UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




QUARTERLY
REPORT




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




For
the quarterly period ended June 30, 2008




Rexahn
Pharmaceuticals, Inc.




(Exact
name of registrant as specified in its charter)





Delaware
            
            11-3516358(State
      or other jurisdiction of incorporation
            
            (I.R.S.
      Employer Identification Number) or
organization)




9620
Medical Center Drive


Rockville,
Maryland 20850


(Address
of principal executive offices, including zip code)




Telephone:
(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
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




Yes xNo q




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


Large
      Accelerated Filer q
            
            Accelerated
      Filer qNon-Accelerated
      Filer q (Do
      not check if a smaller reporting company)
            
            Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes qNo x


Indicate
the number of shares outstanding of each of the issuer' s classes of common
stock, as of the latest practicable date: 56,025,649 shares of common stock
outstanding as of August 14, 2008.













REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


TABLEOF CONTENTS







PART I FINANCIAL
      INFORMATIONItem
      1
            
            Financial
      Statements1.  Condensed Balance Sheets at June 30, 2008
      (unaudited) and December 31, 2007
            
            32.  Condensed Statements of Operations for the three
      months and six months ended June 30, 2008and 2007 and March 19, 2001
      (inception) to June 30, 2008 (unaudited)
            
            43.  Statements of Stockholders' Equity and
      Comprehensive Loss for the six months ended June 30, 2008
      (unaudited)
            
            54.  Statements of Cash Flows for the six months ended
      June 30, 2008 and 2007 and March 19, 2001 (inception) to June 30, 2008
      (unaudited)
            
            65.  Notes to condensed financial statements
      (unaudited)
            
            7Item
      2
            
            Management's Discussion and Analysis of Financial Condition and
      Results of Operations
            
            18Item
      3
            
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            27Item
      4T
            
            Controls and Procedures
            
            27PART
      II OTHER INFORMATIONItem
      1
            
            Legal Proceedings
            
            27Item
      2
            
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            27Item
      3
            
            Defaults Upon Senior Securities
            
            27Item
      4A
            
            Submission of Matters to a Vote of Security
      Holders
            
            27Item
      5
            
            Other Information
            
            28Item
      6
            
            Exhibits
            
            28SIGNATURES





Table of Contents





REXAHNPHARMACEUTICALS, INC.


(A
Development Stage Company)


Condensed
Balance Sheets





June 30,
              2008
            
            
            December 31,
              2007(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            1,206,322
            
            
            $
            3,809,571Short-term
      investments
            
            
            4,704,750
            
            
            
            3,550,000Prepaid
      expenses and other
            
            
            872,062
            
            
            
            717,205Total
      Current Assets
            
            
            6,783,134
            
            
            
            8,076,776Equipment,
      Net
            
            
            109,332
            
            
            
            102,951Intangible
      Assets, Net
            
            
            295,037
            
            
            
            303,943Total
      Assets
            
            $
            7,187,503
            
            
            $
            8,483,670LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
            
            $
            356,806
            
            
            $
            606,832Total
      Current Liabilities
            
            
            356,806
            
            
            
            606,832Deferred
      Revenue
            
            
            1,087,500
            
            
            
            1,125,000Total
      Liabilities
            
            
            1,444,306
            
            
            
            1,731,832Commitment
      and ContingenciesStockholders'
      Equity:Preferred
      stock, par value $0.0001, 100,000 authorized shares, none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock, par value $0.0001, 500,000,000 authorized shares, 56,039,854
      (2007-55,306,996) issued and 56,025,649 (2007-55,292,791)
      outstanding
            
            
            5,603
            
            
            
            5,530Additional
      paid-in capital
            
            
            33,018,088
            
            
            
            31,769,049Accumulated
      deficit during the development stage
            
            
            (27,044,605
            )
            
            
            (24,994,331
            )Treasury
      stock, 14,205 shares, at cost
            
            
            (28,410
            )
            
            
            (28,410
            )Stock
      subscription receivable
            
            
            (12,000
            )
            
            
            -Accumulated
      other comprehensive (loss)
            
            
            (195,479
            )
            
            
            -Total
      Stockholders' Equity
            
            
            5,743,197
            
            
            
            6,751,838Total
      Liabilities and Stockholders' Equity
            
            $
            7,187,503
            
            
            $
            8,483,670




(See the
notes accompanying the condensed financial statements)





3
 Table of Contents





REXAHNPHARMACEUTICALS, INC.


(A
Development Stage Company)


Condensed Statements of
Operations




(Unaudited)




Cumulativefrom
      March 19,Three
      Months
            
            
            Six
      Months
            
            
            2001Ended
      June 30,
            
            
            Ended
      June 30,
            
            
            (Inception)
      to2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            June 30,
      2008Revenues:Research
            
            $
            18,750
            
            
            $
            18,750
            
            
            $
            37,500
            
            
            $
            37,500
            
            
            $
            412,500Expenses:General
      and administrative
            
            
            682,471
            
            
            
            782,540
            
            
            
            1,248,451
            
            
            
            1,416,266
            
            
            
            13,587,185Research
      and development
            
            
            71,206
            
            
            
            401,509
            
            
            
            851,172
            
            
            
            975,291
            
            
            
            11,653,509Patent
      fees
            
            
            62,539
            
            
            
            41,000
            
            
            
            106,204
            
            
            
            74,838
            
            
            
            811,677Depreciation
      and amortization
            
            
            10,054
            
            
            
            15,415
            
            
            
            27,699
            
            
            
            31,737
            
            
            
            475,160Total
      Expenses
            
            
            826,270
            
            
            
            1,240,464
            
            
            
            2,233,526
            
            
            
            2,498,132
            
            
            
            26,527,531Loss
      from Operations
            
            
            (807,520
            )
            
            
            (1,221,714
            )
            
            
            (2,196,026
            )
            
            
            (2,460,632
            )
            
            
            (26,115,031
            )Other
      (Income) ExpenseRealized
      loss on securities available-for-sale
            
            
            -
            
            
            
            -
            
            
            
            22,365
            
            
            
            -
            
            
            
            22,365Interest
      income
            
            
            (60,676
            )
            
            
            (38,302
            )
            
            
            (168,117
            )
            
            
            (92,893
            )
            
            
            (1,018,938
            )Interest
      expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            301,147Beneficial
      conversion feature
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,625,000(60,676
            )
            
            
            (38,302
            )
            
            
            (145,752
            )
            
            
            (92,893
            )
            
            
            929,574Net
      Loss Before Provision for Income Taxes
            
            
            (746,844
            )
            
            
            (1,183,412
            )
            
            
            (2,050,274
            )
            
            
            (2,367,739
            )
            
            
            (27,044,605
            )Provision
      for Income Taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      Loss
            
            $
            (746,844
            )
            
            $
            (1,183,412
            )
            
            $
            (2,050,274
            )
            
            $
            (2,367,739
            )
            
            $
            (27,044,605
            )Net
      loss per share outstanding, basic and diluted
            
            $
            (0.01
            )
            
            $
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.05
            )Weighted
      average number of shares outstanding, basic and diluted
            
            
            55,935,649
            
            
            
            50,322,769
            
            
            
            55,638,945
            
            
            
            50,315,491







4
 Table of Contents




REXAHNPHARMACEUTICALS, INC.


