**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM 10-QSB**





(Mark
      One)


x**QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the Quarterly Period Ended March 31, 2007**





 ̈**TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the Transition Period from _________ to _________**





**Commission
      file number:  000-50590**





**REXAHN
      PHARMACEUTICALS, INC.**


(Exact
      name of registrant as specified on its charter)





**Delaware**
            **11-3516358**(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification No.)





**9620
      Medical Center Drive**


**Rockville,
      Maryland  20850**


(Address
      of principle executive offices)





**(240)
      268-5300**


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the 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  xNo
 ̈








**APPLICABLE
      ONLY TO CORPORATE ISSUERS:**





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





State
      the
      number of shares outstanding of each of the registrant's classes of common
      equity, as of the latest practicable date: 50,326,132 issued and outstanding
      as
      of May 11, 2007








Transitional
      Small Business Disclosure Format (check one):Yes  ̈No
x













**REXAHN
      PHARMACEUTICALS, INC.**




**INDEX**




**PAGE(S)****PART
                I**
            **FINANCIAL
                INFORMATION**Item 1.
            Condensed
                Financial Statements:Balance
                Sheets – March 31, 2007 (unaudited) and
                December 31, 2006
            1Statements
                of Operations – Three Months Ended March 31,
                2007 and 2006 and March 19, 2001 (Inception) to March 31,
                2007 (unaudited)
            2Statements
                of Cash Flows – Three Months Ended March 31,
                2007 and 2006 and March 19, 2001 (Inception) to March 31,
                2007 (unaudited)
            3Notes
                to Condensed Financial Statements
                (unaudited)
            4Item 2.
            Management's
                Discussion and Analysis or Plan of
                Operation
            17Item 3.
            Controls
                and Procedures
            34**PART
                II**
            **OTHER
                INFORMATION**Item 1.
            Legal
                Proceedings
            35Item 2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            35Item 3.
            Defaults
                upon Senior Securities
            35Item 4.
            Submission
                of Matters to a Vote of Security
                Holders
            35Item 5.
            Other
                Information
            35Item 6.
            Exhibits
            36Signatures
            37





i
 ***Index***





**PART
      I – FINANCIAL INFORMATION**





**Item 1.  FINANCIAL
      STATEMENTS**




**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Condensed
      Balance Sheets







**March
                31,**
              **2007**
            
            
            December 31,
              2006(Unaudited)**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            **$**
            **3,196,108**
            
            
            $
            4,034,060Prepaid
                expenses and other
            
            ****
            **445,911**
            
            
            
            483,186**Total
                Current Assets**
            
            ****
            **3,642,019**
            
            
            
            4,517,246**Equipment,
                Net**(note 3)
            
            ****
            **138,233**
            
            
            
            149,993**Intangible
                Assets, Net**(note 4)
            
            ****
            **317,410**
            
            
            
            321,971**Total
                Assets**
            
            **$**
            **4,097,662**
            
            
            $
            4,989,210**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities:**Accounts
                payable and accrued expenses
            
            **$**
            **597,972**
            
            
            $
            575,363**Total
                Current Liabilities**
            
            ****
            **597,972**
            
            
            
            575,363**Deferred
                Revenue**(note 5)
            
            ****
            **1,181,250**
            
            
            
            1,200,000**Total
                Liabilities**
            
            ****
            **1,779,222**
            
            
            
            1,775,363**Commitment
                and Contingencies**(note 9)**Stockholders'
                Equity**(note 6):Preferred
                stock, par value $0.0001, 100,000,000 authorized shares, none issued
                and
                outstanding
            
            ****
            **-**
            
            
            
            -Common
                stock, par value $0.0001, 500,000,000 authorized shares, 50,322,337
                issued  and 50,308,132 outstanding
            
            ****
            **5,032**
            
            
            
            5,032Treasury
                stock, 14,205 shares, at cost
            
            ****
            **(28,410**
            **)**
            
            
            (28,410
            )Additional
                paid-in capital
            
            ****
            **24,216,471**
            
            
            
            23,927,551Accumulated
                deficit during the development stage
            
            ****
            **(21,874,653**
            **)**
            
            
            (20,690,326
            )**Total
                Stockholders' Equity**
            
            ****
            **2,318,440**
            
            
            
            3,213,847**Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **4,097,662**
            
            
            $
            4,989,210





(See
      the
      notes accompanying the condensed financial statements)





1
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Condensed
      Statements of Operations


(Unaudited)




Cumulative
                from March 19, 2001 (Inception) to
            
            
            Three
                Months
              Ended
                March 31,March
                31, 2007
            
            
            **2007**
            
            
            2006**Revenues:**Research
            
            $
            318,750
            
            
            **$**
            **18,750**
            
            
            $
            18,750**Expenses:**General
                and administrative
            
            
            10,244,308
            
            
            ****
            **633,726**
            
            
            
            804,682Research
                and development
            
            
            9,848,825
            
            
            ****
            **573,782**
            
            
            
            1,899,516Patent
                fees
            
            
            552,698
            
            
            ****
            **33,838**
            
            
            
            19,403Depreciation
                and amortization
            
            
            398,713
            
            
            ****
            **16,322**
            
            
            
            21,077**Total
                Expenses**
            
            
            21,044,544
            
            
            ****
            **1,257,668**
            
            
            
            2,744,678**Loss
                from Operations**
            
            
            (20,725,794
            )
            
            ****
            **(1,238,918**
            **)**
            
            
            (2,725,928
            )**Other
                (Income) Expense**Interest
                income
            
            
            (777,288
            )
            
            
            (54,591
            )
            
            
            (111,192
            )Interest
                expense
            
            
            301,147
            
            
            
            -
            
            
            
            60,452Beneficial
                conversion feature
            
            
            1,625,000
            
            
            
            -
            
            
            
            -1,148,859
            
            
            
            (54,591
            )
            
            
            (50,740
            )**Net
                Loss**
            
            $
            (21,874,653
            )
            
            **$**
            **(1,184,327**
            **)**
            
            $
            (2,675,188
            )Loss
                per weighted average number of shares outstanding, basic and
                diluted
            
            
            
            
            
            **$**
            **(0.02**
            **)**
            
            $
            (0.06
            )Weighted
                average number of shares outstanding, basic and diluted
            
            
            
            
            
            ****
            **50,308,132**
            
            
            
            46,412,688




(See
      the notes accompanying the condensed financial
      statements)


2
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Condensed
      Statements of Cash Flows


(Unaudited)




Cumulative
                from March 19, 2001 (Inception) to
            
            
            Three
                Months
              Ended
                March 31,March
                31, 2007
            
            
            **2007**
            
            
            2006**Cash
                Flows from Operating Activities:**Net
                loss
            
            $
            (21,874,653
            )
            
            **$**
            **(1,184,327**
            **)**
            
            $
            (2,675,188
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Beneficial
                conversion feature
            
            
            1,625,000
            
            
            ****
            **-**
            
            
            ****
            **-**Compensatory
                stock
            
            
            21,877
            
            
            ****
            **-**
            
            
            ****
            **-**Depreciation
                and amortization
            
            
            399,094
            
            
            ****
            **16,321**
            
            
            
            21,077Stock
                option compensation expense
            
            
            2,528,467
            
            
            ****
            **288,920**
            
            
            
            336,094Amortization
                of deferred revenue
            
            
            (318,750
            )
            
            ****
            **(18,750**
            **)**
            
            
            (18,750
            )Changes
                in assets and liabilities:Prepaid
                expenses and other
            
            
            (445,911
            )
            
            ****
            **37,275**
            
            
            
            (5,100
            )Accounts
                payable and accrued expenses
            
            
            597,972
            
            
            ****
            **22,609**
            
            
            
            115,084**Net
                Cash (Used in) Operating Activities**
            
            
            (17,466,904
            )
            
            ****
            **(837,952**
            **)**
            
            
            (2,226,783
            )**Cash
                Flows from Investing Activities:**Purchase
                of equipment
            
            
            (498,520
            )
            
            
            -
            
            
            
            -**Net
                Cash (Used in) Investing Activities**
            
            
            (498,520
            )
            
            ****
            **-**
            
            
            ****
            **-****Cash
                Flows from Financing Activities:**Issuance
                of common stock
            
            
            14,896,158
            
            
            ****
            **-**
            
            
            
            1,200Proceeds
                from long-term debt
            
            
            5,150,000
            
            
            ****
            **-**
            
            
            ****
            **-**Proceeds
                from research contribution
            
            
            1,500,000
            
            
            ****
            **-**
            
            
            ****
            **-**Payment
                of licensing fees
            
            
            (356,216
            )
            
            ****
            **-**
            
            
            ****
            **-**Principal
                payments on long-term debt
            
            
            (28,410
            )
            
            ****
            **-**
            
            
            
            (44,173
            )**Net
                Cash Provided by (Used in) Financing Activities**
            
            
            21,161,532
            
            
            ****
            **-**
            
            
            
            (42,973
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            3,196,108
            
            
            ****
            **(837,952**
            **)**
            
            
            (2,269,756
            )**Cash
                and Cash Equivalents - beginning of period**
            
            
            -
            
            
            ****
            **4,034,060**
            
            
            
            10,116,625**Cash
                and Cash Equivalents - end of period**
            
            $
            3,196,108
            
            
            **$**
            **3,196,108**
            
            
            $
            7,846,869**Supplemental
                Cash Flow Information**Interest
                paid
            
            $
            292,912
            
            
            **$**
            **-**
            
            
            $
            2,702




(See
      the notes accompanying the condensed financial
      statements)


3
 ***Index***


**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**1.**
            **Operations
                and Organization**





**Operations**





Rexahn
      Pharmaceuticals, Inc. (the "Company" or "Rexahn Pharmaceuticals"), a Delaware
      corporation, is a development stage biopharmaceutical company dedicated to
      the
      discovery, development and commercialization of innovative treatments for
      cancer, central nervous system (CNS) disorders, sexual dysfunction and other
      medical needs.





The
      accompanying unaudited financial statements of the Company have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America for financial information and the requirements of item 310 (b) of
      Regulation S-B. Accordingly, certain information and disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted pursuant to the rules and regulations of the Securities
      and
      Exchange Commission. These condensed financial statements should be read in
      conjunction with the financial statements and notes thereto included in the
      Company's Annual Report on Form 10-KSB for the year ended December 31, 2006.
      The
      accompanying condensed financial statements reflect all adjustments (consisting
      only of normal recurring adjustments), which, in the opinion of management,
      are
      necessary for a fair presentation of the results for the periods presented.
      Except for the adoption of new accounting policies as disclosed in note 2,
      there
      have been no significant changes in our accounting policies since December
      31,
      2006.****The results of operations for the three month period
      ended March 31, 2007 are not necessarily indicative of the results expected
      for
      the full fiscal year or any future period.





