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 March 31, 2008




Rexahn
Pharmaceuticals, Inc.


(Exact
name of registrant as specified in its charter)





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





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 x  No
o




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




Large
      Accelerated Filer o
            Accelerated
      Filer oNon-Accelerated
      Filer o    (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 o No x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 55,935,649 shares of common stock
outstanding as of May 15, 2008.







1


REXAHN PHARMACEUTICALS, INC.


(A
Development Stage Company)


TABLE
OF CONTENTS





PagePART
      I
            FINANCIAL INFORMATIONItem
      1
            Financial
      Statements1)
            Condensed Balance Sheets at March 31, 2008 (unaudited) and
      December 31, 2007
            32)
            Condensed Statements of Operations for the three months ended
      March 31, 2008 and 2007 and March 19, 2001 (inception) to March 31, 2008
      (unaudited)
            43)
            Statements of Stockholders’ Equity and Comprehensive Loss for
      the three months ended March 31, 2008 (unaudited)
            54)
            Statements of Cash Flows for the three months ended March 31,
      2008 and 2007 and March 19, 2001 (inception) to March 31, 2008
      (unaudited)
            65)
            Notes to condensed financial statements
      (unaudited)
            7Item
      2
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            21Item
      3
            Quantitative and Qualitative Disclosures About Market
      Risk
            29Item
      4T
            Controls and Procedures
            30PART
      II
            OTHER
      INFORMATIONItem
      1
            Legal Proceedings
            31Item
      2
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            31Item
      3
            Defaults Upon Senior Securities
            31Item
      4
            Submission of Matters to a Vote of Security
      Holders
            31Item
      5
            Other Information
            31Item
      6
            Exhibits
            31SIGNATURES
            32


2
 Table of Contents


REXAHN PHARMACEUTICALS, INC.


(A
Development Stage Company)


Condensed
Balance Sheets








March 31,
      2008
            
            
            December 31,
      2007(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            2,100,003
            
            
            $
            3,809,571Short-term
      investments
            
            
            4,772,350
            
            
            
            3,550,000Prepaid
      expenses and other
            
            
            770,171
            
            
            
            717,205Total
      Current Assets
            
            
            7,642,524
            
            
            
            8,076,776Equipment,
      Net
            
            
            115,033
            
            
            
            102,951Intangible
      Assets, Net
            
            
            299,490
            
            
            
            303,943Total
      Assets
            
            $
            8,057,047
            
            
            $
            8,483,670LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
            
            $
            589,442
            
            
            $
            606,832Total
      Current Liabilities
            
            
            589,442
            
            
            
            606,832Deferred
      Revenue
            
            
            1,106,250
            
            
            
            1,125,000Total
      Liabilities
            
            
            1,695,692
            
            
            
            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, 55,949,854
      (2007-55,306,996) issued and 55,935,649 (2007-55,292,791)
      outstanding
            
            
            5,594
            
            
            
            5,530Additional
      paid-in capital
            
            
            32,834,811
            
            
            
            31,769,049Accumulated
      deficit during the development stage
            
            
            (26,297,761
            )
            
            
            (24,994,331
            )Treasury
      stock, 14,205 (2007-14,205) shares, at cost
            
            
            (28,410
            )
            
            
            (28,410
            )Accumulated
      other comprehensive (loss)
            
            
            (152,879
            )
            
            
            -Total
      Stockholders' Equity
            
            
            6,361,355
            
            
            
            6,751,838Total
      Liabilities and Stockholders' Equity
            
            $
            8,057,047
            
            
            $
            8,483,670








(See the
notes accompanying the condensed financial statements)


3
 Table of Contents


REXAHN PHARMACEUTICALS, INC.