(A
Development Stage Company)


Statement
of Stockholders’ Equity and Comprehensive Loss


(Unaudited)








Common
      Stock
            
            
            Additional
      paid-in Capital
            
            
            Accumulated
      Deficit
            
            
            Treasury
      Stock
            
            
            Stock
              Subscriptions
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Total
            
            
            Total
      Comprehensive LossBalances atDecember 31, 2007
            
            $
            5,530
            
            
            $
            31,769,049
            
            
            $
            (24,994,331
            )
            
            $
            (28,410
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            6,751,838
            
            
            $
            -Stock compensation expense
            
            
            -
            
            
            
            317,911
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            317,911
            
            
            
            -Common stock issued
            
            
            64
            
            
            
            899,937
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            900,001
            
            
            
            -Exercise of stock options
            
            
            9
            
            
            
            31,191
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            31,200Stock Subscriptions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (12,000
            )
            
            
            -
            
            
            
            (12,000
            )
            
            
            -Net (loss)
            
            
            -
            
            
            
            -
            
            
            
            (2,050,274
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,050,274
            )
            
            
            (2,050,274
            )Unrealized loss on securities available for
      sale
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            (195,479
            )
            
            
            (195,479
            )
            
            
            (195,479
            )Balances atJune 30, 2008
            
            $
            5,603
            
            
            $
            33,018,088
            
            
            $
            (27,044,605
            )
            
            $
            (28,410
            )
            
            $
            (12,000
            )
            
            $
            (195,479
            )
            
            $
            5,743,197
            
            
            $
            (2,245,753
            )







5
 Table of Contents





REXAHNPHARMACEUTICALS, INC.


(A
Development Stage Company)


Condensed
Statements of Cash Flows




(Unaudited)




CumulativeFrom
      March 19,Six
      Months
            
            
            2001Ended
      June 30,
            
            
            (Inception)
      to2008
            
            
            2007
            
            
            June 30, 2008Cash
      Flows from Operating Activities:Net
      loss
            
            $
            (2,050,274
            )
            
            $
            (2,367,739
            )
            
            $
            (27,044,605
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Beneficial
      conversion feature
            
            
            -
            
            
            
            -
            
            
            
            1,625,000Compensatory
      stock
            
            
            -
            
            
            
            -
            
            
            
            21,877Depreciation
      and amortization
            
            
            27,699
            
            
            
            31,737
            
            
            
            475,160Stock
      option compensation expense
            
            
            317,911
            
            
            
            572,025
            
            
            
            3,690,062Amortization
      of deferred revenue
            
            
            (37,500
            )
            
            
            (37,500
            )
            
            
            (412,500
            )Realized
      losses on securities available-for-sale
            
            
            22,365
            
            
            
            -
            
            
            
            22,365Changes
      in assets and liabilities:Prepaid
      expenses and other
            
            
            (154,857
            )
            
            
            (49,451
            )
            
            
            (872,062
            )Accounts
      payable and accrued expenses
            
            
            (250,026
            )
            
            
            (4,293
            )
            
            
            356,806Net
      Cash Used in Operating Activities
            
            
            (2,124,682
            )
            
            
            (1,855,221
            )
            
            
            (22,137,897
            )Cash
      Flows from Investing Activities:Purchase
      of equipment
            
            
            (25,174
            )
            
            
            -
            
            
            
            (523,313
            )Purchase
      of securities available-for-sale
            
            
            (5,848,176
            )
            
            
            -
            
            
            
            (9,398,176
            )Proceeds
      from sales of securities available-for-sale
            
            
            4,475,582
            
            
            
            -
            
            
            
            4,475,582Net
      Cash Used in Investing Activities
            
            
            (1,397,768
            )
            
            
            -
            
            
            
            (5,445,907
            )Cash
      Flows from Financing Activities:Issuance
      of common stock
            
            
            931,201
            
            
            
            14,400
            
            
            
            22,536,752Stock
      subscription receivable
            
            
            (12,000
            )
            
            
            -
            
            
            
            (12,000
            )Proceeds
      from long-term debt
            
            
            -
            
            
            
            -
            
            
            
            5,150,000Proceeds
      from research contribution
            
            
            -
            
            
            
            -
            
            
            
            1,500,000Payment
      of licensing fees
            
            
            -
            
            
            
            -
            
            
            
            (356,216
            )Principal
      payments on long-term debt
            
            
            -
            
            
            
            -
            
            
            
            (28,410
            )Net
      Cash Provided by Financing Activities
            
            
            919,201
            
            
            
            14,400
            
            
            
            28,790,126Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            
            (2,603,249
            )
            
            
            (1,840,821
            )
            
            
            1,206,322Cash
      and Cash Equivalents - beginning of period
            
            
            3,809,571
            
            
            
            4,034,060
            
            
            
            -Cash
      and Cash Equivalents - end of period
            
            $
            1,206,322
            
            
            $
            2,193,239
            
            
            $
            1,206,322Supplemental
      Cash Flow InformationInterest
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            2,702




Supplemental
schedule of non-cash investing activities:





The
Company’s securities available-for-sale decreased in fair value by $195,479 in
2008 and was recorded as comprehensive loss as a component of stockholders’
equity.







6
 Table of Contents




Rexahn
Pharmaceuticals, Inc.