**Reverse
      Merger Acquisition**





Pursuant
      to an Agreement and Plan of Merger by and among Rexahn, Corp ("Rexahn"),
      Corporate Road Show.Com Inc. ("CRS"), a New York corporation and predecessor
      corporation of the Company, CRS Merger Sub, Inc., a Delaware corporation and
      wholly owned subsidiary of CRS ("Merger Sub"), CRS Delaware, Inc., a Delaware
      corporation and wholly owned subsidiary of CRS ("CRS Delaware"), immediately
      after giving effect to a 1-for-100 reverse stock split and the reincorporation
      of CRS as a Delaware corporation under the name Rexahn Pharmaceuticals, Inc.
      ("Rexahn Pharmaceuticals"), on May 13, 2005, Merger Sub merged with and into
      Rexahn, with Rexahn surviving as a wholly owned subsidiary of Rexahn
      Pharmaceuticals (the "Acquisition Merger"). In the Acquisition Merger, (i)
      each
      share of the issued and outstanding common stock of Rexahn (other than
      dissenting shares) was converted into the right to receive five shares of Rexahn
      Pharmaceuticals common stock; and (ii) each issued, outstanding and unexercised
      option to purchase a share of Rexahn common stock was converted into an option
      to purchase five shares of Rexahn Pharmaceuticals common stock.





Shares
      of
      Rexahn Pharmaceuticals common stock issued in the Acquisition Merger were exempt
      from the registration requirements of the Securities Act of 1933, as amended
      (the "Securities Act"), pursuant to Regulation D under the Securities Act and/or
      Regulation S under the Securities Act. These shares of Rexahn Pharmaceuticals
      common stock are deemed "restricted securities" and bear





4
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**1.**
            **Operations
                and
                Organization**(cont’d)





an
      appropriate restrictive legend indicating that the resale of such shares may
      be
      made only pursuant to registration under the Securities Act or pursuant to
      an
      available exemption from such registration.





As
      part
      of the Acquisition Merger, the Company assumed the convertible notes as
      described in note 6 and the conversion price was adjusted to reflect the merger
      exchange ratio.





For
      accounting purposes, the Acquisition Merger is accounted for as a reverse
      acquisition of CRS (legal acquirer) by Rexahn (accounting
      acquirer).  As a result, following the Acquisition Merger, the
      historical financial statements of Rexahn became the historical financial
      statements of the Company.





**Merger
      of Subsidiary**





On
      September 29, 2005, the Company's wholly owned subsidiary, Rexahn, was merged
      with and into the Company and Rexahn's separate existence was
      terminated.








**2.**
            **Summary
                of Significant Accounting
                Policies**





a)
            The
                accounting policies of the Company are in accordance with accounting
                principles generally accepted in the United States of America and
                their
                basis of application is consistent with that of the previous
                year.





b)
            Recent
                Accounting Pronouncements Affecting the
                Company





In
      June
      2006, FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for
      Uncertainty in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
      recognition threshold and measurement attributable for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance related to, among other things,
      classification, accounting for interest and penalties associated with tax
      positions and disclosure requirements.  We have adopted FIN 48
      effective January 1, 2007 and there is no impact of adopting FIN 48 on our
      financial statements to date.





5
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**3.**
            **Equipment,
                Net**





**March
                31,**
            
            
            December 31,**2007**
            
            
            2006Furniture
                and fixtures
            
            **$**
            **31,713**
            
            
            $
            31,713Office
                equipment
            
            ****
            **43,648**
            
            
            
            43,648Lab
                equipment
            
            ****
            **416,093**
            
            
            
            416,093Computer
                equipment
            
            ****
            **5,066**
            
            
            
            5,066Cylinders
                and designs
            
            ****
            **2,000**
            
            
            
            2,000****
            **498,520**
            
            
            
            498,520Less:
                Accumulated depreciation
            
            ****
            **(360,287**
            **)**
            
            
            (348,526
            )Net
                carrying amount
            
            **$**
            **138,233**
            
            
            $
            149,993





Depreciation
      expense was $11,760 and $16,516 for the three months ended March 31, 2007 and
      2006, respectively.








**4.**
            **Intangible
                Assets, Net**





On
      February 10, 2005, the Company entered into a licensing agreement with Revaax
      Pharmaceuticals LLC ("Revaax"), whereby the Company received an exclusive,
      worldwide, royalty bearing license, with the right to sub-license, of Revaax's
      licensed technology and products.  The agreement calls for an initial
      licensing fee of $375,000 to be payable to Revaax in eight quarterly
      installments ending on November 10, 2006.  Accordingly, the Revaax
      license has been measured at fair value at the date the licensing agreement
      was
      entered into.  The fair value of the license component of
      $356,216was
      determined by discounting the stream of future quarterly payments of $46,875
      at
      6%, the prevailing market rate for a debt instrument of comparable maturity
      and
      credit quality.  The asset is amortized on a straightline basis over
      the estimated useful life of 20 years.  The discount was accreted over
      the term of the liability, calculated based on the Company's estimated effective
      market interest rate of 6%. As at December 31, 2006 the outstanding balance
      was
      paid.  Amortization expense was $4,453 for the three months ended both
      March 31, 2007 and 2006. The Company has determined that there was no impairment
      as of March 31, 2007.





6
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**5.**
            **Deferred
                Revenue**





In
      2003,
      the Company entered into a collaborative research agreement with Rexgene Biotech
      Co., Ltd. ("Rexgene"), a minority shareholder.  Rexgene is engaged in
      the development of pharmaceutical products in Asia and has agreed to assist
      the
      Company with the research, development and clinical trials necessary for
      registration of the Company's drug candidate, RX-0201, in Asia.  This
      agreement provides Rexgene with exclusive rights to license, sublicense, make,
      have made, use, sell and import RX-0201 in Asia. A one-time contribution to
      the
      joint development and research of RX-0201 of $1,500,000 was paid to the Company
      in 2003 in accordance with the agreement.  The amount of revenue from
      this contribution is being recognized as income over the term of the agreement
      which terminates at the later of 20 years or the term of the patent on the
      licensed product. The Company is using 20 years as its basis for recognition
      and
      accordingly $18,750 was included in revenues for the three months ended March
      31, 2007 and 2006.  The remaining $1,181,250 at March 31, 2007
      (December 31, 2006-$1,200,000) is reflected as deferred revenue on the balance
      sheet.  The Company adopted SAB No. 104, "Revenue Recognition
      Nonrefundable Up-front Fees" with respect to the accounting for this
      transaction. These fees are being used in the cooperative funding of the costs
      of development of RX-0201.  Royalties of 3% of net sales of licensed
      products will become payable to the Company on a quarterly basis once commercial
      sales of RX-0201 begin. The product is still under development and commercial
      sales are not expected to begin until at least 2009.








**6.**
            **Common
                Stock**





Pursuant
      to the agreement and plan of merger as disclosed in Note 1, in the Acquisition
      Merger, (i) each share of the issued and outstanding common stock of Rexahn
      (other than dissenting shares) was converted into the right to receive five
      shares of Rexahn Pharmaceuticals common stock; and (ii) each issued, outstanding
      and unexercised option to purchase a share of Rexahn common stock was converted
      into an option to purchase five shares of Rexahn Pharmaceuticals common
      stock.  In the Acquisition Merger, 289,780,000 CRS pre-reverse stock
      split shares were converted into 2,897,802 post-reverse stock split Rexahn
      Pharmaceuticals shares, and an additional 500,000 post-reverse stock split
      Rexahn Pharmaceuticals shares were issued to a former executive of
      CRS.





The
      following transactions occurred during fiscal years 2001 through March 31,
      2007:





a)
            On
                May 10, 2001 the Company issued 3,600,000 shares of common stock
                to the
                Company's founders for $1.





b)
            On
                August 10, 2001 the Company issued:





i)
            1,208,332
                shares of common stock to the directors of the Company for cash of
                $1,450,000.





ii)
            958,334
                shares of common stock to Rexgene for cash of
                $550,000.





iii)
            360,000
                shares of common stock in a private placement to individual investors
                for
                cash of $1,080,000.




7
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**6.**
            **Common
                Stock**(cont’d)





These
      share purchases were negotiated by the parties at various dates prior to the
      August 10, 2001 share issuance date.





c)
            On
                October 10, 2001 the Company issued 400,000 shares of common stock
                to
                Chong Kun Dang Pharmaceutical Corp. ("CKD") for cash of $479,991
                and
                400,000 shares of common stock to an individual investor for cash
                of
                $479,991.





d)
            On
                October 10, 2001 the Company issued 200,000 shares of common stock
                to CKD
                for cash of $479,985.





e)
            Since
                inception, the Company's founders have transferred 800,000 shares
                of the
                common stock described in a) to officers and directors of the
                Company.





f)
            In
                July 2003, the shareholders described in b)(iii) and e) transferred
                an
                aggregate of 1,268,332 shares of common stock to a voting
                trust.  The trust allows for the unified voting of the stock by
                the trustees.  The appointed trustees are senior management of
                the Company who, together with their existing shares, control a majority
                of the voting power of the Company.





g)
            On
                August 20, 2003 the Company issued 500,000 shares of common stock
                to
                KT&G Corporation for cash of
                $2,000,000.





h)
            On
                October 29, 2004, an option holder exercised options to purchase
                shares of
                the Company’s common stock for cash of $1,800 and the Company issued an
                aggregate of 1,500 shares.





i)
            Pursuant
                to the agreement and plan of merger as disclosed in Note 1, in the
                Acquisition Merger, (i) each share of the issued and outstanding
                common
                stock of Rexahn (other than dissenting shares) was converted into
                the
                right to receive five shares of Rexahn Pharmaceuticals common stock;
                (ii)
                each issued, outstanding and unexercised option to purchase a share
                of
                Rexahn common stock was converted into an option to purchase five
                shares
                of Rexahn Pharmaceuticals common stock and (iii) the par value of
                Rexahn's
                common stock was adjusted to reflect the par value of CRS common
                stock.  In the Acquisition Merger, 289,780,000 CRS pre-reverse
                stock split shares were converted into 2,897,802 post-reverse stock
                split
                Rexahn Pharmaceuticals shares, and an additional 500,000 post-reverse
                stock split Rexahn Pharmaceuticals shares were issued to a former
                executive of CRS. All shares and earnings per share information has
                been
                retroactively restated in these financial
                statements.





j)
            On
                August 8, 2005, the Company issued, in a transaction exempt from
                registration under the Securities Act, 4,175,000 shares of common
                stock at
                a purchase price of $2.00 per
                share.





k)
            On
                October 3, 2005, the Company issued 7,000 shares of common stock
                for
                $21,877 and $7,500 cash in exchange for
                services.





l)
            On
                December 2, 2005, the holders of a convertible note, representing
                $1,300,000 aggregate principal amount, exercised their option to
                convert
                the entire principal amount of the note into the
                Company's common stock.  Based on a $2.00 per share conversion
                price, the holders received an aggregate of 650,000
                shares.




8
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**6.**
            **Common
                Stock**(cont’d)




m)
            On
                December 27, 2005, option holders exercised options to purchase shares
                of
                the Company's common stock for cash of $9,600 and the Company issued
                an
                aggregate of 40,000 shares.





n)
            OnFebruary
                22, 2006, an
                option holder exercised options to purchase shares of the Company's
                common
                stock for cash of $1,200 and the Company issued an aggregate of 5,000
                shares.





o)
            On
                April 12, 2006, an option holder exercised options to purchase shares
                of
                the Company’s common stock for cash of $3,409 and the Company issued an
                aggregate of 14,205 shares.  On the same date, the Company
                agreed to repurchase common stock from the option holder based on
                the then
                market price for treasury in exchange for the aggregate purchase
                price of
                $28,410 in cash.





p)
            On
                May 13, 2006, holders of $3,850,000 convertible notes issued on February
                28, 2005, exercised their rights to convert the entire principal
                amount of
                the notes into shares of the Company’s common
                stock.   Based on a $1.00 per share conversion price, the
                Company issued 3,850,000 shares of common stock in connection with
                the
                conversion.





q)
            On
                October 9, 2006, an option holder exercised options to purchase shares
                of
                the Company’s common stock for cash of $2,400 and the Company issued an
                aggregate of 10,000 shares.





r)
            On
                November 19, 2006, an option holder exercised options to purchase
                shares
                of the Company's common stock for cash of $1,800 and the Company
                issued an
                aggregate of 7,500 shares.





s)
            On
                December 19, 2006, an option holder exercised options to purchase
                shares
                of the Company's common stock for cash of $6,000 and the Company
                issued an
                aggregate of 25,000 shares.





