based on the review and discussions referred to in the three items above, the Audit Committee recommended to the Board of Directors that the fiscal 2003 audited financial statements be included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003. Submitted by the Audit Committee of the Company's Board of Directors: Joseph C. McNay Albert Rosenfeld 32 Independence and Other Matters. Under the definition of independence contained in the National Association of Securities Dealers' listing standards for the Nasdaq Stock Market, Mr. McNay is "independent." Because he is an officer of the Company, Mr. Rosenfeld is not "independent" under this definition. Mr. McNay is the audit committee financial expert as defined in Item 401(e) of Regulation S-B. The Company's Board of Directors has not adopted a written charter for the audit committee. DIRECTORS' COMPENSATION Directors McNay and Rosenfeld were previously owed director fees earned prior to 1999 and totaling $9,082 at the end of 2002. These amounts were repaid during 2003. Non-employee directors are paid $1,000 per board meeting attended in person (or $300 if attended by telephone conference) and an annual amount of $5,000. Employee directors, such as Directors Goldstein and Finkelstein, are not paid for board service and meeting attendance. In addition, directors are not compensated for committee service or meeting attendance. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), requires the Company's directors and executive officers, and persons who own more than 10% of the Company's common stock, to report to the SEC their initial ownership of the Company's common stock and any subsequent changes in that ownership. Specific due dates for these reports have been established by the SEC and the Company is required to disclose any late filings or failures to file. To the Company's knowledge, based solely on its review of the copies of such reports furnished to the Company or written representations that no reports were required during the fiscal year ended December 31, 2003, the Company believes that during the past fiscal year its officers, directors and greater than ten percent (10%) beneficial owners complied with all filing requirements. CODE OF ETHICS The Company adopted a Code of Ethics for its Principal Executive Officer and Senior Financial Officer (the "Code of Ethics"). A copy of the Code of Ethics is filed as an exhibit to this Form 10-KSB. The Code of Ethics is also available free of charge by writing to the Company at 3 Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814. 33 ITEM 10. EXECUTIVE COMPENSATION The following table summarizes for the years indicated the compensation paid by RegeneRx to its Chief Executive Officer during 2003 and all executive officers of RegeneRx that earned a salary and bonus for 2003 in excess of $100,000.
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS (4) ------------------- ----------------------- Other Restricted Annual Stock Fiscal Compensation Award Options All Other Name and Principal Position Year Salary Bonus ($)(3) ($) (#) Compensation --------------------------- ---- ------ ----- ------ --- --- ------------ J.J. Finkelstein, 2003 $175,000 $20,000 -- -- -- -- President and Chief 2002 $175,000 (2) -- -- 500,000 -- Executive Officer(1) 2001 -- -- -- -- -- $107,670 -- -- Allan L. Goldstein, 2003 $110,000 $20,000(2) -- -- -- -- Chairman and Chief 2002 $110,000 -- -- -- 300,000 $37,674 Scientific Advisor 2001 $55,000 -- -- -- -- $5,000
----------------- (1) On March 19, 2002, J.J. Finkelstein was appointed as RegeneRx's President and Chief Executive Officer, replacing Dr. Goldstein who will remain as Chairman and Chief Scientific Advisor of RegeneRx. (2) Dr. Goldstein and J.J. Finkelstein were awarded a $20,000 bonus for work performed in 2002. The amounts were accrued as of 12/31/02 and paid in 2003. (3) Dr. Goldstein and Mr. Finkelstein did not receive any (a) personal benefits or perquisites which exceeded the lesser of $50,000 or 10% of his salary and bonus; (b) payments of above-market preferential earnings on deferred compensation; (c) payments of earnings with respect to long term incentive plans prior to settlement or maturation; (d) amounts reimbursed for payment of taxes; or (e) preferential discounts on stock. (4) RegeneRx had no long-term incentive plans in existence and made no payouts or awards under such plans. 34 The following table provides information as to the value realized and unrealized by Dr. Goldstein and Mr. Finkelstein related to stock options during 2003. No stock options were exercised by Dr. Goldstein or Mr. Finkelstein during 2003.