Notesto
Unaudited Condensed Financial Statements


June
30, 2008






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 condensed financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
("US GAAP") for interim financial information and the instructions to Form
10-Q.  Accordingly, they do not include all of the information and
footnotes required by US GAAP for complete financial statements. In the opinion
of the Company's management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2008 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending December 31, 2008. The accompanying condensed financial statements
should be read in conjunction with the audited financial statements of the
Company for the fiscal year ended December 31, 2007.




2.
            Summary
      of Significant Accounting Policies




a)
            Basis
      of Accounting




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)
            Short-term
      investments




Short-term
investments are considered “available-for-sale” in accordance with SFAS
No. 115, “Accounting for Certain Investments in Debt and Equity
Securities”, and thus are reported at fair value in our accompanying Condensed
Consolidated Balance Sheets, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders’
equity.  Realized gains and losses are accounted on the basis of
specific identification and are included in other income (expense) in our
consolidated income statements.  We classify such investments as
current on our balance sheets as the investments are readily marketable and
available for use in our current operations.  Comprehensive loss for
the six and three month periods ended June 30, 2008 was $195,479 and $42,600,
respectively.




Short-term
investments are reviewed periodically to identify possible other-than-temporary
impairment.  When evaluating the investments, the Company reviews
factors such as the length of time and extent to which fair value has been below
the cost basis, the financial condition of the issuer, the underlying net asset
value of the issuer's assets and liabilities, and the Company’s ability and
intent to hold the investment for a period of time which may be sufficient for
anticipated recovery in market value.  Should the decline in the value
of any investment be deemed to be other-than-temporary, the investment basis
would be written down to fair market value, and the write-down would be recorded
to earnings as a loss.




7
 Table of Contents




c)
            Recent
      Accounting Pronouncements Affecting the
Company




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards ("SFAS")  No. 157,
“Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. SFAS 157 indicates, among other things, that a fair value
measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price model. In
February 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and
Its Related Interpretive Accounting Pronouncements That Address Leasing
Transactions,” and FSP SFAS No. 157-2, “Effective Date of FASB Statement
No. 157.” FSP SFAS 157-1 removes leasing transactions from the scope of
SFAS No. 157, while SFAS No. 157-2 defers the effective date of SFAS
157 to the fiscal year beginning after November 15, 2008 for nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. It does not defer
recognition and disclosure requirements for financial assets and financial
liabilities, or for nonfinancial assets and nonfinancial liabilities that are
remeasured at least annually. Effective January 1, 2008, the Company
adopted SFAS 157, with the exception of the application of the statement to
non-recurring nonfinancial assets and nonfinancial liabilities. The adoption of
SFAS 157 did not impact the Company’s financial position or results of
operations.




In
December 2007, FASB issued SFAS No. 141 (revised 2007), "Business Combinations"
("SFAS 141(R)"). This statement replaces SFAS No. 141, "Business Combinations"
and requires an acquirer to recognize the assets acquired, the liabilities
assumed, including those arising from contractual contingencies, any contingent
consideration, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the statement. SFAS 141(R) also requires the acquirer in
a business combination achieved in stages (sometimes referred to as a step
acquisition) to recognize the identifiable assets and liabilities, as well as
the noncontrolling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with SFAS 141(R)). In
addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in
the acquiree at fair value will result in recognizing the goodwill attributable
to the noncontrolling interest in addition to that attributable to the acquirer.
SFAS 141(R) amends SFAS No. 109, "Accounting for Income Taxes", to require the
acquirer to recognize changes in the amount of its deferred tax benefits that
are recognizable because of a business combination either in income from
continuing operations in the period of the combination or directly in
contributed capital, depending on the circumstances. It also amends SFAS 142,
"Goodwill and Other Intangible Assets", to, among other things, provide guidance
on the impairment testing of acquired research and development intangible assets
and assets that the acquirer intends not to use. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company is currently assessing the potential impact that
the adoption of SFAS 141(R) could have on its financial
statements.




In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—amendment of Accounting Research Bulletin No.
51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160 also changes the way
the consolidated income statement is presented by requiring consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the noncontrolling interest. It also requires disclosure, on the
face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. SFAS 160
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated and requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the interests
of the parent owners and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within
those fiscal years, beginning on or after December 15, 2008.  The
adoption of SFAS 160 will have no impact on the Company’s financial
statements.




8
 Table of Contents




In March
2008, FASB issued SFAS 161, "Disclosures about Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
SFAS 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently assessing the potential impact that
the adoption of SFAS 161 could have on its financial
statements.




In May
2008, FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles". The Company is currently reviewing
the effect, if any; the proposed guidance will have on its financial
statements.




d)
            Earnings
      Per Share




The
following weighted average number of shares was used for the computation of
basic and diluted loss per share:





For the three months ended
            
            
            For the six months endedJune 30, 2008
            
            
            June 30, 2007
            
            
            June 30, 2008
            
            
            June 30,2007Basic
            
            
            55,935,649
            
            
            
            50,322,769
            
            
            
            55,638,945
            
            
            
            50,315,491Diluted
            
            
            55,935,649
            
            
            
            50,322,769
            
            
            
            55,638,945
            
            
            
            50,315,491








Basic
loss per share is computed by dividing net loss attributable to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution from the exercise
or conversion of other securities into Common Stock, but only if dilutive.
Diluted loss per share for the three and six month periods ended June 30, 2008
and 2007 is the same as basic loss per share, since the effects of the
calculation were anti-dilutive due to the fact that the Company incurred losses
for all periods presented. The following securities, presented on a common share
equivalent basis, have been excluded from the per share
computations:





9
 Table of Contents




For the three months ended
            
            
            For the six months endedJune 30, 2008
            
            
            June 30, 2007
            
            
            June 30, 2008
            
            
            June 30,2007Stock
      Options
            
            
            4,683,795
            
            
            
            3,171,670
            
            
            
            4,683,795
            
            
            
            3,171,670Warrants
            
            
            1,207,148
            
            
            
            -
            
            
            
            1,207,148
            
            
            
            -







3.
            Equipment,
      Net




June
      30,
            
            
            December
      31,2008
            
            
            2007Furniture
      and fixtures
            
            $
            31,713
            
            
            $
            31,713Office
      equipment
            
            
            68,822
            
            
            
            43,648Lab
      and computer equipment
            
            
            423,159
            
            
            
            423,159523,694
            
            
            
            498,520Less:
      Accumulated depreciation
            
            
            414,362
            
            
            
            395,569Net
      carrying amount
            
            $
            109,332
            
            
            $
            102,951




Depreciation
expense was $5,601 and $10,855 for the three months ended June 30, 2008 and 2007
respectively and $18,793 and $22,615 for the six months ended June 30, 2008 and
2007, 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 Revaax's
licensed technology and products.  The agreement called 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
$356,216 was 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 an 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%.  During 2006
the outstanding balance was paid.   Amortization expense was $4,453
and $4,669 for the three months ended June 30, 2008 and 2007, respectively, and
amortization expense was $8,906 and $9,122 for the six months ended June 30,
2008 and 2007, respectively.  Management does not believe that there is an
impairment of intangible assets at June 30, 2008.