(A
Development Stage Company)


Condensed Statements of
Operations


(Unaudited)








Three
      Months Ended March 31,
            
            
            Cumulative
      From March 19, 2001 (Inception) to2008
            
            
            2007
            
            
            March
      31, 2008Revenues:Research
            
            $
            18,750
            
            
            $
            18,750
            
            
            $
            393,750Expenses:General
      and administrative
            
            
            565,980
            
            
            
            633,726
            
            
            
            12,904,714Research
      and development
            
            
            779,966
            
            
            
            573,782
            
            
            
            11,582,303Patent
      fees
            
            
            43,665
            
            
            
            33,838
            
            
            
            749,138Depreciation
      and amortization
            
            
            17,645
            
            
            
            16,322
            
            
            
            465,106Total
      Expenses
            
            
            1,407,256
            
            
            
            1,257,668
            
            
            
            25,701,261Loss
      from Operations
            
            
            (1,388,506
            )
            
            
            (1,238,918
            )
            
            
            (25,307,511
            )Other
      (Income) ExpenseRealized
      loss on securities available-for-sale
            
            
            22,365
            
            
            
            -
            
            
            
            22,365Interest
      income
            
            
            (107,441
            )
            
            
            (54,591
            )
            
            
            (958,262
            )Interest
      expense
            
            
            -
            
            
            
            -
            
            
            
            301,147Beneficial
      conversion feature
            
            
            -
            
            
            
            -
            
            
            
            1,625,000(85,076
            )
            
            
            (54,591
            )
            
            
            990,250Net
      Loss Before Provision for Income Taxes
            
            $
            (1,303,430
            )
            
            $
            (1,184,327
            )
            
            $
            (26,297,761
            )Provision
      for Income Taxes
            
            
            -
            
            
            
            -
            
            
            
            -Net
      Loss
            
            $
            (1,303,430
            )
            
            $
            (1,184,327
            )
            
            $
            (26,297,761
            )Net
      Loss per shares outstanding, basic and diluted
            
            $
            (0.02
            )
            
            $
            (0.02
            )Weighted
      average number of shares outstanding, basic and diluted
            
            
            55,342,242
            
            
            
            50,308,132








(See the
notes accompanying the condensed financial statements)


4
 Table of Contents


REXAHN PHARMACEUTICALS, INC.


(A
Development Stage Company)


Statement
of Stockholders’ Equity and Comprehensive Loss


(Unaudited)








Common
      Stock
            
            
            Additional
      paid-in Capital
            
            
            Accumulated
      Deficit
            
            
            Treasury
      Stock
            
            
            Accumulated
      Other Comprehensive Loss
            
            
            Total
            
            
            Total
      Comprehensive LossBalances
      at December 31, 2007
            
            $
            5,530
            
            
            $
            31,769,049
            
            
            $
            (24,994,331
            )
            
            $
            (28,410
            )
            
            
            -
            
            
            $
            6,751,838
            
            
            
            -Stock
      compensation expenses
            
            
            -
            
            
            
            165,825
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            165,825
            
            
            
            -Common
      stock issued
            
            
            64
            
            
            
            899,937
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            900,001
            
            
            
            -Net
      (loss)
            
            
            -
            
            
            
            -
            
            
            
            ( 1,303,430
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,303,430
            )
            
            
            (1,303,430
            )Unrealized
      loss on securities available for sale
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            ( 152,879
            )
            
            
            ( 152,879
            )
            
            
            ( 152,879
            )Balances
      at March 31, 2008
            
            $
            5,594
            
            
            $
            32,834,811
            
            
            $
            (26,297,761
            )
            
            $
            (28,410
            )
            
            $
            ( 152,879
            )
            
            $
            6,361,355
            
            
            $
            (1,456,309
            )








(See the
notes accompanying the condensed financial statements)


5
 Table of Contents


REXAHN PHARMACEUTICALS, INC.


(A
Development Stage Company)


Statements
of Cash Flows


(Unaudited)








Three
      Months Ended March 31,
            
            
            Cumulative
      From March 19, 2001 (Inception) to2008
            
            
            2007
            
            
            March 31,
      2008Cash
      Flows from Operating Activities:Net
      loss
            
            $
            (1,303,430
            )
            
            $
            (1,184,327
            )
            
            $
            (26,297,761
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Beneficial
      conversion feature
            
            
            -
            
            
            
            -
            
            
            
            1,625,000Compensatory
      stock
            
            
            -
            
            
            
            -
            
            
            
            21,877Depreciation
      and amortization
            
            
            17,645
            
            
            
            16,322
            
            
            
            465,487Stock
      option compensation expense
            
            
            165,825
            
            
            
            288,920
            
            
            