-------------------------------------------------------------------------------------------------------------------- AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES -------------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END OPTIONS AT FY-END (#) ($) -------------------------------------------------------------------------------------------------------------------- SHARES ACQUIRED VALUE ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) ($) (#) (#) ($) ($)* -------------------------------------------------------------------------------------------------------------------- Allan L. Goldstein -- -- 201,000 99,000 176,880 87,120 -------------------------------------------------------------------------------------------------------------------- J.J. Finkelstein -- -- 335,000 165,000 294,800 145,200 --------------------------------------------------------------------------------------------------------------------
* Based on a closing stock price on December 31, 2003 of $1.21 and an exercise price of $0.33. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows, as of March 2, 2004, the beneficial ownership of RegeneRx's common stock by: o any persons or entities known by management to beneficially own more than five percent of the outstanding shares of RegeneRx common stock as of the record date; o each director of RegeneRx; and o all of the executive officers and directors of RegeneRx as a group. The persons named in the following table have sole voting and dispositive powers for all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and except as indicated in the footnotes to the table. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of common stock subject to outstanding options, warrants or other rights to acquire held by a person that are currently exercisable or exercisable within 60 days after March 2, 2004 are included in the number of shares beneficially owned by the person and deemed outstanding shares for purposes of calculating the person's percentage ownership. These shares are not, however, deemed outstanding for the purpose of computing the percentage ownership of any other person. As of March 2, 2004, there were 32,542,548 shares of RegeneRx common stock outstanding.
Percent of Beneficial Common Stock Name of Beneficial Owner Ownership Outstanding ------------------------------------------------------------------------------------------------------------------- J. J. Finkelstein Director, President and Chief Executive Officer 2,012,388(1) 6.12 Allan L. Goldstein, Chairman and Chief Scientific Officer 2,333,786(2) 7.13 Albert Rosenfeld, Director, Secretary and Treasurer 86,766(3) 0.27
35
Percent of Beneficial Common Stock Name of Beneficial Owner Ownership Outstanding ------------------------------------------------------------------------------------------------------------------- Richard J. Hindin, Director 1,803,258(4) 5.54 Joseph C. McNay, Director 1,410,777(5) 4.31 Sidney J. Silver 1,900,000(6) 5.85 Defiante Farmaceutica Unipessoal, L.d.a. 10,105,822(7) 29.63 All executive officers and directors as a group (5 persons) 7,646,975(8) 22.80
-------- (1) Consists of (i) 1,608,638 shares owned directly by Mr. Finkelstein over which he has sole voting and dispositive powers; and (ii) 12,500 shares held by Mr. Finkelstein's minor daughter with respect to which Mr. Finkelstein shares voting and dispositive powers. The address for Mr. Finkelstein is c/o RegeneRx Biopharmaceuticals, Inc., 3 Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814. Does not include 96,250 options to purchase common stock to be issued to Mr. Finkelstein under the Amended and Restated Option Plan that are currently unexercisable. (2) Consists of (i) 2,091,536 shares owned directly by Dr. Goldstein and his wife over which they share voting and dispositive powers. The address for Dr. Goldstein is c/o RegeneRx Biopharmaceuticals, Inc., 3 Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814. Does not include 57,750 options to purchase common stock to be issued to Dr. Goldstein under the Amended and Restated Option Plan that are currently unexercisable. (3) Consists of (i) 10,100 shares owned directly by Mr. Rosenfeld over which he has sole voting and dispositive powers; and (ii) 76,666 shares which Mr. Rosenfeld has the right to acquire through the exercise of stock options that are currently exercisable. Does not include 33,334 options to purchase common stock to be issued to Mr. Rosenfeld under the Amended and Restated Option Plan that are currently unexercisable. The address for Mr. Rosenfeld is c/o RegeneRx Biopharmaceuticals, Inc., 3 Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814. (4) Consists of (i) 1,750,188 shares owned directly by Mr. Hindin over which he has