10
 Table of Contents




The
following table sets forth the intangible asset:




June
      30,
            
            
            December
      31,2008
            
            
            2007Revaax
      license, original cost
            
            $
            356,216
            
            
            $
            356,216Less:
      Accumulated amortization
            
            
            61,179
            
            
            
            52,273Net
      book value
            
            $
            295,037
            
            
            $
            303,943




Amortization
over the next five (5) years is as follows:


2008
            
            $
            8,9052009
            
            
            17,8112010
            
            
            17,8112011
            
            
            17,8112012
            
            
            17,811Thereafter
            
            
            214,888$
            295,037




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,
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 six months ended June 30,
2008 and 2007.  The remaining $1,087,500 at June 30, 2008 (December
31, 2007-$1,125,000) 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




The
following transactions occurred during fiscal years 2001 through June 30,
2008:




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


11
 Table of Contents


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.




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 2005 Agreement and Plan of 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.




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.




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.




12
 Table of Contents




n)
            On
      February 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 the $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.




t)
            On
      April 18, 2007, an option holder exercised options to purchase shares of
      the Company's common stock for cash of $14,400 and the Company issued an
      aggregate of 18,000 shares.




u)
            On
      July 23, 2007, an option holder exercised options to purchase shares of
      the Company's common stock for cash of $12,000 and the Company issued an
      aggregate of 15,000 shares.




v)
            On
      September 27, 2007, an option holder exercised options to purchase shares
      of the Company's common stock for cash of $15,600 and the Company issued
      an aggregate of 19,500 shares.




w)
            On
      December 18, 2007, the Company issued 4,857,159 units in a private
      placement at a price $1.40 per share for total gross proceeds of
      $6,800,023.  Investors also were issued one warrant for every five
      shares purchased.  One warrant will entitle the holder to
      purchase an additional share of common stock at a purchase price of $1.80
      at any time over a period of three years from the date of the closing of
      the private placement.  The warrants have been valued at
      $1,103,164 and were charged to additional paid in
      capital.  Private placement closing costs of $139,674, included
      warrants issued, valued at $91,199, were recorded as a reduction of the
      issuance proceeds.




x)
            On
      December 27, 2007 an option holder exercised options to purchase shares of
      the Company's common stock for cash of $18,000 and the Company issued an
      aggregate of 75,000 shares.




y)
            On
      March 20, 2008, the Company issued 642,858 units consisting of one share
      of the Company’s common stock and one warrant for every five common shares
      purchased in a private placement at a price of $1.40 per share for total
      gross proceeds of $900,001.  One warrant will entitle the holder
      to purchase an additional share of common stock at a price of $1.80 at any
      time over a period of three years from the date of the private
      placement.  The warrants were valued at
  $220,005.




z)
            On
      May 30, 2008, an option holder exercised options to purchase shares of the
      Company's common stock for cash of $7,200 and the Company issued an
      aggregate of 30,000 shares.




13
 Table of Contents




aa)
            On
      June 2, 2008, an option holder exercised options to purchase shares of the
      Company's common stock for cash of $12,000 and the Company issued an
      aggregate of 50,000 shares.




ab)
            On
      June 30, 2008, an option holder exercised options to purchase shares of
      the Company's common stock for cash of $12,000 and the Company issued an
      aggregate of 10,000 shares.




7.
            Stock-Based
      Compensation




On August
5, 2003, the Company established a stock option plan (the
“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.  Options expire between 5 and 10 years from the
date of grant.




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.  Options authorized for issuance under the Plan
total 17,000,000 after giving effect to an amendment to the Plan approved at the
Annual Meeting of the Stockholders of the Company on June 2, 2006 and
at June 30, 2008, 10,477,500options were available
for issuance.




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.




The
Company's results of operations for the three and six months ended June 30, 2008
include share-based employee compensation expense totaling $59,325 and $114,798
respectively and for the three and six months period ended June 30, 2007,
include share-based employee compensation expense totaling $146,030 and $303,113
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 deferred tax assets.




Employee
stock option compensation expense in the second quarter of 2008 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.




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.




14
 Table of Contents




Stock
compensation expenses related to non-employee options were $92,760 and $203,113
for the three and six months period ended June 30, 2008 and $137,075 and
$268,912 for the three and six months period ended June 30,
2007.  Such amounts have been included in the Statements of Operations
in general and administrative and research and development
expenses.




Total
stock-based compensation recognized by the Company in the six months ended June
30, 2008 and 2007, and the period from inception (March 19, 2001) to June 30,
2008, all of which relates to stock options and warrants, is as
follows:




Six Months EndedJune 30, 2008
              
              
              June 30, 2007
              
              
              Inception
      (March 19, 2001) toJune 30,
      2008Income
      statement line item:General
      and administrativePayroll
              
              $
              18,400
              
              
              $
              208,069
              
              
              $
              1,115,128Consulting
      and other professional fees
              
              
              117,047
              
              
              
              97,853
              
              
              
              714,149Research
      and development:Payroll
              
              
              96,398
              
              
              
              95,044
              
              
              
              580,768Consulting
      and other professional fees
              
              
              86,066
              
              
              
              171,059
              
              
              
              1,269,081Total
              
              $
              317,911
              
              
              $
              572,025
              
              
              $
              3,679,126




There
were 100,000 stock options granted at an exercise price of $2.19 with a fair
value of $161,415 and there were 100,000 stock options granted at an exercise
price of $3.24 with a fair value of $132,620 during the six months ended June
30, 2008. The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. The Company took into consideration guidance
under SFAS No. 123(R) and SAB No. 107 when reviewing and updating assumptions.
The expected volatility is based upon historical volatility of the Company's
stock. The expected term is based upon the simplified method as allowed under
SAB 107.