            3,537,975Amortization
      of deferred revenue
            
            
            (18,750
            )
            
            
            (18,750
            )
            
            
            (393,750
            )Realized
      losses on securities available-for-sale
            
            
            22,365
            
            
            
            -
            
            
            
            22,365Changes
      in assets and liabilities:Prepaid
      expenses and other
            
            
            (52,967
            )
            
            
            37,274
            
            
            
            (770,171
            )Accounts
      payable and accrued expenses
            
            
            (17,390
            )
            
            
            22,609
            
            
            
            589,442Net
      Cash Used in Operating Activities
            
            
            (1,186,702
            )
            
            
            (837,952
            )
            
            
            (21,199,537
            )Cash
      Flows from Investing Activities:Purchase
      of equipment
            
            
            (25,274
            )
            
            
            -
            
            
            
            (523,794
            )Purchase
      of securities available-for-sale
            
            
            (5,848,176
            )
            
            
            -
            
            
            
            (9,398,176
            )Proceeds
      from sales of securities available-for-sale
            
            
            4,450,583
            
            
            
            -
            
            
            
            4,450,583Net
      Cash Used in Investing Activities
            
            
            (1,422,867
            )
            
            
            -
            
            
            
            (5,471,387
            )Cash
      Flows from Financing Activities:Issuance
      of common stock
            
            
            900,001
            
            
            
            -
            
            
            
            22,505,553Proceeds
      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
            
            
            900,001
            
            
            
            -
            
            
            
            28,770,927Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            
            (1,709,568
            )
            
            
            (837,952
            )
            
            
            2,100,003Cash
      and Cash Equivalents - beginning of period
            
            
            3,809,571
            
            
            
            4,034,060
            
            
            
            -Cash
      and Cash Equivalents - end of period
            
            $
            2,100,003
            
            
            $
            3,196,108
            
            
            $
            2,100,003Supplemental
      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 $152,879 and
$0 in 2008 and 2007 respectively and was recorded as comprehensive loss as a
component of stockholders’ equity.








(See the
notes accompanying the condensed financial statements)


6
 Table of Contents


REXAHN PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








1.
            Operations
      and Organization




Operations




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




The
accompanying consolidated 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 three-month period ended March 3 1,2008 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending December 3 1, 2008. The accompanying consolidated financial
statements should be read in conjunction with the audited financial statements
of the Company for the fiscal year ended December 31, 2007.


7
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








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
miscellaneous 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 three-month periods
ended March 31, 2008 was $152,879.




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 issuers 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.




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 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. SFAS
157 defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 codifies the definition
of 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. SFAS 157 clarifies the principle that fair value should be
based on the assumptions market participants would
use when pricing the asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions. In
February 2008, FASB issued FSP SFAS No. 157-2, “Effective date of FASB Statement
No. 157” (“FSP SFAS 157-2”).  FSP SFAS 157-2 delays the effective date
of SFAS No. 157, “Fair Value Measurement” to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years.  The
Company is currently assessing the potential impact that the adoption of SFAS
157 could have on its financial statements.


8
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








2.
            Summary of
      SignificantAccountingPolicies(cont’d)




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 Company is
currently assessing the potential impact that the adoption of SFAS 160 could
have on its financial statements.


9
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








2.
            Summary of Significant
      Accounting Policies (cont’d)





In
February 2008, FASB issued FASB Staff Position (“FSP”) SFAS No. 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions” (“FSP SFAS 140-3”).  The objective of this FSP is to
provide guidance on accounting for a transfer of a financial asset and a
repurchase financing.  This FSP presumes that an initial transfer of a
financial asset and a repurchase financing are considered part of the same
arrangement (linked transaction) under SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities” ("SFAS
140").  However, if certain criteria are met, the initial transfer and
repurchase financing shall not be evaluated as a linked transaction and shall be
evaluated separately under SFAS No. 140.  FSP SFAS 140-3 is effective
for financial statements issued for fiscal years beginning after November 15,
2008, and interim periods within these fiscal years.  Earlier
application is not permitted.  The Company is currently reviewing the
effect, if any; the proposed guidance will have on its financial
statements.