**7.**
            **Stock-Based
                Compensation**





On
      August
      5, 2003, the Company established a stock option plan.  Under the plan,
      the Company grants stock options to key employees, directors and consultants
      of
      the Company.  For all grants prior to September 12, 2005 and grants to
      employees of the Company after September 12, 2005, the vesting period is 30%
      on
      the first anniversary of the grant date, an additional 30% on the second anniversary
      and the remaining 40% on the third anniversary.  For grants to
      non-employee directors and consultants of the Company after September 12, 2005,
      the vesting period is between 1 to 3 years, subject to the fulfillment of
      certain conditions in the individual stock option grant agreements, or 100%
      upon
      the occurrence of certain events specified in the individual stock option grant
      agreements, subject to the fulfillment of certain conditions in the individual
      stock option grant agreements.  Options authorized for issuance under
      the plan total 17,000,000 after giving effect to an amendment to the Company's
      Stock Option Plan approved at the Annual Meeting of the Stockholders of the
      Company on June 2, 2006 and as of March 31, 2007,
      10,700,000****options are available for
      issuance.




9
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**7****.**
            **Stock-Based
                Compensation**(cont'd)




Prior
      to
      adoption of the plan, the Company made restricted stock
      grants.  During 2003 all existing restricted stock grants were
      converted to stock options.  The converted options maintained the same
      full vesting period as the original restricted stock grants.





**Accounting
      for Employee Awards**





Effective
      January 1, 2006, the plan is accounted for in accordance with the recognition
      and measurement provisions of SFAS No. 123R, which replaces SFAS No. 123 and
      supersedes APB No. 25, and related interpretations. SFAS No. 123R requires
      compensation costs related to share-based payment transactions, including
      employee stock options, to be recognized in the financial statements. In
      addition, the Company adheres to the guidance set forth in SEC SAB No. 107,
      which provides the SEC staff's views regarding the interaction between SFAS
      No.
      123R and certain SEC rules and regulations and provides interpretations with
      respect to the valuation of share-based payments for public
      companies.





In
      adopting SFAS No. 123R, the Company applied the modified prospective approach
      to
      transition. Under the modified prospective approach, the provisions of SFAS
      No.
      123R are to be applied to new employee awards and to employee awards modified,
      repurchased, or cancelled after the required effective date. Additionally,
      compensation cost for the portion of employee awards for which the requisite
      service has not been rendered that are outstanding as of the required effective
      date will be recognized as the requisite service is rendered on or after the
      required effective date. The compensation cost for that portion of employee
      awards will be based on the grant-date fair value of those awards as calculated
      for either recognition or pro-forma disclosures under SFAS No. 123.





As
      a
      result of the adoption of SFAS No. 123R, the Company's results of operations
      for
      the periods ended March 31, 2007 and 2006 include share-based employee
      compensation expense totaling $157,082 and $151,481, respectively. Such amounts
      have been included in the Statements of Operations in general and administrative
      and research and development expenses.  No income tax benefit has been
      recognized in the Statements of Operations for share-based compensation
      arrangements as the Company has provided for a 100% valuation allowance on
      its
      net deferred tax assets.





Employee
      stock option compensation expense in the first quarter of 2007 is the estimated
      fair value of options granted amortized on a straight-line basis over the
      requisite service period for the entire portion of the award. The Company has
      not adjusted the expense by estimated forfeitures, as required by SFAS No.
      123R
      for employee options, since the forfeiture rate based upon historical data
      was
      determined to be immaterial.





10
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**7****.**
            **Stock-Based
                Compensation**(cont'd)





**Accounting
      for Non-Employee Awards**





The
      Company previously accounted for options granted to its non-employee consultants
      and non-employee registered representatives using the fair value cost in
      accordance with SFAS No. 123 and  EITF 96-18.  The adoption
      of SFAS No. 123R and SAB No. 107, as of January 1, 2006, had no material impact
      on the accounting for non-employee awards.  The Company continues to
      consider the additional guidance set forth in EITF Issue No. 96-18.





Stock
      compensation expense related to non-employee options was $131,837 for the period
      ended March 31, 2007 and $184,613 for the period ended March 31,
      2006.  Such amounts have been included in the Statements of Operations
      in general and administrative and research and development
      expenses.





There
      were 275,000 and 0 options granted during the three month period ended March
      31,
      2007 and 2006, respectively.  The fair value of options at the date of
      grant was estimated using the Black-Scholes option pricing model. During the
      first quarter of 2007, the Company took into consideration guidance under SFAS
      No. 123R and SAB No. 107 when reviewing and updating assumptions. The expected
      volatility is based upon historical volatility of the Company's stock and other
      contributing factors. The expected term is based upon the contract life with
      non-employees.





The
      assumptions made in calculating the fair values of options are as
      follows:





Three
                Months Ended March 31,**2007**
            2006Black-Scholes
                weighted average assumptions:Expected
                dividend yield
            **0**
            0Expected
                volatility
            **100%**
            100%Risk
                free interest rate
            **4.56%-5.07%**
            4.82%Expected
                term (in years)
            **1-5
                years**
            4.75
                years





11
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**7****.**
            **Stock-Based
                Compensation**(cont'd)





**2007**
            
            
            2006**Shares**
              **Subject
                to Options**
            
            
            **Weighted
                Avg.**
              **Option
                Prices**
            
            
            **Shares**
              **Subject**
              **to
                Options**
            
            
            **Weighted
                Avg.**
              **Option
                Prices**Outstanding
                at January 1
            
            
            6,123,295
            
            
            $
            0.94
            
            
            
            5,770,000
            
            
            $
            0.84Granted
            
            
            275,000
            
            
            
            1.34
            
            
            
            –
            
            
            
            –Exercised
            
            
            –
            
            
            
            –
            
            
            
            (5,000
            )
            
            
            0.24Cancelled
            
            
            (207,500
            )
            
            
            1.20
            
            
            
            –
            
            
            
            –**Outstanding
                at March 31**
            
            ****
            **6,190,795**
            
            
            **$**
            **0.95**
            
            
            
            5,765,000
            
            
            $
            0.84





12
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**7****.**
            **Stock-Based
                Compensation**(cont'd)




**Shares**
                **Subject
                  to Options**
              
              
              **Weighted**
                **Avg.
                  Option Prices**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual
                  Term****Outstanding
                  at March 31, 2007**
              
              ****
              **6,190,795**
              
              
              **$**
              **0.95**
              
              **7.8
                  years****Exercisable
                  at March 31, 2007**
              
              ****
              **3,217,170**
              
              
              **$**
              **0.86**
              
              **7.3
                  years**




**Shares**
              **Subject**
              **to
                Options**
            
            
            **Weighted**
              **Avg.
                Option**
              **Prices**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**Outstanding
                at March 31, 2006
            
            
            5,765,000
            
            
            $
            0.84
            
            8.5
                yearsExercisable
                at March 31, 2006
            
            
            2,070,125
            
            
            $
            0.65
            
            7.9
                years





A
      total
      of 0 and 5,000 options were exercised during the first quarter of 2007 and
      2006,
      respectively.  The intrinsic value of the options exercised was $0 and
      $9,550 for the period ended March 31, 2007 and 2006, respectively.





As
      of
      March 31, 2007, there was $2,027,808 of total unrecognized compensation cost
      related to all unvested stock options, which is expected to be recognized over
      a
      weighted average vesting period of 1.4 years.





13
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**8.**
            **Income
                Taxes**




The
      components of deferred income taxes are as follows:





**March
                31, 2007**
            
            
            **December
                31, 2006**Deferred
                income tax assets:Net
                operating loss carryforwards
            
            **$**
            **8,368,536**
            
            
            **$**
            **7,918,491**Valuation
                allowance
            
            ****
            **(8,368,536**
            **)**
            
            ****
            **(7,918,491**
            **)**Deferred
                income taxes
            
            **$**
            **-**
            
            
            **$**
            **-**





The
      Company has tax losses available to be applied against future years
      income.  Due to the losses incurred in the current year and expected
      future operating results, management determined that it is more likely than
      not
      that the deferred tax asset resulting from the tax losses available for
      carryforward and stock option compensation expense will not be realized through
      the reduction of future income tax payments. Accordingly a 100% valuation
      allowance has been recorded for deferred income tax assets.





As
      of
      March 31, 2007 and 2006, the Company had approximately $22,022,462 and
      $14,774,728, respectively, of federal and state net operating loss carryforwards
      available to offset future taxable income; such carryforwards expire in various
      years through 2024.





**9.**
            **Commitments
                and Contingencies**





a)
            The
                Company has contracted with various vendors to provide research and
                development services. The terms of these agreements usually require
                an
                initiation fee and monthly or periodic payments over the terms of
                the
                agreement, ranging from 6 months to 24 months. The costs to be incurred
                are estimated and are subject to revision. As of March 31, 2007,
                the total
                value of these agreements was approximately $1,900,000 and the Company
                had
                made payments totaling $1,200,000 under the terms of the agreements
                as at
                March 31, 2007.  All of these agreements may be terminated by
                either party upon appropriate notice as stipulated in the respective
                agreements.





14
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**9.**
            **Commitments
                and
                Contingencies**(cont’d)





b)
            On
                April 19, 2006, the Company executed definitive agreements with Future
                Systems, Inc. ("FSI"), a Korean stock exchange (KOSDAQ) listed information
                technology company based in Seoul, Korea. Pursuant to the agreements,
                the
                Company would transfer to FSI exclusive rights and a non-exclusive
                license
                to develop, manufacture, and sell products based on Rexahn’s RX-0201,
                RX-0047 and RX-10100 drug candidates in certain territories for
                approximately $35.8 million, and simultaneously, FSI would issue
                and sell
                4,326,854 shares of its common stock to the Company, representing
                approximately 28% of FSI’s outstanding shares, after giving effect to the
                subscription. The investment, of approximately $35.8 million, would
                have
                made the Company the largest single stockholder of FSI. In addition,
                the
                Company entered into an agreement with FSI and Core F.G. Co., Ltd.,
                the
                general partner of Triplewin Corporate Restructuring Partnership,
                the
                then-current majority shareholder of FSI, with respect to the management
                of FSI in connection with redirecting FSI’s business focus to the
                biopharmaceutical industry. Completion of the transactions was subject
                to
                customary closing conditions, including approval by FSI
                shareholders.  On June 8, 2006, the Company terminated the agreements
                entered into with FSI and Core F.G. Co., Ltd., including a share
                subscription agreement, an intellectual property assignment and license
                agreement and a management agreement, providing for, among other
                things,
                the assignment and license by the Company to FSI of certain intellectual
                property rights for the Company's drug candidates in specified markets
                and
                the acquisition by the Company of an ownership interest in FSI. The
                termination followed a vote on the proposed transactions that was
                not
                approved by the FSI shareholders at a meeting in Seoul, Korea on
                June 7,
                2006.





c)
            On
                September 12, 2005 the Company and three of its key executives entered
                into employment agreements. Two of the three agreements expire on
                September 12, 2007 and result in an annual commitment of $360,000.
                One
                agreement expires on September 12, 2010 and results in an annual
                commitment of $350,000.





d)
            In
                April 2004, the Company signed a 5-year lease for 8,030 square feet
                of
                office space in Rockville, Maryland commencing July 2004. The lease
                requires annual base rents of $200,750 subject to annual increases
                of 3%
                of the preceding years adjusted base rent. Under the lease agreement,
                the
                Company also pays its allocable portion of real estate taxes and
                common
                area operating charges.