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




Six Months Ended June 302008
            
            
            2007Black-Scholes
      weighted average assumptions:Expected
      dividend yield
            
            
            0
            
            
            
            0Expected
      volatility
            
            
            104% - 106
            %
            
            
            102
            %Risk
      free interest rate
            
            
            1.87%
      - 4.99
            %
            
            
            4.28%
      - 4.93
            %Expected
      term (in years)
            
            0.2-5
      years
            
            1-5
      years





15
 Table of Contents





The
following table summarizes the employee and non-employee share-based
transactions:





2008
            
            
            2007Shares Subject to Options
            
            
            Weighted Avg. Exercise
              Prices
            
            
            Shares Subject to Options
            
            
            Weighted Avg. Exercise
    PricesOutstanding
      at January 1
            
            
            6,045,795
            
            
            $
            0.97
            
            
            
            6,123,295
            
            
            $
            0.94Granted
            
            
            200,000
            
            
            
            2.72
            
            
            
            425,000
            
            
            
            1.44Exercised
            
            
            (90,000
            )
            
            
            0.35
            
            
            
            (18,000
            )
            
            
            0.80Cancelled
            
            
            (50,000
            )
            
            
            1.34
            
            
            
            (277,500
            )
            
            
            1.10Outstanding
      at June 30
            
            
            6,105,795
            
            
            $
            0.99
            
            
            
            6,252,795
            
            
            $
            0.96








The
following table summarizes information about stock options outstanding as of
June 30, 2008 and 2007:





Shares Subject to Options
            
            
            Weighted Avg. Exercise
              Prices
            
            Weighted Average Remaining Contractual
      Term
            
            Aggregate IntrinsicValueOutstanding
      at June 30, 2008
            
            
            6,105,795
            
            
            $
            0.99
            
            6.7 years
            
            $
            13,692,985Exercisable
      at June 30, 2008
            
            
            4,683,795
            
            
            $
            0.95
            
            6.3 years
            
            $
            10,962,805








Shares Subject to Options
            
            
            Weighted Avg. Exercise
              Prices
            
            Weighted Average Remaining Contractual
      Term
            
            Aggregate Intrinsic
              ValueOutstanding
      at June 30, 2007
            
            
            6,252,795
            
            
            $
            0.96
            
            7.3 years
            
            $
            6,229,698Exercisable
      at June 30, 2007
            
            
            3,171,670
            
            
            $
            0.86
            
            7.2 years
            
            $
            4,579,608





As of
June 30, 2008 and 2007, there was $1,382,295 and $1,818,334 of total
unrecognized compensation cost, respectively, related to all unvested stock
options, which is expected to be recognized over a weighted average vesting
period of 0.65 years and 1.1 years, respectively.





8.
            Commitments
      and Contingencies




a)
            The
      Company has contracted with various vendors to provide research and
      development services. The terms of these agreements usually require an
      initiation fee and monthly or periodic payments over the terms of the
      agreement, ranging from 6 months to 24 months. The costs to be incurred
      are estimated and are subject to revision. As of June 30, 2008, the total
      maximum commitment under these agreements was estimated to be $2,621,910
      and the Company had made payments totaling $1,888,478 and has accrued
      $123,273 under the terms of the agreements as at June 30,
      2008.  All of these agreements may be terminated by either party
      upon appropriate notice as stipulated in the respective
      agreements.





16
 Table of Contents





b)
            The
      Company and two of its key executives have entered into employment
      agreements. One of the two agreements was renewed on September 12, 2007
      and provides for an annual salary of $160,000 through September 12, 2009.
      One agreement expires on September 12, 2010 and provides for an annual
      salary of $350,000.




c)
            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 year’s adjusted base rent. Under the leasing 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 June 30, 2008 are as
follows:




Remainder
      of 2008
            
            $
            111,3282009
            
            
            112,972$
            224,300







d)
            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
      its 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.




9.
            Fair
      Value Measurements




The
Company adopted Statement of Financial Accounting Standards (“SFAS”) No.157,
“Fair Value Measurements” (“SFAS 157”) as of January 1, 2008. SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date, not adjusted for transaction costs. SFAS 157 also
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels giving the highest
priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3) as described
below:




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





17
 Table of Contents




The
Company determines fair values for its investment assets as
follows:




Investments,
at fair value—the Company's investments, at fair value, consists of marketable
equity securities and investment securities—marked to market. The Company’s
marketable equity securities are classified within level 1 of the fair value
hierarchy as they are valued using quoted market prices from an
exchange.




The
following tables present our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value.




Fair Value Measurements at Reporting Date
      UsingDescription
            
            Book/
              Carrying  Value At
              June 30, 2008
            
            
            Quoted Prices in Active Markets for Identical
      Assets
              (Level 1)
            
            
            Significant Other Observable
      Inputs
              (Level 2)
            
            
            Significant Unobservable
Inputs
              (Level 3)Assets:Equity
      InvestmentsGove
            
            $
            1,350,000
            
            
            $
            1,350,000
            
            
            $
            - -
            
            
            $
            -Government
      Obligations
            
            $
            3,354,750
            
            
            $
            3,354,750
            
            
            $
            - -
            
            
            $
            -Total
      Assets
            
            $
            4,704,750
            
            
            $
            4,704,750
            
            
            $
            - -
            
            
            $
            -







10.
            Subsequent
      Events




On July
14, 2008, the Company entered into employment agreement with a key executive to
serve as Chief Business Officer of the Company.  The
agreement provides for an annual salary of $200,000 through July 13, 2009. The agreement contains
change of control provisions which provide, among other things, that if the
Chief Business Officer is terminated without cause within one year after a
change of control, he will be entitled to a payment equal to his then current
base salary, plus 50% thereof (in respect of the bonus he would have
received).




Item2 Management's Discussion and Analysis of Financial Condition
and Results of Operations




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;





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·
            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.




Stock-Based
Compensation




Effective
January 1, 2006, the Plan is accounted for in accordance with the recognition
and measurement provisions of Statement of Financial Accounting Standards
("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which
replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to Employees, and related interpretations. FAS 123(R) 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 within Securities and Exchange Commission
("SEC") Staff Accounting Bulletin No. 107 ("SAB 107"), which provides the Staffs
views regarding the interaction between SFAS No. 123(R) and certain SEC rules
and regulations and provides interpretations with respect to the valuation of
share-based payments for public companies. See Note 7 to the Financial
Statements in Item 1 of this Quarterly Report for further details.