In
February 2008, FASB issued FSP SFAS No. 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13” (“FSP SFAS 157-1”).  FSP SFAS 157-1
amends SFAS 157 to exclude FASB Statement No. 13, "Accounting for Leases”, and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under FASB Statement No.
13.  However, this scope exception does not apply to assets acquired
and liabilities assumed in a business combination that are required to be
measured at fair value under FASB Statement No. 141, “Business Combinations”, or
FASB Statement No. 141 (revised 2007), "Business Combinations", regardless of
whether those assets and liabilities are related to leases.  FSP SFAS
157-1 is effective upon the initial adoption of SFAS 157.





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.




d)
                Reclassifications


Certain
prior year balances have been reclassified to conform with the current period’s
interim financial statement presentation.


10
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








3.
              Equipment,
      Net





March 31,
            
            
            December 31,2008
            
            
            2007Furniture
      and fixtures
            
            $
            31,713
            
            
            $
            31,713Office
      equipment
            
            
            68,922
            
            
            
            43,648Lab
      and computer equipment
            
            
            423,159
            
            
            
            423,159523,794
            
            
            
            498,520Less:
      Accumulated depreciation
            
            
            408,761
            
            
            
            395,569Net
      carrying amount
            
            $
            115,033
            
            
            $
            102,951





Depreciation
expense was $13,192 and $11,760 for the three months ended March 31, 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 $4,453 for the three months
ended March 31, 2008 and 2007, respectively. Management does not believe that
there is an impairment of intangible assets at March 31, 2008.




The
following table sets forth the intangible asset:




March 31,
            
            
            December 31,2008
            
            
            2007Revaax
      License, original cost
            
            $
            356,216
            
            
            $
            356,216Less:
      Accumulated depreciation
            
            
            56,726
            
            
            
            52,273Balance
            
            $
            299,490
            
            
            $
            303,943


11
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








4.
            Intangible Assets, Net
      (cont’d)




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





2008
            
            $
            13,3582009
            
            
            17,8112010
            
            
            17,8112011
            
            
            17,8112012
            
            
            17,811Thereafter
            
            
            214,888$
            299,490




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 three months ended March
31, 2008 and 2007.  The remaining $1,106,250 at March 31, 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 March 31,
2008:




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




b)
            On
      August 10, 2001 the Company issued:




i)
              1,208,332 shares of common stock to the directors
      of the Company for cash of
$1,450,000.
  ii)
              958,334
      shares of common stock to Rexgene for cash of
  $550,000.




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




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


12
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








6.
            Common Stock(cont’d)




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.


13
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)






6.
            Common Stock
      (cont’d)




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.




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




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




p)
              On
      May 13, 2006, holders of 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.


14
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








6.
            Common Stock(cont’d)





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 $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 $128,572 and were
      charged to additional
paid-in-capital.




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 March
31, 2008, 10,570,000options 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 months ended March 31, 2008 and
2007 include share-based employee compensation expense totaling $55,473 and
$157,082, 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.


15
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








7.
            Stock-Based
      Compensation (cont'd)




Employee
stock option compensation expense in the first 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.




Stock
compensation expense related to non-employee options was $110,352 for the period
ended March 31, 2008 and $131,838 for the period ended March 31,
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 three months ended
March 31, 2008 and 2007, and the period from inception (March 19, 2001) to March
31, 2008, all of which relates to stock options and warrants, is as
follows:





March 31,
            
            
            March 31,
            
            
            Inception
      (March 19, 2001) to
              March 31,
      20082008
            
            
            2007Income
      statement line item:General
      and administrativePayroll
            
            $
            9,200
            
            
            $
            106,588
            
            
            $
            1,105,928Consulting
      and other professional fees
            
            
            71,656
            
            
            
            50,943
            
            
            
            668,758Research
      and development:Payroll
            
            
            46,273
            
            
            
            50,495
            
            
            
            530,643Consulting
      and other professional fees
            
            
            38,696
            
            
            
            80,894
            
            
            
            1,232,646Total
            
            $
            165,825
            
            
            $
            288,920
            
            
            $
            3,537,975




There
were 100,000 stock options granted during the three months ended March 31, 2008
at an exercise price of $2.19 with a fair value of $161,415. The fair value of
options at the date of grant was estimated using the Black-Scholes option
pricing model. During 2008, 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.