sole voting and dispositive powers; and (ii) 33,333 which Mr. Hindin has the right to acquire through the exercise of stock options that are currently exercisable. Does not include 66,667 options to purchase common stock to be issued to Mr. Hindin under the Amended and Restated Option Plan that are currently unexercisable. The address for Mr. Hindin is 407 Chain Bridge Road, McLean, Virginia 22101. (5) Consists of (i) 1,142,795 shares owned directly by Mr. McNay over which he has sole voting and dispositive powers; (ii) 76,666 shares which Mr. McNay has the right to acquire through the exercise of stock options that are currently exercisable; and (iii) 191,316 shares which Mr. McNay has the right to acquire pursuant to the exercise of warrants. Does not include 33,334 options to purchase common stock to be issued to Mr. McNay under the Amended and Restated Option Plan that are currently unexercisable. The address for Mr. McNay is c/o RegeneRx Biopharmaceuticals, Inc., 3 Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814. (6) The address for Mr. Silver is c/o Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Washington, D.C. 20005. (7) Consists of (i) 8,492,664 shares owned directly by Defiante over which they have sole voting and dispositive powers and (ii) 1,613,158 shares which Defiante have the right to acquire pursuant to the exercise of warrants. The address for Defiante Farmaceutica Unipessoal, L.d.a. is Rua dos Ferreiros, 260, Funchal-Madeira (Portugal) 9000-082. Claudio Cavazza and Paolo Cavazza exercise the voting, investment and dispositive rights over the securities. (8) Includes the shares noted in the footnotes above. 36 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RegeneRx made advances to two officers prior to July 2002 which were non-interest bearing and due on demand. At December 31, 2003 and 2002, $17,417 and $23,417, respectively, are due from the officers. Of the amounts due from the officers, $17,417 and $23,417 due in 2003 and 2002, respectively, were related to the previous personal loans while the remainder were related to routine corporate travel advances. In February 2003, the Board of Directors approved the modification of the subscription notes receivable agreements between RegeneRx and two officers totaling $150,000 for the purchase of common stock. Under the modified agreements, the two officers paid a total of $40,000 and returned 357,724 shares of common stock to the company. In May 2003, RegeneRx entered into Bridge Loan Agreements with certain shareholders, including Richard J. Hindin, a director. The Bridge Loans totaling $400,000, accrued interest at 10% per annum and were scheduled to mature in November 2005. In addition, RegeneRx issued warrants to purchase 200,000 shares of its common stock at $.10 per share. The principal and accrued interest were repaid in June 2003. RegeneRx recorded interest expense of $40,648 related to the issuance of the warrants. EMPLOYMENT AGREEMENTS On January 1, 2002, Dr. Goldstein and J.J. Finkelstein entered into employment contracts with RegeneRx to serve as Chairman and Chief Scientific Advisor and President and Chief Executive Officer, respectively. In February 2004, the Compensation Committee voted to increase the salaries of Dr. Goldstein and Mr. Finkelstein to $125,000 and $200,000, respectively. The other terms of the agreements are as otherwise stated below. Employment Contract of Dr. Goldstein ------------------------------------ Pursuant to the terms of his employment agreement, Dr. Goldstein is not obligated to devote 100% of his time to RegeneRx and continues to be employed by The George Washington University in Washington, D.C. The initial term of Dr. Goldstein's employment agreement is three years. The agreement will automatically be extended for successive one-year terms unless RegeneRx or Dr. Goldstein elects not to extend the agreement. The agreement provides for annual compensation of $110,000 and eligibility to receive an annual bonus in the discretion of the Board of Directors of RegeneRx. In consideration for his services, RegeneRx also granted Dr. Goldstein an option to purchase 300,000 shares of RegeneRx's common stock at a purchase price equal to fair market value pursuant to the Amended and Restated Option Plan. Dr. Goldstein's option vested as to 34% of the option shares on the first anniversary of the grant (January 1, 2003) and in twenty-four (24) equal monthly installments thereafter so long as he remains employed by RegeneRx. In the event of Dr. Goldstein's termination without cause or upon the occurrence of certain change in control events, Dr. Goldstein's stock shall immediately vest and be released from RegeneRx's repurchase option. Pursuant to the agreement, Dr. Goldstein is