RECENTLY
ISSUED ACCOUNTING STANDARDS




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) Statement of Financial Accounting Standards
("SFAS")  No. 157, “Fair Value Measurements” (“SFAS 157”), which
defines fair value, establishes a framework for measuring fair value and expands
the related disclosure requirements. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements and does not
require any new fair value measurements. SFAS 157 indicates, among other things,
that a fair value measurement assumes that the transaction to sell an asset or
transfer a liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the
asset or liability. SFAS 157 defines fair value based upon an exit price model.
In February 2008, the FASB issued FASB Staff Positions (FSP) SFAS
No. 157-1, “Application of FASB Statement No. 157 to FASB Statement
No. 13 and Its Related Interpretive Accounting Pronouncements That Address
Leasing Transactions,” and FSP SFAS No. 157-2, “Effective Date of FASB
Statement No. 157.” FSP SFAS 157-1 removes leasing transactions from the
scope of SFAS No. 157, while SFAS No. 157-2 defers the effective date
of SFAS 157 to the fiscal year beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. It
does not defer recognition and disclosure requirements for financial assets and
financial liabilities, or for nonfinancial assets and nonfinancial liabilities
that are remeasured at least annually. Effective January 1, 2008, the
Company adopted SFAS 157, with the exception of the application of the statement
to non-recurring nonfinancial assets and nonfinancial liabilities. The adoption
of SFAS 157 did not impact the Company’s financial position or results of
operations.




19
 Table of Contents




In
December 2007, FASB issued SFAS No. 141 (revised 2007), "Business Combinations"
("SFAS 141(R)"). This statement replaces SFAS No. 141, "Business Combinations"
and requires an acquirer to recognize the assets acquired, the liabilities
assumed, including those arising from contractual contingencies, any contingent
consideration, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the statement. SFAS 141(R) also requires the acquirer in
a business combination achieved in stages (sometimes referred to as a step
acquisition) to recognize the identifiable assets and liabilities, as well as
the noncontrolling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with SFAS 141(R)). In
addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in
the acquiree at fair value will result in recognizing the goodwill attributable
to the noncontrolling interest in addition to that attributable to the acquirer.
SFAS 141(R) amends SFAS No. 109, "Accounting for Income Taxes", to require the
acquirer to recognize changes in the amount of its deferred tax benefits that
are recognizable because of a business combination either in income from
continuing operations in the period of the combination or directly in
contributed capital, depending on the circumstances. It also amends SFAS 142,
"Goodwill and Other Intangible Assets", to, among other things, provide guidance
on the impairment testing of acquired research and development intangible assets
and assets that the acquirer intends not to use. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company is currently assessing the potential impact that
the adoption of SFAS 141(R) could have on its financial statements.




In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—amendment of Accounting Research Bulletin No.
51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160 also changes the way
the consolidated income statement is presented by requiring consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the noncontrolling interest. It also requires disclosure, on the
face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. SFAS 160
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated and requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the interests
of the parent owners and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within
those fiscal years, beginning on or after December 15, 2008.  The
adoption of SFAS 160 will have no impact on the Company’s financial
statements.




In March
2008, FASB issued SFAS 161, "Disclosures about Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
SFAS 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently assessing the potential impact that
the adoption of SFAS 161 could have on its financial
statements.




20
 Table of Contents




In May
2008, FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles". The Company is currently reviewing
the effect, if any; the proposed guidance will have on its financial
statements.




RESULTS
OF OPERATIONS




Comparison
of Three Months and Six Months Ended June 30, 2008 and 2007:




Total
Revenues




For the
three and six month periods ended June 30 2008, we recorded revenues of $18,750
and $37,500 respectively.  We recorded the same amounts in the periods
of 2007.  In all periods the revenue reflects the recognition of
deferred revenue from a collaborative research agreement with Rexgene Biotech
Co., Ltd., a minority shareholder.




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 $100,069, or 12.8%, from $782,540 for the
three months ended June 30, 2007 to $682,471 for the three months ended June 30,
2008.  General and administrative expenses decreased by $167,815 or
11.8% from $1,416,266 for the six months ended June 30, 2007 to $1,248,451 for
the six months ended June 30, 2008.  The decrease in both periods was
primarily due to lower stock option compensation expense during
2008.




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 $330,303 or 82.2% from $401,509 for the three
months ended June 30, 2007 to $71,206 for the three months ended June 30,
2008.  Research and development expenses decreased $124,119 or 12.7%
from $975,291 for the six months ended June 30, 2007 to $851,172 for the six
months ended June 30, 2008.  The decrease in both periods was
primarily due to a decline in clinical study expenses.




Patent
Fees




Our
patent fees increased $21,539, or 52.5%, from $41,000 for the three months ended
June 30, 2007 to $62,539 for the three months ended June 30, 2008. Patent fees
increased by $31,366, or 41.9% from $74,838 for the six months ended June 30,
2007 to $106,204 for the six months ended June 30, 2008.  The
increases during the 2008 periods were due primarily to more patent issuances
during 2008.




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 Table of Contents




Interest
Income




Interest
income increased $22,374, or 58.4%, from $38,302 for the three months ended June
30, 2007 to $60,676 for the three months ended June 30, 2008. Interest income
increased $75,224 or 81% from $92,893 for the six months ended June 30, 2007 to
$168,117 for the six months ended June 30, 2008.  The increases are
primarily due to higher cash and cash equivalent balances during the 2008
periods.




Depreciation
and Amortization




Depreciation
and amortization expense decreased by $5,361 for the three months ended June 30,
2008 to $10,054 compared to $15,415 for the three months ended June 30, 2007.
Depreciation and amortization expenses decreased by $4,038 for the six months
ended June 30, 2008 to $27,699 compared to $31,737 for the six months ended June
30, 2007.




Net
Loss




As a
result of the above, the net loss for the three months and six months ended June
30, 2008 was $746,844 and $2,050,274, respectively, or $0.01 and $0.04 per
share, respectively, compared to a net loss of $1,183,412 and $2,367,739,
respectively, or $0.02 and $0.05 per share, respectively, for the three months
and six months ended June 30, 2007.