Minimum
                future rental payments under this lease as of March 31, 2007 are as
                follows:





Remainder
                of 2007
            
            $
            162,9242008
            
            
            224,8442009
            
            
            115,164$
            502,932




15
 ***Index***





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Condensed Financial Statements


Three
      Months Ended March 31, 2007 and 2006


(Unaudited)








**9.**
            **Commitments
                and Contingencies(cont’d)**





e)
            Regulation
                by governmental authorities in the United States and in other countries
                constitutes a significant consideration in our product development,
                manufacturing and marketing strategies. The Company expects that
                all of
                drug candidates will require regulatory approval by appropriate
                governmental agencies prior to commercialization and will be subjected
                to
                rigorous pre-clinical, clinical, and post-approval testing, as well
                as to
                other approval processes by the FDA and by similar health authorities
                in
                foreign countries. United States federal regulations control the
                ongoing
                safety, manufacture, storage, labeling, record keeping, and marketing
                of
                all biopharmaceutical products intended for therapeutic purposes.
                The
                Company believes that it is in compliance in all material respects
                with
                currently applicable rules and
                regulations.





f)
            On
                January 4, 2007, the Company signed an agreement with Interventure
                Co. Ltd
                (“Interventure”) engaging Interventure to provide financial and business
                consulting services to the Company. Per this agreement, the Company
                agreed
                to pay Interventure $20,000 upon closing of the financing of over
                $1,000,000 secured by Interventure. In addition, in the event of
                a
                financing is arranged by Interventure and successfully consummated
                by the
                Company, the Company agreed to pay Interventure a success fee of
                3% of
                total such financing. In accordance with the agreement, the contract
                duration is for a period of one
                year.





g)
            On
                February 1, 2007, the Company contracted with the University of Maryland
                Baltimore to develop polymer conjugates for cancer therapy.  In
                accordance with the agreement, the contract duration is 12 months
                for a
                total cost of $55,000.





h)
            On
                March 5, 2007, the Company entered into an agreement with Rx
                Communications Group LLC (“Rx”) for Rx to provide investor relations
                services to the Company. Under this agreement, the Company agreed
                to pay
                Rx a monthly fixed retainer amount of $10,000 commencing March 1,
                2007. In
                accordance with the agreement, the agreement continues until either
                party
                provides prior written notice of at least 30 days to the other party
                of
                its intention to terminate the
                agreement.




**10.**
            **Comparative
                Information**





Certain
      amounts for prior periods, as well as cumulative amounts during the development
      stage, have been reclassified to conform with the current period's financial
      statement presentation.





16
 ***Index***


**Item2.  MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





**OVERVIEW**





Our
      efforts and resources have been focused primarily on acquiring and developing
      our pharmaceutical technologies, raising capital and recruiting
      personnel.  We are a development stage company and have no product
      sales to date and we will not generate any product sales until we receive
      approval from the FDA or equivalent foreign regulatory bodies to begin selling
      our pharmaceutical candidates.  Our major sources of working capital
      have been proceeds from various private financings, primarily private sales
      of
      common stock and debt securities, and collaboration agreements with our
      strategic investors.





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





The
      following discussion should be read in conjunction with the unaudited
      consolidated financial statements and notes thereto set forth in Item 1 of
      this Quarterly Report.  This Quarterly Report contains statements
      accompanied by such phrases as "believe", "estimate", "expect", "anticipate",
      "may", "intend" and other similar expressions, that are "forward-looking
      statements" as defined in the Private Securities Litigation Reform Act of
      1995.  Actual results may differ materially from those projected as a
      result of certain risks and uncertainties, including but not limited to the
      following:





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


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


·
            successful
                and timely completion of clinical trials for our drug
                candidates;


·
            demand
                for and market acceptance of our drug
                candidates;


·
            the
                availability of qualified third-party researchers and manufacturers
                for
                our drug development programs;


·
            our
                ability to develop and obtain protection of our intellectual property;
                and


·
            other
                risks and uncertainties, including those detailed from time to time
                in our
                filings with the Securities and Exchange
                Commission.





These
      forward-looking statements are made only as of the date hereof, and we undertake
      no obligation to update or revise the forward-looking statements, whether as
      a
      result of new information, future events or otherwise.  The safe
      harbors for forward-looking statements provided by the Private Securities
      Litigation Reform Act are unavailable to issuers of "penny
      stock".  Our shares may be considered a penny stock and, as a result,
      the safe harbors may not be available to us.




**CRITICAL
      ACCOUNTING POLICIES**





A
      "critical accounting policy" is one which is both important to the portrayal
      of
      our financial condition and results and requires our management's most
      difficult, subjective or complex judgments, often as a result of the need to
      make estimates about the effect of matters that are inherently
      uncertain.  Our accounting policies are in accordance with United
      States generally accepted accounting principles, or GAAP, and their basis of
      application is consistent with that of the previous year.





***Use
      of Estimates***





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenues and expenses
      during the reporting period.  These estimates are based on
      management's best knowledge of current events and actions the Company may
      undertake in the future.  Actual results may ultimately differ from
      those estimates.  These estimates are reviewed periodically and as
      adjustments become necessary, they are reported in earnings in the period in
      which they become available.





17
 ***Index***





***Stock-Based
      Compensation***





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
      "Share-Based Payment" ("SFAS No. 123R").  This pronouncement amends
      SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes
      Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
      Issued to Employees".  SFAS No. 123R requires that companies account
      for awards of equity instruments issued to employees under the fair value method
      of accounting and recognize such amount in the statement of
      operations.  The implementation of this statement was effective
      January 1, 2006 and has been adopted by the Company using the modified
      prospective method.





For
      all
      non-employee stock-based compensation the Company uses the fair value method
      in
      accordance with SFAS No. 123 and EITF 96-18.





In
      management's opinion, existing stock option valuation models do not provide
      a
      reliable single measure of the fair value of employee stock options that have
      vesting provisions and are not transferable.  As option valuation
      models require the input of highly subjective assumptions, changes in such
      subjective assumptions can materially affect the fair value estimate of employee
      stock options.





Prior
      to
      the adoption of SFAS No. 123R, the Company used the intrinsic value method
      to
      account for stock-based compensation in accordance with APB Opinion No. 25
      and,
      as permitted by SFAS No. 123, provided pro forma disclosures of net loss
      and loss per common share as if the fair value methods had been applied in
      measuring compensation expense.  Under the intrinsic value method,
      compensation cost for employee stock awards is recognized as the excess, if
      any,
      of the deemed fair value for financial reporting purposes of our common stock
      on
      the date of grant over the amount an employee must pay to acquire the
      stock.  Compensation cost is amortized over the vesting period using
      an accelerated graded method in accordance with FASB Interpretation No. 28,
      "Accounting for Stock Appreciation Rights and Other Variable Stock Option or
      Award Plans".





Our
      results include non-cash compensation expense as a result of stock option
      grants.  For stock-based awards prior to January 1, 2006, we
      accounted for stock-based employee compensation arrangements in accordance
      with
      the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
      and comply with the disclosure provisions of SFAS No. 123, "Accounting for
      Stock-Based Compensation" ("SFAS No. 123").  Compensation expense for
      options granted to employees represents the difference between the fair market
      value of our common stock and the exercise price of the options at the date
      of
      grant.  This amount is being recorded over the respective vesting
      periods of the individual stock options.  We expect to record
      additional non-cash compensation expense in the future, which may be
      significant.  Compensation for options granted to non-employees has
      been determined in accordance with SFAS No. 123 and EITF 96-18, "Accounting
      for
      Equity Instruments that are Issued to Other Than Employees for Acquiring, or
      in
      Conjunction with Selling, Goods or Services," as the fair value of the equity
      instruments issued.





On
      August 5, 2003, the Company established a stock option plan.  The
      plan grants stock options to key employees, directors and consultants of the
      Company.  For grants prior to September 12, 2005 and grants to
      employees of the Company after September 12, 2005, the vesting period is
      30% after the first year, an additional 30% after the second year and the
      remaining 40% after the third year.  For grants to non-employee
      directors and consultants of the Company after September 12, 2005, the
      vesting period is 100% after the first year, subject to the fulfillment of
      certain conditions in the individual stock option grant agreements, or 100%
      upon
      the occurrence of certain events specified in the individual stock option grant
      agreements, subject to the fulfillment of certain conditions in the individual
      stock option grant agreements.





18
 ***Index***





The
      exercise prices of the options granted to employees were below the fair market
      value of the common stock on the date of the grant.  In
      December 2005, employees holding stock options that were not vested as of
      December 31, 2004 and stock options that were granted on or after
      January 1, 2005 agreed to amend the exercise prices of those options from
      $0.24 per share to $0.80 per share, the fair market value of the
      common stock (as determined by the board of directors), in order to comply
      with
      the requirements of Internal Revenue Code Section 409A.  The
      repricing of the options issued to employees was accounted as a cancellation
      of
      existing options and issuance of new options.  The effective date of
      this repricing was January 1, 2005.  The amendment was accounted
      for prospectively and resulted in a reversal of stock option compensation
      expense of $306,896 related to employee options recorded in the period from
      January 1, 2005 to September 30, 2005.  There was no impact
      on the Company's results of operations for the year ended December 31,
      2004.  Using the intrinsic value method, the total compensation cost
      for the year ended December 31, 2005 amounted to $0 (2004-$658,000) and is
      being amortized over the vesting period.





The
      options issued to certain non-employees accounted under the fair value method
      were similarly repriced as of January 1, 2005.  As a result,
      Stock Compensation expense of $158,531 recorded in the period from
      January 1, 2005 to September 30, 2005, related to non-employee options
      was reversed.  The stock compensation expense related to non-employees
      during 2005 was $436,748, after accounting for the repricing
      adjustment.





**RECENTLY
      ISSUED ACCOUNTING STANDARDS**





In
      June
      2006, FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for
      Uncertainty in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
      recognition threshold and measurement attributable for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance related to, among other things,
      classification, accounting for interest and penalties associated with tax
      positions and disclosure requirements.  The Company adopted FIN 48
      effective January 1, 2007 and there is no impact of adopting FIN 48 on the
      Company's financial statements to date.