entitled to participate in and receive all standard employee benefits under applicable Company welfare benefits plans and programs to the same extent as other senior executives of RegeneRx and to participate in all applicable incentive plans, including stock option, stock, bonus, savings and retirement plans provided by RegeneRx which are offered to senior executive officers in RegeneRx. The agreement also provides that Dr. Goldstein will receive such perquisites as RegeneRx may establish from time to time which are commensurate with his position and comparable to those received by other senior executives of RegeneRx (including vacation of at least four (4) weeks per annum and holidays, leaves of absence and leaves for illness and temporary disability in accordance with the policies of RegeneRx and federal, state and local law). Dr. Goldstein is prohibited under the agreement participating in or taking any position, investment or interest known by him to be adverse or antagonistic to RegeneRx, its business or prospects, financial or otherwise. In addition, Dr. Goldstein is bound by a proprietary information, nonsolicitation, noncompetition and inventions assignment agreement as part of his employment agreement. If Dr. Goldstein's employment is terminated without cause (as defined in the employment agreement) or he terminates his employment for any reason within 12 months after a change of control event, RegeneRx is obligated 37 to pay him a lump sum payment in an amount equal to his then annual base salary (less federal and state tax withholding) as severance pay. Dr. Goldstein is required to sign a release in favor of RegeneRx as a condition to receiving the severance payment. Pursuant to the employment agreement, RegeneRx may terminate Dr. Goldstein in the event of his death, or any illness, disability or other incapacity that renders him unable regularly to perform his duties generally for more than either one hundred twenty (120) consecutive days or more than a total of one hundred eighty (180) days in any consecutive twelve (12) month period. Dr. Goldstein may resign his employment for good reason by giving notice to RegeneRx. Good reason generally is defined by the employment agreement as a material change in his duties or responsibilities with RegeneRx, which causes his position to become one of lesser responsibility or importance, or a relocation of his place of employment by more than 60 miles or a material reduction in the benefits and perquisites provided to him or any material failure by RegeneRx to pay his the compensation and benefits under this Agreement. If Dr. Goldstein resigns with good reason, RegeneRx is obligated to pay him the severance described above. Employment Contract of Mr. Finkelstein -------------------------------------- Pursuant to the terms of his employment agreement, Mr. Finkelstein is expected to devote 100% of his time and efforts to RegeneRx. The initial term of Mr. Finkelstein's employment agreement is three years. The agreement will automatically be extended for successive one-year terms unless RegeneRx or Mr. Finkelstein elects not to extend the agreement. The agreement provides for annual compensation of $175,000 and eligibility to receive an annual bonus in the discretion of the Board of Directors of RegeneRx. In consideration for his services, RegeneRx also granted Mr. Finkelstein an option to purchase 500,000 shares of RegeneRx's common stock at a purchase price equal to fair market value pursuant to the Amended and Restated Option Plan. Mr. Finkelstein's option vested as to 34% of the option shares on the first anniversary of the grant (January 1, 2003) and in twenty-four (24) equal monthly installments thereafter so long as he remains employed by RegeneRx. In the event of Mr. Finkelstein's termination without cause or upon the occurrence of certain change in control events, Mr. Finkelstein's stock shall immediately vest and be released from RegeneRx's repurchase option. Pursuant to the agreement, Mr. Finkelstein is entitled to participate in and receive all standard employee benefits under applicable Company welfare benefits plans and programs to the same extent as other senior executives of RegeneRx and to participate in all applicable incentive plans, including stock option, stock, bonus, savings and retirement plans provided by RegeneRx which are offered to senior executive officers in RegeneRx. The agreement also provides that Mr. Finkelstein will receive such perquisites as RegeneRx may establish from time to time which are commensurate with his position and comparable to those received by other senior executives of RegeneRx (including vacation of at least four (4) weeks per annum and holidays, leaves of absence and leaves for illness and