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 three lead
drug candidates, Archexin (which was previously referred to as RX-0201),
Serdaxin and Zoraxel (Serdaxin and Zoraxel were previously referred to as
RX­10100) and preclinical candidates including RX-0201-Nano, RX-0047-Nano,
and Nano-polymer Anticancer Drugs.




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-0201-Nano, RX-0047-Nano, and Nano-polymer Anticancer Drugs 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.




Archexin




In
October 2006, we announced the conclusion of the Phase I clinical trial of
Archexin, our leading drug candidate. In May 2007, we received approval from the
U.S. Food & Drug Administration (FDA) to initiate a Phase IIclinical trial for
Archexin, in patients with renal cell carcinoma (RCC). Archexin is currently in
Phase IItrials.
The costs incurred for the clinical trial were approximately
$3,000,000.




22
 Table of Contents




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. 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 began in the third quarter of 2007 in patients
with advanced RCC 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 second half of
2008, we plan to apply Archexin to the treatment of pancreatic
cancer.




Serdaxin




SerdaxinTm is
being developed to treat depression and mood disorders, and has proven and
well-established safety in humans. Serdaxin is scheduled to enter Phase II
trials in the second half of 2008. We currently estimate that Phase II trials
will be completed in 2010 and will require approximately
$3,000,000.




Zoraxel




ZoraxelTm is a
CNS-based sexual dysfunction drug that has extensive and excellent safety in
humans. The Phase II clinical trial of Zoraxel began in the first half of 2008.
We currently estimate that the Phase IItrials will be completed
in 2009 and will require a total of approximately $4,000,000.




Pre-clinical
pipeline




Our
pre-clinical pipeline includes:




(1)  RX-0201-Nano:
Nanoliposomal anti-cancer Akt-1 inhibitor




RX-0201,
the active ingredient of Archexin, is a first-in-class, potent inhibitor of the
Akt-1 protein kinase. RX-0201-Nano is a nanoliposomal product of RX-0201 with
high incorporation efficiency and good stability. Nanoliposomal delivery of
RX-0201 may provide significant clinical benefits including targeted higher
cellular uptake, extended circulation time, reduced drug-related toxicity, and
improved efficacy. Phase I trials are planned for 2009.




(2)  RX-0047-Nano:
Nanoliposomal anti-cancer HIF-la inhibitor




RX-0047-Nano
is a nanoliposomal cancer drug candidate that selectively inhibits expression of
the HIF-la transcription factor. HIF-la is a key signaling molecule in
angiogenesis, cancer cell survival and invasion, and radiation resistance.
RX-0047 is a first-in-class anticancer candidate that directly inhibits
expression of mRNA and protein of HIF-la. RIF- la is over-expressed in a broad
range of human cancers, and associated with increased cancer mortality and
resistance. In pre-clinical studies, RX-0047 significantly downregulated
expression of HIF-la mRNA and protein. At nanomolar concentrations, RX-0047
inhibited proliferation of cancer cells from human solid tumors and growth of
implanted tumors in xenograft animal models, and reversed resistance in
radiation-resistant cancer cells. RX-0047 inhibited growth of solid tumors in
lung as well as prostate cancer xenograft models, and significantly blocked
metastasis in a lung metastatic model. RX-0047-Nano is expected to provide
significant clinical benefits including targeted higher cellular uptake,
extended circulation time, reduced drug-related toxicity, and improved efficacy.
Phase I trials are planned for 2009.




23
 Table of Contents




(3)  Nano-polymer
Anticancer Drugs- HPMA-docetaxel and HPMA-gemcitabine




A major
problem with many cancer drugs is their lack of tumor specificity and
dose-limiting toxicity. Nano-polymer conjugated drugs may deliver drugs more
precisely to tumor tissues with less toxic effects. Rexahn's HPMA-docetaxel and
HPMA­ gemcitabine are expected to achieve the anticancer effects of
docetaxel and gemcitabine, respectively, at much lower dose levels with
significantly fewer side effects. Phase I trials are planned in
2009.




Through
June 30, 2008, the costs incurred for development of these compounds to date
have been approximately $1,000,000. 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 $4,500,000.




The
conduct of the clinical trials 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.




LIQUIDITY
AND CAPITAL RESOURCES




Cash used
in operating activities was $2,124,682 for the six months ended June 30, 2008
compared to cash used in operating activities of $1,855,221 for the same period
ended June 30, 2007. The operating cash flows during the six months ended June
30, 2008 reflect our loss from operations of $2,050,274 and a net increase in
cash components of working capital of and by non-cash charges totaling $74,408.
Non-cash charges consist of depreciation and amortization of $27,699, stock
option compensation expense of $317,911, amortization of deferred revenue of
$(37,500), and realized loss on securities of $22,365. The decrease in working
capital primarily consists of a $250,026 decrease in accounts payable and
accrued expenses and an increase of $154,857 to prepaid and other
assets.




Cash used
in investing activities of $1,397,768 during the six months ended June 30, 2008
consisted of $25,174 used for purchases of equipment, $5,848,176 used for
purchases of securities available-for-sale, and $4,475,582 received from
proceeds of disposition of securities available-for-sale. There was no cash used
in investing activities during the six months ended June 30, 2007.




Cash
provided by financing activities of $919,201 during the six months ended June
30, 2008 was primarily the result of the $900,001 of proceeds from a private
placement of 642,858 units in May 2008.




For the
six months ended June 30, 2008 and the years ended December 31, 2007 and 2006,
we experienced net losses of $2,050,274, $4,304,005 and $6,486,003,
respectively. Our accumulated deficit as of June 30, 2008, and December 31, 2007
and 2006 was $27,044,605, $24,994,331 and $20,690,326,
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 six months ended June 30, 2008, we had a net decrease in
cash and cash equivalents of $2,603,249 resulting from the cash used in
operating activities. Total cash and cash equivalents as of June 30, 2008 were
$1,206,322 compared to $3,809,571 as of December 31, 2007.





24
 Table of Contents




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, collaboration fee, 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.  Management believes there is
sufficient cash and cash equivalents and investments to fund operations for the
next twelve months.




CONTRACTUAL
OBLIGATIONS




On
October 2, 2003, we contracted with Amarex to conduct certain Phase I clinical
studies for ArchexinTM (then
RX­0201). Of the $239,337 to be paid under this contract, $194,461 was paid
as of December 31, 2007. The balance will be paid when the final report is
accepted, which is expected to be later this year. Since 2003, additional
services were added to the study. These services were contracted for $200,043,
of all which have been paid.