19
 ***Index***





**RESULTS
      OF OPERATIONS**





**Comparison
      of Three Months Ended March 31, 2007 and 2006:**





***Total
      Revenues***





For
      the
      three months ended March 31, 2007 and 2006, we recorded revenues of $18,750
      from the recognition of deferred revenue from a $1,500,000 contribution made
      in
      2003 to us under a collaborative research agreement with Rexgene Biotech Co.,
      Ltd., a minority shareholder.  We recorded $54,591 of interest and
      other income from the investment of our cash and cash equivalents and other
      short-term investments for the three months ended March 31, 2007, compared
      to $111,192 for the same period in 2006.  The decrease of $56,601 in
      interest income of 51% in the three months ended March 31, 2007 compared to
      the same period in 2006 as a result of lower cash and cash equivalent balances
      during the 2007 period.





***General
      and Administrative Expenses***





General
      and administrative expenses consist primarily of salaries and related personnel
      and stock option compensation expenses for executive, finance and other
      administrative personnel, recruitment expenses, professional fees and other
      corporate expenses, including business development and general legal
      activities.





General
      and administrative expenses decreased $170,956, or 21%, from $804,682 for the
      three months ended March 31, 2006 to $633,726 for the three months ended
      March 31, 2007.  The decrease was primarily due to professional
      fees and expenses incurred during the 2006 periods related to preparing for
      compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and
      professional fees and expenses related to the Company's proposed transaction
      with Future Systems, Inc. in 2006 which did not recur in 2007.  Higher
      general and administrative expenses during the 2006 periods were also
      attributable to stock option compensation expense of $237,713 for the three
      months ended March 31, 2006 compared to $157,530 for the three months ended
      March 31, 2007.





***Research
      and Development Expenses***





Research
      and development expenses consist primarily of salaries and related personnel
      costs, fees paid to consultants and outside service providers for laboratory
      development and other expenses relating to the design, development, testing,
      and
      enhancement of our drug candidates.  We expense our research and
      development costs as they are incurred.





Research
      and development expenses decreased $1,325,734, or 70%, from $1,899,516 for
      the
      three months ended March 31, 2006 to $573,782 for the three months ended
      March 31, 2007.  The decrease was due primarily to the fact that
      several of our drug candidates underwent clinical trials in 2006 and we had
      taken preliminary steps to prepare other drug candidates for clinical trials
      during that time.  We expect that research and development expenses
      will increase as our other drug candidates move into the clinical trials phases
      of development.  Higher research and development expenses during the
      2006 period was also attributable to stock option compensation expense of
      $131,390 for the three months ended March 31, 2006 compared to $157,530 for
      the three months ended March 31, 2007.





***Patent
      Fees***





Our
      patent fees increased $14,435, or 74%, from $19,403 for the three months ended
      March 31, 2006 to $33,838 for the three months ended March 31,
      2007.  The increase during the 2007 period was due primarily to an
      increase in the number of patent filings made during the three months ended
      March 31, 2007 compared to the same period last year.





20
 ***Index***





***Interest
      Expense***





Interest
      expense decreased $60,452, or 100%, from $60,452 for the three months ended
      March 31, 2006 to $0 for the three months ended March 31,
      2007.  The decrease during the three month period ended March 31,
      2007 was primarily due to conversion of $3,850,000 principal amount of the
      Company's convertible notes into common stock in May 2006.





***Interest
      Income***





Interest
      income decreased $56,601, or 51%, from $111,192 for the three months ended
      March 31, 2006 to $54,591 for the three months ended March 31,
      2007.  The decrease during the three month period ended March 31,
      2007 was primarily due to higher cash and cash equivalent balances in the same
      period last year.





***Depreciation
      and Amortization***





Depreciation
      and amortization expenses decreased $4,755, or 22%, from $21,077 for the three
      months ended March 31, 2006 to $16,322 for the three months ended
      March 31, 2007.  The decrease was due primarily to amortization
      of fixed assets.





***Net
      Loss***





As
      a
      result of the above, the net loss for the three months ended March 31, 2007
      was $1,184,327, or $0.02****per share, compared to a net loss
      of $2,675,188, or $0.06 per share, for the three months ended March 31,
      2006.





**Research
      and Development Projects**





Research
      and development costs are expensed as incurred.  Research and
      development expenses consist primarily of salaries and related personnel costs,
      costs to acquire pharmaceutical products and product rights for development
      and
      amounts paid to contract research organizations, hospitals and laboratories
      for
      the provision of services and materials for drug development and clinical
      trials.  Costs incurred in obtaining the license rights to technology
      in the research and development stage and that have no alternative future uses
      are expensed as incurred.  Our research and development programs are
      related to our five lead drug candidates, Archexin (which was previously
      referred to as RX-0201), RX-0047, RX-5902, Serdaxin and Zoraxel (Serdaxin and
      Zoraxel were previously referred to as RX-10100).





We
      have
      allocated direct and indirect costs to each program based on certain assumptions
      and our review of the status of each program, payroll-related expenses and
      other
      overhead costs based on estimated usage by each program.  Each of our
      lead drug candidates is in various stages of completion as described
      below.  As we expand our clinical studies, we will enter into
      additional development agreements.  Significant additional
      expenditures will be required if we complete our clinical trials, start new
      trials, apply for regulatory approvals, continue development of our
      technologies, expand our operations and bring our products to
      market.  The eventual total cost of each clinical trial is dependent
      on a number of uncertainties such as trial design, the length of the trial,
      the
      number of clinical sites and the number of patients.  The process of
      obtaining and maintaining regulatory approvals for new therapeutic products
      is
      lengthy, expensive and uncertain.  Because the successful development
      of our most advanced drug candidates, Archexin, Serdaxin and Zoraxel, is
      uncertain, and because RX-0047 and RX-5902 are in early-stage development,
      we
      are unable to estimate the costs of completing our research and development
      programs, the timing of bringing such programs to market and, therefore, when
      material cash inflows could commence from the sale of these drug
      candidates.





21
 ***Index***





***Archexin***





In
      October 2006, we announced the conclusion of the Phase I clinical trial of
      Archexin, our leading drug candidate.  The costs incurred for the
      clinical trial was approximately $1,500,000.





The
      Phase
      I clinical trial of Archexin, which took place at Georgetown University's
      Lombardi Cancer Center beginning in September 2004 and at the University of
      Alabama at Birmingham beginning in August 2005, was primarily to determine
      the safety and tolerability of the drug in patients with advanced
      cancer.  We expect to file a complete final report of Phase I results
      with the Food and Drug Administration this year.





As
      the
      main purpose of the clinical trial was to establish the safety of Archexin,
      the
      parameters that determined the completion of this project were a direct function
      of the safety profile of this compound in humans.  As this was the
      first time that Archexin had been administered to humans, the safety profile
      in
      humans was unknown and therefore, the number of doses required to determine
      the
      dosage at which the FDA safety endpoints would be met was
      estimated.





The
      Phase
      II clinical trial of Archexin is expected to begin this year in patients with
      advanced renal cell carcinoma who have failed previous
      treatments.  The trial is the first of multiple trials planned for
      Archexin.  We estimate that the Phase II trials will be completed in
      2009 and will require approximately $5,000,000.  In January 2005,
      we received "orphan drug designation" from the FDA for Archexin for five cancer
      indications, including renal cell carcinoma, ovarian cancer, glioblastoma,
      stomach cancer, and pancreatic cancer.  The orphan drug program is
      intended to provide patients with faster access to drug therapies for diseases
      and conditions that affect fewer than 200,000 people.  Companies that
      receive orphan drug designation are provided an accelerated review process,
      tax
      advantages, and seven years of market exclusivity in the United
      States.  In the future, we plan to apply Archexin to the treatment of
      other orphan indications and other cancers.





***Serdaxin
      and Zoraxel***





Serdaxin
      and Zoraxel are scheduled to enter Phase II trials in 2007, subject to obtaining
      sufficient additional financing.  We currently estimate that these
      studies will require approximately $4,000,000 and $3,000,000,
      respectively.





***RX-0047
      and RX-5902***





RX-0047
      and RX-5902 are both in a pre-clinical stage of development and the next
      scheduled program for each compound is a pre-clinical toxicology study required
      prior to submission of an Investigational New Drug ("IND") application to
      the FDA.  Through March 31, 2007, the costs incurred for development
      of these compounds to date have been approximately $800,000 for RX-0047, and
      $300,000 for RX-5902.  The estimated cost to complete pre-clinical
      toxicology and Phase I clinical trials is estimated to be approximately
      $1,500,000 per compound for a total of $3,000,000.  These
      compounds may be entered into these Phase I clinical trials in
      2008.





The
      conduct of the clinical trial and toxicology studies described above are being
      accomplished in conjunction with third-party clinical research organizations,
      or
      CROs, at external locations.  This business practice is typical for
      the pharmaceutical industry and companies like us.  As a result, the
      risk of completion or delay of these studies is not within our direct control
      and a program delay may occur due to circumstances outside our
      control.  A delay in any of these programs may not necessarily have a
      direct impact on our daily operations.  However, to the extent that a
      delay results in additional cost to us, a higher than expected expense may
      result.





22
 ***Index***





**LIQUIDITY
      AND CAPITAL RESOURCES**





Cash
      used
      in operating activities was $837,952 for the three months ended March 31,
      2007 compared to cash used in operating activities of $2,226,783 for the same
      period ended March 31, 2006.  The operating cash flows during the
      three months ended March 31, 2007 reflect our loss from operations of
      $1,184,327, offset by non-cash charges of $286,491 and a net decrease in cash
      components of working capital of $59,884.  Non-cash charges consist of
      depreciation and amortization of $16,322, stock option compensation expense
      of
      $288,920 and amortization of deferred revenue of $(18,750).  The
      decrease in working capital primarily consists of a $22,609 increase in accounts
      payable and accrued expenses and an a decrease of $37,275 to prepaid and other
      assets.





There
      was
      no cash used in investing activities during the three months ended
      March 31, 2007 Cash used in financing activities of $42,973 during the
      three months ended March 31, 2006 consisted of principal payments on
      long-term debt of $44,173 offset by proceeds from the issuance of common
      stock.  There was no cash used in financing activities during the
      three months ended March 31, 2007.





For
      the
      three months ended March 31, 2007, and the years ended December 31,
      2006 and 2005, we experienced net losses of $1,184,327, $6,486,003 and
      $6,349,540, respectively.  Our accumulated deficit as of
      March 31, 2007, and December 31, 2006 and 2005 was $21,874,653,
      $20,690,326 and $14,204,323, respectively.





We
      have
      financed our operations since inception primarily through equity and convertible
      debt financings and interest income from investments of cash and cash
      equivalents.  During the three months ended March 31, 2007, we
      had a net decrease in cash and cash equivalents of $837,952 resulting from
      the
      cash used in operating activities. Total cash and cash equivalents as of
      March 31, 2007 were $3,196,108 compared to $4,034,060 as of
      December 31, 2006.





For
      the
      foreseeable future, we will have to fund all of our operations and capital
      expenditures from the net proceeds of equity or debt offerings we may have,
      cash
      on hand, licensing fees and grants.  Although we have plans to pursue
      additional financing, there can be no assurance that we will be able to secure
      financing when needed or obtain such financing on terms satisfactory to us,
      if
      at all, or that any additional funding we do obtain will be sufficient to meet
      our needs in the long term.





**CONTRACTUAL
      OBLIGATIONS**





On
      August 17, 2004, we entered into an agreement with Formatech, Inc. to
      monitor and perform stability studies on our drug candidate,
      Archexin.  The total cost of these services is $46,700.  For
      the three months ended March 31, 2007 and the years ended December 31,
      2006 and 2005, we paid $0, $5,200 and $10,400, respectively, towards the cost
      of
      these studies.  A payment of $8,200 is due during 2007.