temporary disability in accordance with the policies of RegeneRx and federal, state and local law). Under the employment agreement, RegeneRx also is obligated to maintain a life insurance policy covering the life of Mr. Finkelstein with coverage in the amount of not less than $1,000,000 and a disability insurance policy with coverage in the maximum amount allowable or appropriate as determined by his base salary, provided that RegeneRx is not obligated to pay more than $600 per month in the aggregate, for life and disability coverage. Mr. Finkelstein is prohibited under the agreement participating in or taking any position, investment or interest known by him to be adverse or antagonistic to RegeneRx, its business or prospects, financial or otherwise. In addition, Mr. Finkelstein is bound by a proprietary information, nonsolicitation, noncompetition and inventions assignment agreement as part of his employment agreement. If Mr. Finkelstein's employment is terminated without cause (as defined in the employment agreement) or he terminates his employment for any reason within 12 months after a change of control event, RegeneRx is obligated to pay him a lump sum payment in an amount equal to his then annual base salary (less federal and state tax withholding) as severance pay. In addition, RegeneRx will reimburse him for premiums he pays for life and disability insurance for a 12 month period. Such reimbursement, in the aggregate, generally will be capped at the $600 per month. Mr. Finkelstein is required to sign a release in favor of RegeneRx as a condition to receiving any severance payment. Pursuant to the employment agreement, RegeneRx may terminate Mr. Finkelstein in the event of his death, 38 or any illness, disability or other incapacity that renders him unable regularly to perform his duties generally for more than either one hundred twenty (120) consecutive days or more than a total of one hundred eighty (180) days in any consecutive twelve (12) month period. Mr. Finkelstein may resign his employment for good reason by giving notice to RegeneRx. Good reason generally is defined by the employment agreement as a material change in his duties or responsibilities with RegeneRx, which causes his position to become one of lesser responsibility or importance, or a relocation of his place of employment by more than 60 miles or a material reduction in the benefits and perquisites provided to him or any material failure by RegeneRx to pay his the compensation and benefits under this Agreement. If Mr. Finkelstein resigns with good reason, RegeneRx is obligated to pay him the severance described above. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description of Exhibit Reference* 3.1 Restated Certificate of Incorporation of Company Exhibit 3.1 to Registration Statement No. 33-9370, Amendment No. 1 (filed November 26, 1986) 3.2 Amendment to Restated Certificate of Incorporation of Company Exhibit 3.2 to the Company's Transitional Report on Form 10-K, File No. 0-15070 (filed March 18, 1991) 3.3 Amendment to Restated Certificate of Incorporation of Company Exhibit 3.3 to the Company's Annual Report on Form 10-KSB, File No. 0-15070 (filed April 2, 2001) 3.4 Bylaws of Company Exhibit 3.2 to Registration Statement No. 33-9370 (filed October 8, 1986) 3.5 Amendment No. 1 to Bylaws of Company adopted Exhibit 4.7 to Registration Statement August 11, 1989 No. 33-34551, Amendment No. 3 (filed June 21, 1990) 3.6 Amendment No. 2 to Bylaws of Company Exhibit 4.8 to Registration Statement adopted June 18, 1990 No. 33-34551, Amendment No. 3 (filed June 21, 1990) 3.7 Amendment No. 3 to Bylaws of Company Exhibit 3.6 to the Company's adopted November 30, 1990 Transitional Report on Form 10-K, File No. 0-15070 (filed March 18, 1991) 4.1 Form of Stock Certificate Exhibit 4.1 to Registration Statement No. 33-9370, Amendment No. 1 (filed November 26, 1986) 4.2 Rights Agreement, dated as of April 29, 1994, Exhibit 1 to the Company's Current between the Company and American Stock Report on Form 8-K, File No. 0-15070 Transfer & Trust Company, as Rights Agent (filed May 2, 1994) 4.3 Warrant Agreement, dated March 12, 1997 Exhibit 4.3 to the Company's Annual Report on Form 10-K, File No. 0-15070 (filed March 31, 1997) 4.4 Warrant Agreement, dated January 23, 2004 Exhibit 4.4 to the Company's Registration Statement on Form SB-2, File No. 333-113417 (filed March 9, 2004)
39