In April
2004, we entered into a clinical development agreement with Georgetown
University with an effective period from April 5, 2004 through April 5, 2006.
The total estimated cost of the program could be up to $223,126 or less, based
on the fees, enrollment and completion of 20 patients. The clinical trial has
been completed, Rexahn paid $17,426 as of June 30, 2008. We expect to make a
remaining payment under the agreement in 2008.




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 year's adjusted
base rent. Under the leasing agreement, we also pay our allocable portion of
real estate taxes and common area operating charges.




Minimum
future rental payments under this lease as of June 30, 2008 are as
follows:




Remainder
      of 2008
            
            $
            111,3282009
            
            $
            112,972$
            224,300




On
September 12, 2005, we entered into an employment agreement with the Chief
Executive Officer. The agreement expires on September 12, 2010 and results in an
annual commitment of $350,000.




On
January 6, 2006, we contracted with Amarex, LLC to conduct Phase IIclinical studies for
ArchexinTM. In
accordance with the initial 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 up front payment of
$149,061 due upon signing. We paid $614,876 and $540,346 towards the initial
cost of the study as of June 30, 2008 and December 31, 2007
respectively.  In 2007, additional services were added to the project.
The cost of the additional services is $106,220, of all which have been
paid.




On April
3, 2006, we contracted with UPM Pharmaceuticals, Inc. to develop several release
formulations for SerdaxinTM and
ZoraxelTM. Total
contracted amount is $687,625, of which $423,905 has been paid as of June 30,
2008.




On
February 1, 2007, we entered into a research agreement with University of
Maryland Baltimore Biotechnology Institute to identify new JNK inhibitors using
their NMR technology. The total amount to be paid under this contract is
$17,000, of which $10,000 was paid in the year ended December 31, 2007. The
balance will be paid later this year.




On May
18, 2007, we contracted with Lab Connect to provide sample management and
central laboratory services for Phase II clinical studies for ArchexinTM
clinical trials. The total contract amount is estimated to be $197,220. We paid
$54,444 towards the cost of the study as of June 30, 2008.




On June
13, 2007, we contracted with Formatech to test the stability of the
ArchexinTM
package. The total amount to be paid for this contract was $21,500, of which
$14,500 was paid in 2007, and the balance will be paid when the final report is
submitted, which is expected to be in three years.





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 Table of Contents







Effective
as of September 12, 2007, we entered into an employment agreement with our Chief
Financial Officer. The agreement expires on September 12, 2009 and results in an
annual commitment of $160,000.




On July
14, 2008, we entered into an employment agreement with a key executive to serve
as Chief Business Officer of the Company.  The agreement results in an
annual commitment of $200,000 through July 13, 2009.




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, Serdaxin
and Zoraxel.




Over the
next 12 months we expect to spend a minimum of approximately $1 million on
clinical development for Phase II clinical trials of Archexin, $1 million on
clinical development for Phase II clinical trials of Serdaxin and Zoraxel, $3
million on general corporate expenses, and approximately $224,000 on facilities
rent. We plan to initiate additional Phase II clinical trials of Archexin for
pancreatic cancer patients later this year at an additional cost of up to
approximately $1 million for the next 12 months. 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, Phase IIclinical 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 $6 million through the second quarter of 2009.




Management
believes there is sufficient cash and cash equivalents and investments to fund
operations for next 12 months.  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.




OFF-BALANCE
SHEET ARRANGEMENTS




We do not
have any off-balance sheet arrangements.





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 Table of Contents




Item3 Quantitative and Qualitative Disclosures About Market
Risk




Per Item
305(e) of Regulation S-K, a smaller reporting company is not required to provide
the information required by this item.




Item4T Controls and Procedures




As of
June 30, 2008, 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 June 30, 2008 that have materially affected, or are reasonably
likely to affect, our financial reporting.




PART
II




Item1 Legal Proceedings




None




Item2 Unregistered Sales of Equity Securities and Use of
Proceeds




None




Item3 Defaults Upon Senior Securities




None




Item4 Submission of Matters to a Vote of Security
Holders




At the
annual meeting of stockholders of the Company on June 12, 2008 in Rockville,
Maryland, the following matters were voted on by the Company's stockholders and
approved by the following votes:





27
 Table of Contents




Number of SharesVoted For
            
            Withheld1. Election of Directors:Chang H. Ahn
            48,051,221
            –
            50Charles Beever
            48,051,221
            –
            50Kwang Soon Cheong
            48,051,221
            –
            50Ted T.H. Jeong
            48,051,221
            –
            50Y. Michele Kang
            48,051,221
            –
            50David McIntosh
            48,051,221
            –
            50Dr. Freddie Ann Hoffman
            48,051,221
            –
            50







Number of SharesVoted For
            Voted Against
            Abstentions2. Proposal to ratify appointment of Lazar Levine
      & Felix LLP as the Company's Independent
    auditors
            48,051,271
            –
            –




Item5 Other Information




None




Item6 Exhibits




Exhibit
      No.
            
            Description
            
            Location31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification (Principal Executive
      Officer)
            
            Filed
      herewith31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification (Principal Financial
      Officer)
            
            Filed
      herewith32.0*
            
            Section
      1350 Certificate
            
            Filed
      herewith*
            
            This
      exhibit is furnished rather than filed, and shall not be incorporated by
      reference into any filing of the registrant in accordance with Item 601 of
      Registration S-K





28
 Table of Contents




SIGNATURES




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




REXAHN
      PHARMACEUTICALS, INC.(Registrant)Date:  August
      14, 2008
            
            By: /s/ Chang H.
      AhnChang
      H. AhnChairman
      and Chief Executive OfficerDate:  August
      14, 2008
            
            By: /s/ Ted T.H.
      JeongTed
      T.H. JeongChief
      Financial Officer and Secretary





29
 Table of Contents




INDEX
TO EXHIBITS


Quarterly
Report on Form 10-Q


Dated
June 30, 2008




Exhibit
      No.
            
            Description
            
            Location31.1
            
            Rule
      13 a-14(a)/15d-14(a) Certification (Principal Executive
      Officer)
            
            Filed
      herewith31.2
            
            Rule
      13 a-14(a)/15d-14(a) Certification (Principal Financial
      Officer)
            
            Filed
      herewith32.0
            
            Section 1350
      Certificate
            
            Filed
      herewith






30