In
      April 2004, we signed a 5-year lease for 8,030 square feet of office space
      in Rockville, Maryland commencing July 2004.  The lease requires
      annual base rents of $200,750 subject to annual increases of 3% of the preceding
      years adjusted base rent.  Under the leasing agreement, we also pay
      our allocable portion of real estate taxes and common area operating
      charges.





23
 ***Index***





Minimum
      future rental payments under this lease as of March 31, 2007 are as
      follows:





Remainder
              of 2007
            
            $
            162,9242008
            
            
            224,8442009
            
            
            115,164$
            502,932





On
      January 6, 2006, we contracted with Amarex, LLC to conduct Phase II
      clinical studies.  In accordance with the agreement, the estimated
      contract duration is 24 months for a total cost of $596,244 plus pass
      through expenses.  The service costs are payable in 24 monthly
      payments of $18,633 plus an initiation fee of $149,061 due upon
      signing.  We paid $56,579 and $361,973 towards the cost of the study
      in the three months ended March 31, 2007 and in the year ended
      December 31, 2006, respectively.




On
      April 3, 2006, we contracted with UPM Pharmaceuticals, Inc. to develop a
      short-acting extended release formulation for Serdaxin and
      Zoraxel.  In accordance with the agreement, the estimated contract
      duration is seven months for an estimated cost of $443,975 plus pass through
      expenses, of which $2,773 and $112,124 was paid during the three months ended
      March 31, 2007 and the year ended December 31, 2006,
      respectively.  The service costs are payable based upon a payment
      schedule related to certain milestones.




On
      February 1, 2007, we contracted with the University of Maryland Baltimore to
      develop polymer conjugates for cancer therapy.  In accordance with the
      agreement, the contract duration is 12 months for a total cost of $55,000,
      all
      of which was paid in April 2007.




Although
      we currently believe that our cash and cash equivalents will be sufficient
      to
      meet our minimum planned operating needs for the next 12 months, including
      the amounts payable under the contractual commitments described above, as our
      drug candidates move into the clinical trials phase of development, we expect
      to
      enter into additional agreements of the same type, which may require additional
      contractual commitments.  These additional commitments may have a
      negative impact on our future cash flows.




**CURRENT
      AND FUTURE FINANCING NEEDS**





We
      have
      incurred negative cash flow from operations since we started our
      business.  We have spent, and expect to continue to spend, substantial
      amounts in connection with implementing our business strategy, including our
      planned product development efforts, our clinical trials, and our research
      and
      development efforts.  Based on our current plans and our capital
      resources, we believe that our cash and cash equivalents will be sufficient
      to
      enable us to meet our minimum planned operating needs for at least the next
      12 months, which would entail focusing our resources on Phase II clinical
      trials of Archexin.  Over the next 12 months we expect to spend a
      minimum of approximately $1.0 million on clinical development for Phase II
      clinical trials of Archexin, $2.6 million on general corporate expenses,
      and approximately $216,000 on facilities rent.  We plan to initiate,
      subject to obtaining sufficient additional financing, Phase II clinical trials
      of Serdaxin and Zoraxel beginning in the second half of 2007 at an additional
      cost of up to approximately $3 million.  We may seek additional
      financing to implement and fund other drug candidate development, clinical
      trial
      and research and development efforts to the maximum extent of our operating
      plan, including in-vivo animal and pre-clinical studies and Phase I clinical
      trials for RX-5902, Phase II clinical trials for new product candidates, as
      well
      as other research and development projects, which together with the minimum
      operating plan for the next 12 months, could aggregate up to
      $7 million through the first quarter of 2008.





24
 ***Index***








However,
      the actual amount of funds we will need to operate is subject to many factors,
      some of which are beyond our control.  These factors include the
      following:





·
            the
                progress of our product development
                activities;





·
            the
                number and scope of our product development
                programs;





·
            the
                progress of our pre-clinical and clinical trial
                activities;





·
            the
                progress of the development efforts of parties with whom we have
                entered
                into collaboration agreements;





·
            our
                ability to maintain current collaboration programs and to establish
                new
                collaboration arrangements;





·
            the
                costs involved in prosecuting and enforcing patent claims and other
                intellectual property rights; and





·
            the
                costs and timing of regulatory
                approvals.





**IMPACT
      OF INFLATION**





To
      date
      inflationary factors have not had a significant effect on our
      operations.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      have any off-balance sheet arrangements.





**CERTAIN
      BUSINESS RISKS**





***We
      currently have no product revenues and will need to raise additional capital
      to
      operate our business.***





To
      date,
      we have generated no product revenues.  Until we receive approval from
      the FDA and other regulatory authorities for our drug candidates, we cannot
      sell
      our drugs and will not have product revenues.  Therefore, for the
      foreseeable future, we will have to fund all of our operations and capital
      expenditures from the net proceeds of equity or debt offerings we may make,
      cash
      on hand, licensing fees and grants.  Over the next year we expect to
      spend approximately $1 million on clinical development for Phase II
      clinical trials of Archexin.  Based on our current plans and our
      capital resources, we believe that our cash and cash equivalents will be
      sufficient to enable us to meet our planned operating needs for at least the
      next year, including the clinical trials of Archexin.  We plan to
      initiate, subject to obtaining sufficient additional financing, Phase II
      clinical trials of Serdaxin and Zoraxel beginning in the second half of 2007
      at
      an additional cost of up to approximately $3 million.





However,
      changes may occur that would consume our existing capital at a faster rate
      than
      projected, including but not limited to, the progress of our research and
      development efforts, the cost and timing of regulatory approvals and the costs
      of protecting our intellectual property rights.  We may seek
      additional financing to implement and fund other drug candidate development,
      clinical trial and research and development efforts, including Phase I clinical
      trials for other new drug candidates, as well as other research and development
      projects, which together with the current operating plan for the next year,
      could aggregate up to $7 million through the first quarter of
      2008.





25
 ***Index***





We
      will
      need additional financing to continue to develop our drug candidates, which
      may
      not be available on favorable terms, if at all.  If we are unable to
      secure additional financing in the future on acceptable terms, or at all, we
      may
      be unable to complete our planned pre-clinical and clinical trials or obtain
      approval of our drug candidates from the FDA and other regulatory
      authorities.  In addition, we may be forced to reduce or discontinue
      product development or product licensing, reduce or forego sales and marketing
      efforts and forego attractive business opportunities in order to improve our
      liquidity to enable us to continue operations.  Any additional sources
      of financing will likely involve the sale of our equity securities or securities
      convertible into our equity securities, which may have a dilutive effect on
      our
      stockholders.





***We
      are not currently profitable and may never become
      profitable.***





We
      have
      generated no revenues to date from product sales.  Our accumulated
      deficit as of March 31, 2007 and December 31, 2006 was $21,874,653 and
      $20,690,326, respectively.  For the three months ended March 31,
      2007 and the year ended December 31, 2006, we had net losses of $1,184,327
      and $6,486,003, respectively, primarily as a result of expenses incurred through
      a combination of research and development activities related to the various
      technologies under our control and expenses supporting those
      activities.  Even if we succeed in developing and commercializing one
      or more of our drug candidates, we expect to incur substantial losses for the
      foreseeable future and may never become profitable.  We also expect to
      continue to incur significant operating and capital expenditures and anticipate
      that our expenses will increase substantially in the foreseeable future, based
      on the following considerations:





·
            continued
                pre-clinical development and clinical trials for our current and
                new drug
                candidates;





·
            efforts
                to seek regulatory approvals for our drug
                candidates;





·
            implementing
                additional internal systems and
                infrastructure;





·
            licensing
                in additional technologies to develop;
                and





·
            hiring
                additional personnel.





We
      also
      expect to continue to experience negative cash flow for the foreseeable future
      as we fund our operating losses and capital expenditures.  As a
      result, we will need to generate significant revenues in order to achieve
      profitability.





***We
      have a limited operating history.***





We
      are a
      development-stage company with a limited number of drug
      candidates.  To date, we have not demonstrated an ability to perform
      the functions necessary for the successful commercialization of any of our
      drug
      candidates.  The successful commercialization of our drug candidates
      will require us to perform a variety of functions, including, but not limited
      to:





·
            conducting
                pre-clinical and clinical trials;





·
            participating
                in regulatory approval processes;





·
            formulating
                and manufacturing products; and





·
            conducting
                sales and marketing activities.





To
      date,
      our operations have been limited to organizing and staffing our company,
      acquiring, developing and securing our proprietary technology and undertaking,
      through third parties, pre-clinical trials and clinical trials of our principal
      drug candidates.  These operations provide a limited basis for
      assessment of our ability to commercialize drug candidates.





26
 ***Index***





***We
      may not obtain the necessary U.S. or worldwide regulatory approvals to
      commercialize our drug candidates.***





We
      will
      need FDA approval to commercialize our drug candidates in the U.S. and
      approvals from the FDA-equivalent regulatory authorities in foreign
      jurisdictions to commercialize our drug candidates in those
      jurisdictions.  In order to obtain FDA approval of our drug
      candidates, we must submit to the FDA a New Drug Application
      ("NDA") demonstrating that the drug candidate is safe for humans and
      effective for its intended use.  This demonstration requires
      significant research and animal tests, which are referred to as pre-clinical
      studies, as well as human tests, which are referred to as clinical
      trials.  Satisfaction of the FDA's regulatory requirements typically
      takes many years, and depends upon the type, complexity and novelty of the
      drug
      candidate and requires substantial resources for research, development and
      testing.  We cannot predict whether our research and clinical
      approaches will result in drugs that the FDA considers safe for humans and
      effective for indicated uses.  Two of our drug candidates, Archexin
      and RX-0047, are ASO compounds.  To date, the FDA has not approved any
      NDAs for any ASO compounds.  In addition, both Archexin and RX-0047
      are of a drug class (Akt inhibitor, in the case of Archexin, and HIF
      inhibitor, in the case of RX-0047) that has not been approved by the FDA to
      date.  After the clinical trials are completed, the FDA has
      substantial discretion in the drug approval process and may require us to
      conduct additional pre-clinical and clinical testing or to perform
      post-marketing studies.





In
      foreign jurisdictions, we must receive approval from the appropriate regulatory
      authorities before we can commercialize our drugs.  Foreign regulatory
      approval processes generally include all of the risks associated with the FDA
      approval procedures described above.  We cannot assure you that we
      will receive the approvals necessary to commercialize our drug candidates for
      sale outside the United States.





***Our
      drug candidates are in early stages of clinical
      trials.***





Our
      drug
      candidates are in an early stage of development and require extensive clinical
      testing, which are very expensive, time-consuming and difficult to
      design.  In 2007, we expect Archexin, an oncology drug candidate, to
      enter Phase II clinical trials.  We plan to initiate, subject to
      obtaining sufficient additional financing, Phase II clinical trials of Serdaxin
      and Zoraxel, neuroscience and sexual dysfunction drug candidates, beginning
      in
      the second half of 2007.