10.1 Patent License Agreement - Exclusive, between the U.S. Public Exhibit 10.1 to the Company's Annual Health Service and the Company Report on Form 10-KSB, File No. 0-15070 (filed April 2, 2001)** 10.2 Amended and Restated Directors Stock Option Exhibit 10.25 to the Company's Annual Plan Report on Form 10-K, File No. 0-15070 (filed March 26, 1993) 10.3 2000 Stock Option and Incentive Plan Filed as an Appendix to the Company's preliminary proxy materials, File No. 0-15070 (filed September 29, 2000) 10.4 Unit Purchase Agreement dated March 12, 1997 Exhibit 10.25 to the Company's Annual Report on Form 10-K, File No. 0-15070 (filed March 31, 1997) 10.5 Registration Rights Agreement, dated March 12, 1997 Exhibit 10.26 to the Company's Annual Report on Form 10-K, File No. 0-15070 (filed March 31, 1997) 10.6 Lease Agreement dated April 5, 2002 between the Company and HQ Exhibit 10.7 to RegeneRx' Annual Global Workplaces, Inc. Report on Form 10-KSB, File No. 0-15070 (filed March 31, 2003) 10.7 Employment Agreement Exhibit 10.8 to the Company's Registration Statement on Form SB-2, File No. 333-113417 (filed March 9, 2004) 10.8 Employment Agreement Exhibit 10.9 to the Company's Registration Statement on Form SB-2, File No. 333-113417 (filed March 9, 2004) 10.9 License Agreement Exhibit 10.10 to the Company's Registration Statement on Form SB-2, File No. 333-113417 (filed March 9, 2004)*** 10.10 Securities Purchase Agreement Exhibit 10.11 to the Company's Registration Statement on Form SB-2, File No. 333-113417 (filed March 9, 2004) 10.11 Master Services Agreement Exhibit 10.12 to the Company's Registration Statement on Form SB-2, Amendment No. 1, File No. 333-113417 (filed April 23, 2004) 14 Code of Ethics Previously filed 23 Consent of Reznick Fedder & Silverman, P.C. Previously filed 31.1 Certification dated April 29, 2004 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32.1 Certification dated April 29, 2004 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (filed herewith)
----------------- 40 * Except where noted, the exhibits referred to in this column have heretofore been filed with the Securities and Exchange Commission as exhibits to the documents indicated and are hereby incorporated by reference thereto. The Registration Statements referred to are Registration Statements of the Company. ** Portions of this document have been omitted pursuant to a previously granted confidential treatment application. *** Portions of this document have been omitted pursuant to a request for confidential treatment (b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the fourth quarter of the 2003 fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees paid to RegeneRx's independent auditors, Reznick Fedder & Silverman for the last two fiscal years ended December 31 were as follows: 2003 2002 ---- ---- AUDIT FEES: $ 22,500 $ 15,000 AUDIT-RELATED FEES:1 $ 7,500 $ 7,500 TAX FEES:2 $ 5,000 $ 10,000 ALL OTHER FEES:3 $ 0 $ 0 (1) Review of quarterly Forms 10-QSB and year end Annual Report on Form 10-KSB. (2) Tax preparation service (3) Service, other than audit fees, audit related fees or tax services All audit related services, tax services and other services were pre-approved by the Audit Committee, which concluded that the provision of such services by Reznick Fedder & Silverman was compatible with the maintenance of that firm's independence in the conduct of its auditing functions. The Audit Committee pre-approves all audit and non-audit engagement fees, and terms and services. On an ongoing basis, management communicates specific projects and categories of services for which advance approval of the Audit Committee is required. The Audit Committee reviews these requests and advises management and the independent auditors if the Audit Committee pre-approves the engagement of the independent auditors for such projects and services. On a periodic basis, the independent auditors report to the Audit Committee the actual spending for such projects and services compared to the approved amounts. 41 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGENERX BIOPHARMACEUTICALS, INC. (Registrant) April 29, 2004 By: /s/J.J.Finkelstein ------------------------------------ J.J. Finkelstein President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. In addition, each of the following persons hereby grants Power of Attorney to J.J. Finkelstein to sign on each of their behalf for the purposes of filing any further amendments to this report:
Signature Title Date /s/Allan L. Goldstein Chairman of the Board, Chief Scientific April 29, 2004 ------------------------------------ Advisor, and Director Allan L. Goldstein /s/J.J. Finkelstein President, Chief Executive Officer, and April 29, 2004 ------------------------------------- Director J.J. Finkelstein /s/Albert Rosenfeld Secretary, Treasurer, and Director April 29, 2004 ------------------------------------ Albert Rosenfeld /s/Joseph C. McNay Director April 29, 2004 ------------------------------------ Joseph C. McNay /s/Richard J. Hindin Director April 29, 2004 ------------------------------------ Richard J. Hindin