***Clinical
      trials are very expensive, time-consuming and difficult to design and
      implement.***





Human
      clinical trials are very expensive and difficult to design and implement, in
      part because they are subject to rigorous regulatory
      requirements.  The clinical trial process is also time
      consuming.  We estimate that clinical trials of our current drug
      candidates will take at least three years to complete.  Furthermore,
      failure can occur at any stage of the trials, and we could encounter problems
      that cause us to abandon or repeat clinical trials.  The commencement
      and completion of clinical trials may be delayed by several factors, including,
      but not limited to:





·
            unforeseen
                safety issues;





·
            determination
                of dosing issues;





·
            lack
                of effectiveness during clinical
                trials;





·
            reliance
                on third party suppliers for the supply of drug candidate
                samples;





·
            slower
                than expected rates of patient
                recruitment;





·
            inability
                to monitor patients adequately during or after
                treatment;





·
            inability
                or unwillingness of medical investigators and institutional review
                boards
                to follow our clinical protocols;
                and





·
            lack
                of sufficient funding to finance the clinical
                trials.





27
 ***Index***





In
      addition, we or the FDA may suspend clinical trials at any time if it appears
      that we are exposing participants to unacceptable health risks or if the FDA
      finds deficiencies in our IND submissions or the conduct of these
      trials.





***If
      the results of our clinical trials fail to support our drug candidate claims,
      the completion of development of such drug candidate may be significantly
      delayed or we may be forced to abandon development altogether, which will
      significantly impair our ability to generate product
      revenues.***





Even
      if
      our clinical trials are completed as planned, we cannot be certain that our
      results will support our drug candidate claims.  Success in
      pre-clinical testing and early clinical trials does not ensure that later
      clinical trials will be successful, and we cannot be sure that the results
      of
      later clinical trials will replicate the results of prior clinical trials and
      pre-clinical testing.  The clinical trial process may fail to
      demonstrate that our drug candidates are safe for humans and effective for
      indicated uses.  This failure would cause us to abandon a drug
      candidate and may delay development of other drug candidates.  Any
      delay in, or termination of, our clinical trials will delay the filing of our
      NDAs with the FDA and, ultimately, delay our ability to commercialize our drug
      candidates and generate product revenues.  In addition, our trial
      designs may involve a small patient population.  Because of the small
      sample size, the results of early clinical trials may not be indicative of
      future results.





***If
      physicians and patients do not accept and use our drugs, our ability to generate
      revenue from sales of our products will be materially
      impaired.***





Even
      if
      the FDA approves our drug candidates, physicians and patients may not accept
      and
      use them.  Future acceptance and use of our products will depend upon
      a number of factors including:





·
            awareness
                of the drug's availability and
                benefits;





·
            perceptions
                by members of the health care community, including physicians, about
                the
                safety and effectiveness of our
                drugs;





·
            pharmacological
                benefit and cost-effectiveness of our product relative to competing
                products;





·
            availability
                of reimbursement for our products from government or other healthcare
                payers;





·
            effectiveness
                of marketing and distribution efforts by us and our licensees and
                distributors, if any; and





·
            the
                price at which we sell our
                products.





Because
      we expect sales of our current drug candidates, if approved, to generate
      substantially all of our product revenues for the foreseeable future, the
      failure of any of these drugs to find market acceptance would harm our business
      and could require us to seek additional financing.





***Much
      of our drug development program depends upon third-party researchers, and the
      results of our clinical trials and such research activities are, to a limited
      extent, beyond our control.***





We
      depend
      upon independent investigators and collaborators, such as universities and
      medical institutions, to conduct our pre-clinical and clinical trials and
      toxicology studies.  This business practice is typical for the
      pharmaceutical industry and companies like us.  For example, the
      Phase I clinical trials of Archexin were conducted at the Lombardi
      Comprehensive Cancer Center of Georgetown Medical Center and the University
      of
      Alabama at Birmingham, with the assistance of Amarex, LLC, a pharmaceutical
      clinical research service provider who is responsible for creating the reports
      that will be submitted to the FDA.  We also relied on TherImmune
      Research Corporation (now named Bridge Global Pharmaceutical Services, Inc.),
      a
      discovery and pre-clinical service provider, to summarize Archexin 's
      pre-clinical data.  While we make every effort internally to oversee
      their work, these collaborators are not our employees and we cannot control
      the
      amount or timing of resources that they devote to our programs.  These
      investigators may not assign priority to our programs or pursue them as
      diligently as we would if we were undertaking such programs
      ourselves.  If outside collaborators fail to devote sufficient time
      and resources to our drug-development programs, or if their performance is
      substandard, the approval of our FDA applications, if any, and our introduction
      of new drugs, if any, may be delayed.  The risk of completion or delay
      of these studies is not within our direct control and a program delay may occur
      due to circumstances outside our control.  A delay in any of these
      programs may not necessarily have a direct impact on our daily
      operations.  However, to the extent that a delay results in additional
      cost to us, a higher than expected expense may result.  These
      collaborators may also have relationships with other commercial entities, some
      of whom may compete with us.  If our collaborators assist our
      competitors at our expense, our competitive position would be
      harmed.





28
 ***Index***




***We
      rely exclusively on third parties to formulate and manufacture our drug
      candidates, which expose us to a number of risks that may delay development,
      regulatory approval and commercialization of our products or result in higher
      product costs.***





We
      have
      no experience in drug formulation or manufacturing.  Internally, we
      lack the resources and expertise to formulate or manufacture our own drug
      candidates.  Therefore, we rely on third party expertise to support us
      in this area.  For example, we have entered into contracts with
      third-party manufacturers such as Raylo Chemicals Inc., Formatech, Inc., Avecia
      Biotechnology Inc. and UPM Pharmaceuticals, Inc. to manufacture, supply, store
      and distribute supplies of our drug candidates for our clinical
      trials.  If any of our drug candidates receive FDA approval, we will
      rely on these or other third-party contractors to manufacture our
      drugs.  Our reliance on third-party manufacturers exposes us to the
      following potential risks:





·
            We
                may be unable to identify manufacturers on acceptable terms or at
                all
                because the number of potential manufacturers is limited and the
                FDA must
                approve any replacement contractor.  This approval would require
                new testing and compliance inspections.  In addition, a new
                manufacturer would have to be educated in, or develop substantially
                equivalent processes for, the production of our products after receipt
                of
                FDA approval, if any.





·
            Our
                third-party manufacturers might be unable to formulate and manufacture
                our
                drugs in the volume and of the quality required to meet our clinical
                needs
                and commercial needs.





·
            Our
                contract manufacturers may not perform as agreed or may not remain
                in the
                contract manufacturing business for the time required to supply our
                clinical trials or to successfully produce, store and distribute
                our
                products.





·
            Drug
                manufacturers are subject to ongoing periodic unannounced inspection
                by
                the FDA, the Drug Enforcement Agency ("DEA"), and corresponding state
                agencies to ensure strict compliance with good manufacturing practice
                and
                other government regulations and corresponding foreign
                standards.  We do not have control over third-party
                manufacturers' compliance with these regulations and standards, but
                we may
                be ultimately responsible for any of their
                failures.





·
            If
                any third-party manufacturer makes improvements in the manufacturing
                process for our products, we may not own, or may have to share, the
                intellectual property rights to the
                innovation.





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





***We
      have no experience selling, marketing or distributing products and currently
      no
      internal capability to do so.***





We
      currently have no sales, marketing or distribution
      capabilities.  While we intend to have a role in the commercialization
      of our products, we do not anticipate having the resources in the foreseeable
      future to globally develop sales and marketing capabilities for all of our
      proposed products.  Our future success depends, in part, on our
      ability to enter into and maintain collaborative relationships with other
      companies having sales, marketing and distribution capabilities, the
      collaborator's strategic interest in the products under development and such
      collaborator's ability to successfully market and sell any such
      products.  To the extent that we decide not to, or are unable to,
      enter into collaborative arrangements with respect to the sales and marketing
      of
      our proposed products, significant capital expenditures, management resources
      and time will be required to establish and develop an in-house marketing and
      sales force with technical expertise.  We cannot assure you that we
      will be able to establish or maintain relationships with third party
      collaborators or develop in-house sales and distribution
      capabilities.  To the extent that we depend on third parties for
      marketing and distribution, any revenues we receive will depend upon the efforts
      of such third parties, as well as the terms of its agreements with such third
      parties, which cannot be predicted at this early stage of our
      development.  We cannot assure you that such efforts will be
      successful.  In addition, we cannot assure you that we will be able to
      market and sell our products in the United States or overseas.





29
 ***Index***




***Developments
      by competitors may render our products or technologies obsolete or
      non-competitive.***





We
      will
      compete against fully integrated pharmaceutical companies and smaller companies
      that are collaborating with larger pharmaceutical companies, academic
      institutions, government agencies and other public and private research
      organizations, such as Keryx Biopharmaceuticals,  Genta Incorporated
      and Imclone Systems Incorporated.  In addition, many of these
      competitors, either alone or together with their collaborative partners, operate
      larger research and development programs or have substantially greater financial
      resources than we do, as well as more experience in:





·
            developing
                drugs;





·
            undertaking
                pre-clinical testing and human clinical
                trials;





·
            obtaining
                FDA and other regulatory approvals of
                drugs;





·
            formulating
                and manufacturing drugs; and





·
            launching,
                marketing and selling drugs.





Large
      pharmaceutical companies such as Bristol-Myers, Squibb, Eli-Lilly, Novartis
      and
      Glaxo-SmithKline currently sell both generic and proprietary compounds for
      the
      treatment of cancer.  In addition, companies pursuing different but
      related fields represent substantial competition.  Many of these
      organizations have substantially greater capital resources, larger research
      and
      development staffs and facilities, longer drug development history in obtaining
      regulatory approvals and greater manufacturing and marketing capabilities than
      we do.  These organizations also compete with us to attract qualified
      personnel, parties for acquisitions, joint ventures or other
      collaborations.





***If
      we fail to adequately protect or enforce our intellectual property rights or
      secure rights to patents of others, the value of our intellectual property
      rights would diminish and our business and competitive position would
      suffer.***





Our
      success, competitive position and future revenues will depend in part on our
      ability and the abilities of our licensors to obtain and maintain patent
      protection for our products, methods, processes and other technologies, to
      preserve our trade secrets, to prevent third parties from infringing on our
      proprietary rights and to operate without infringing the proprietary rights
      of
      third parties.  We have filed U.S. and PCT patent applications
      for anti-Akt compounds, including Archexin, anti-HIF compounds, including
      RX-0047.  In November 2006, we were granted a U.S. patent
      for our anti-Akt compounds, including Archexin.  The patent covers the
      nucleotide sequences of the anti-sense compounds that target and inhibit the
      expression of Akt in human tissues or cells.  The patent also covers
      the method of using the compounds to induce cytotoxicity in cancer
      cells.  We have also filed three U.S. provisional patent
      applications for new anti-cancer quinazoline compounds, new anti-cancer
      nucleoside products and a drug target, cenexin, a polo-box binding
      protein.  In December 2004, we also filed two Korean patent
      applications for new anti-cancer piperazine compounds.  Through our
      licensing agreement with Revaax, we hold exclusive rights to five patents and
      14
      patent applications, with respect to certain chemical structures related to
      antibiotics, but without antibiotic efficacy.  However, we cannot
      predict:





30
 ***Index***




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





·
            if
                and when patents will be issued;





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





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





Our
      success also depends upon the skills, knowledge and experience of our scientific
      and technical personnel, our consultants and advisors as well as our licensors
      and contractors.  To help protect our proprietary know-how and our
      inventions for which patents may be unobtainable or difficult to obtain, we
      rely
      on trade secret protection and confidentiality agreements.  To this
      end, we require all employees to enter into agreements that prohibit the
      disclosure of confidential information and, where applicable, require disclosure
      and assignment to us of the ideas, developments, discoveries and inventions
      important to our business.  These agreements may not provide adequate
      protection for our trade secrets, know-how or other proprietary information
      in
      the event of any unauthorized use or disclosure or the lawful development by
      others of such information.  If any of our trade secrets, know-how or
      other proprietary information is disclosed, the value of our trade secrets,
      know-how and other proprietary rights would be significantly impaired and our
      business and competitive position would suffer.





***If
      we infringe the rights of third parties we could be prevented from selling
      products and be forced to pay damages and defend against
      litigation.***





If
      our
      products, methods, processes and other technologies infringe the proprietary
      rights of other parties, we could incur substantial costs and may have
      to:





·
            obtain
                licenses, which may not be available on commercially reasonable terms,
                if
                at all;





·
            redesign
                our products or processes to avoid
                infringement;





·
            stop
                using the subject matter claimed in the patents held by others, which
                could cause us to lose the use of one or more of our drug
                candidates;





·
            pay
                damages; or





·
            defend
                litigation or administrative proceedings which may be costly whether
                we
                win or lose, and which could result in a substantial diversion of
                our
                management resources.





Although
      to date, we have not received any claims of infringement by any third parties,
      as our drug candidates move into clinical trials and commercialization, our
      public profile and that of our drug candidates may be raised and generate such
      claims.





***Our
      license agreement with Revaax may be terminated in the event we commit a
      material breach, the result of which would significantly harm our business
      prospects.***





Our
      license agreement with Revaax is subject to termination by Revaax if we
      materially breach our obligations under the agreement, including breaches with
      respect to certain installment payments and royalty payments, if such breaches
      are not cured within a 60-day period.  The agreement also provides
      that it may be terminated if we become involved in a bankruptcy, insolvency
      or
      similar proceeding.  If this license agreement is terminated, we will
      lose all of our rights to develop and commercialize the licensed compounds,
      including Serdaxin and Zoraxel, which would significantly harm our business
      and
      future prospects.




31
 ***Index***




***If
        we are unable to successfully manage our growth, our business may be
        harmed.***


In
      addition to our own internally developed drug candidates, we proactively seek
      opportunities to license in and advance compounds in oncology and other
      therapeutic areas that are strategic and have value creating potential to take
      advantage of our development know-how.  We are actively pursuing
      additional drug candidates to acquire for development.  Such
      additional drug candidates could significantly increase our capital requirements
      and place further strain on the time of our existing personnel, which may delay
      or otherwise adversely affect the development of our existing drug
      candidates.  Alternatively, we may be required to hire more employees,
      further increasing the size of our organization and related
      expenses.  If we are unable to manage our growth effectively, we may
      not efficiently use our resources, which may delay the development of our drug
      candidates and negatively impact our business, results of operations and
      financial condition.





***We
      may not be able to attract and retain qualified personnel necessary for the
      development and commercialization of our drug candidates.  Our success
      may be negatively impacted if key personnel leave.***





Attracting
      and retaining qualified personnel will be critical to our future
      success.  We compete for qualified individuals with numerous
      biopharmaceutical companies, universities and other research
      institutions.  Competition for such individuals is intense, and we
      cannot assure you that we will be successful.





The
      loss
      of the technical knowledge and management and industry expertise of any of
      our
      key personnel, especially Dr. Chang H. Ahn, our Chairman and Chief
      Executive Officer and regulatory expert, could result in delays in product
      development and diversion of management resources, which could adversely affect
      our operating results.  We do not have "key person" life insurance
      policies for any of our officers.





***We
      may incur substantial liabilities and may be required to limit commercialization
      of our products in response to product liability
      lawsuits.***





The
      testing and marketing of medical products entail an inherent risk of product
      liability.  If we cannot successfully defend ourselves against product
      liability claims, we may incur substantial liabilities or be required to limit
      commercialization of our products.  Our inability to obtain sufficient
      product liability insurance at an acceptable cost to protect against potential
      product liability claims could prevent or inhibit the commercialization of
      pharmaceutical products we develop, alone or with
      collaborators.  Although we currently carry clinical trial insurance
      and product liability insurance we, or any collaborators, may not be able to
      maintain such insurance at a reasonable cost.  Even if our agreements
      with any future collaborators entitles us to indemnification against losses,
      such indemnification may not be available or adequate should any claim
      arise.





***An
      investment in shares of our common stock is very speculative and involves a
      very
      high degree of risk.***





To
      date,
      we have generated no revenues from product sales and only minimal revenues
      from
      a research agreement with a minority shareholder, and interest on bank account
      balances and short-term investments.  Our accumulated deficit as of
      March 31, 2007 and December 31, 2006 was $21,874,653 and $20,690,326,
      respectively.  For three months ended March 31, 2007 and the year
      ended December 31, 2006, we had net losses of $1,184,327 and $6,486,003,
      respectively, primarily as a result of expenses incurred through a combination
      of research and development activities related to the various technologies
      under
      our control and expenses supporting those activities.  Until we
      receive approval from the FDA and other regulatory authorities for our drug
      candidates, we cannot sell our drugs and will not have product
      revenues.





***The
      market price of our common stock may fluctuate
      significantly.***





The
      market price of our common stock may fluctuate significantly in response to
      factors, some of which are beyond our control, such as:





32
 ***Index***





·
            the
                announcement of new products or product enhancements by us or our
                competitors;





·
            developments
                concerning intellectual property rights and regulatory
                approvals;





·
            variations
                in our and our competitors' results of
                operations;





·
            changes
                in earnings estimates or recommendations by securities analysts;
                and





·
            developments
                in the biotechnology industry.





Further,
      the stock market, in general, and the market for biotechnology companies, in
      particular, have experienced extreme price and volume
      fluctuations.  Continued market fluctuations could result in extreme
      volatility in the price of our common stock, which could cause a decline in
      the
      value of our common stock.  You should also be aware that price
      volatility might be worse if the trading volume of our common stock is
      low.  We have not paid, and do not expect to pay, any cash dividends
      because we anticipate that any earnings generated from future operations will
      be
      used to finance our operations and as a result, you will not realize any income
      from an investment in our common stock until and unless you sell your shares
      at
      a profit.





Some
      or
      all of the "restricted" shares of our common stock issued in the merger of
      CPRD
      and Rexahn, Corp or held by other stockholders may be offered from time to
      time
      in the open market pursuant to Rule 144, and these sales may have a
      depressive effect on the market for our common stock.  In general, a
      person who has held restricted shares for a period of one year may, upon filing
      with the SEC a notification on Form 144, sell into the market common stock
      in an amount equal to 1 percent of the outstanding shares (approximately
      500,000 shares) during a three-month period.  Any of the restricted
      shares may be freely sold by a non-affiliate after they have been held two
      years.





***Trading
      of our common stock is limited.***





Trading
      of our common stock is currently conducted on the National Association of
      Securities Dealers' Over-the-Counter Bulletin Board ("OTC-BB").  The
      liquidity of our securities has been limited, not only in terms of the number
      of
      securities that can be bought and sold at a given price, but also through delays
      in the timing of transactions and reduction in security analysts' and the
      media's coverage of us.





These
      factors may result in lower prices for our common stock than might otherwise
      be
      obtained and could also result in a larger spread between the bid and asked
      prices for our common stock.  Currently, there are approximately 500
      holders of record of our common stock.





***Because
      our common stock may be a "penny stock," it may be more difficult for you to
      sell shares of our common stock, and the market price of our common stock may
      be
      adversely affected.***





Our
      common stock may be a "penny stock" if, among other things, the stock price
      is
      below $5.00 per share, we are not listed on a national securities exchange
      or approved for quotation on the Nasdaq Stock Market, or we have not met certain
      net tangible asset or average revenue requirements.  Broker-dealers
      who sell penny stocks must provide purchasers of these stocks with a
      standardized risk-disclosure document prepared by the SEC.  This
      document provides information about penny stocks and the nature and level of
      risks involved in investing in the penny-stock market.  A broker must
      also give a purchaser, orally or in writing, bid and offer quotations and
      information regarding broker and salesperson compensation, make a written
      determination that the penny stock is a suitable investment for the purchaser,
      and obtain the purchaser's written agreement to the
      purchase.  Broker-dealers must also provide customers that hold penny
      stock in their accounts with such broker-dealer a monthly statement containing
      price and market information relating to the penny stock.  If a penny
      stock is sold in violation of the penny stock rules, purchasers may be able
      to
      cancel their purchase and get their money back.  If applicable, the
      penny stock rules may make it difficult for investors to sell their shares
      of
      our stock.  Because of the rules and restrictions applicable to a
      penny stock, there is less trading in penny stocks and the market price of
      our
      common stock may be adversely affected.  Also, many brokers choose not
      to participate in penny stock transactions.  Accordingly, purchasers
      may not always be able to resell shares of our common stock publicly at times
      and prices that they feel are appropriate.





33
 ***Index***





**Item 3.  CONTROLS
      AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      March 31, 2007, our management carried out an evaluation, under the
      supervision of our Chief Executive Officer and Chief Financial Officer of the
      effectiveness of the design and operation of our system of disclosure controls
      and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the
      Securities Exchange Act of 1934, as amended, or the Exchange
      Act.  Based upon that evaluation, the Chief Executive Officer and the
      Chief Financial Officer have concluded that our disclosure controls and
      procedures were effective, as of the date of this evaluation, for the purposes
      of recording, processing, summarizing and timely reporting material information
      required to be disclosed in reports filed by us under the Exchange
      Act.





There
      were no changes in our internal control over financial reporting during the
      quarter ended March 31, 2007 that have materially affected, or are
      reasonably likely to affect, our financial reporting.





34
 ***Index***





**PART
      II – OTHER INFORMATION**





**Item 1.  LEGAL
      PROCEEDINGS**





We
      are
      not subject to any pending legal proceedings, nor are we aware of any threatened
      claim against us.





**Item 2.  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





None.





**Item 3.  DEFAULTS
      UPON SENIOR SECURITIES**





None.





**Item 4.  SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**Item 5.  OTHER
      INFORMATION**





None.





35
 ***Index***





**Item 6.
      EXHIBITS**





Exhibit
              Number
            Description31.1
            Certification
                of Chief Executive Officer of Periodic Report Pursuant to
                Rule 13a-15(e) or Rule 15d-15(e)31.2
            Certification
                of Chief Financial Officer of Periodic Report Pursuant to
                Rule 13a-15(e) or Rule 15d-15(e)32.1
            Certification
                of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
                Section 135032.2
            Certification
                of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
                Section 1350





36
 ***Index***





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**REXAHN
                PHARMACEUTICALS, INC.**/s/
                Ted T.H. JeongName:
                Ted T. H. JeongTitle:
                Chief Financial Officer and SecretaryDate:  May
                15, 2007





37
 ***Index***





**EXHIBIT INDEX**





Exhibit
              Number
            Description31.1
            Certification
                of Chief Executive Officer of Periodic Report Pursuant to
                Rule 13a-15(e) or Rule 15d-15(e)31.2
            Certification
                of Chief Financial Officer of Periodic Report Pursuant to
                Rule 13a-15(e) or Rule 15d-15(e)32.1
            Certification
                of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
                Section 135032.2
            Certification
                of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
                Section 1350