16
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








7.
            Stock-Based Compensation(cont'd)




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





Three
      Months EndedMarch 31,2008
              2007Black-Scholes
      weighted average assumptions:Expected
      dividend yield
              0
              0Expected
      volatility
              104%
              100%Risk
      free interest rate
              1.38%-4.99%
              4.56%-5.07%Expected
      term (in years)
              0.2-5
      years
              1-5
      years




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





2008
            
            
            2007Shares
      Subject to Options
            
            
            Weighted
      Avg.Option Prices
            
            
            Shares
      Subject to Options
            
            
            Weighted
      Avg.Option PricesOutstanding
      at January 1
            
            
            6,045,795
            
            
            $
            0.97
            
            
            
            6,123,295
            
            
            $
            0.94Granted
            
            
            100,000
            
            
            
            2.19
            
            
            
            275,000
            
            
            
            1.34Exercised–
            
            
            –
            
            
            
            –
            
            
            
            –Cancelled
            
            
            (50,000
            )
            
            
            1.34
            
            
            
            (207,500
            )
            
            
            1.20Outstanding
      at March 31
            
            
            6,095,795
            
            
            $
            0.99
            
            
            
            6,190,795
            
            
            $
            0.95





The
following table summarizes information about stock options outstanding as of
March 31, 2008 and 2007:





Shares
      Subject to Options
            
            
            Weighted
      Avg. Option Prices
            
            Weighted
      Average Remaining Contractual Term
            
            Aggregate
      Intrinsic ValueOutstanding
      at March 31, 2008
            
            
            6,095,795
            
            
            $
            0.97
            
            6.7
      years
            
            $
            9,399,997Exercisable
      at March 31, 2008
            
            
            4,252,045
            
            
            $
            0.89
            
            6.5
      years
            
            $
            7,003,709


17
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)








7.
            Stock-Based Compensation(cont'd)




As of
March 31, 2008 and 2007, there was $1,401,761 and $2,027,808 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 1.1 years and 1.4 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 March 31, 2008, the total
      maximum commitment under these agreements was approximately $2,655,872 and
      the Company had made payments totaling $1,748,227 under the terms of the
      agreements as at March 31, 2008.  All of these agreements may be
      terminated by either party upon appropriate notice as stipulated in the
      respective agreements.





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 results in an annual commitment of $160,000 through
      September 12, 2009. One agreement expires on September 12, 2010 and
      results in an annual commitment 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 March 31, 2008 are as
      follows:





Remainder
      of 2008
            
            $
            166,9912009
            
            
            112,972$
            279,963





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.


18
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)






8.
            Commitments and Contingencies(cont'd)




e)
              On
      March 5, 2007, the Company entered into an agreement with Rx
      Communications Group LLC (“Rx”) for Rx to provide investor relations
      services to the Company. Under this agreement, the Company agreed to pay
      Rx a monthly fixed retainer amount of $10,000 commencing March 1,
      2007.  In accordance with the agreement, the contract may be
      terminated by either party upon thirty (30) days prior written notice to
      the other party.  On November 1, 2007, the Company entered into
      an amendment of the agreement with Rx to provide investor relations
      services.  Under the amended agreement, the company agreed to
      pay Rx compensation for services at hourly rates commencing November 1,
      2007.  In accordance with the agreement, the contract may be
      terminated by either party upon thirty (30) days prior written notice to
      the other party.




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.




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




Investments,
at fair value—The Company 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.


19
 Table of Contents


REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Condensed Financial Statements


Three
Months Ended March 31, 2008 and 2007


(Unaudited)






9.
            Fair Value Measurements(cont'd)




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
            
            March 31,
              2008
            
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            
            Significant
      Other Observable Inputs
              (Level
      2)
            
            
            Significant
      Unobservable Inputs
              (Level
      3)Assets:Debt
      Investments
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Equity
      InvestmentsGove
            
            $
            1,375,000
            
            
            $
            1,375,000
            
            
            $
            -
            
            
            $
            -Government
      Obligations
            
            $
            3,397,350
            
            
            $
            3,397,350
            
            
            $
            -
            
            
            $
            -Total
      Assets
            
            $
            4,772,350
            
            
            $
            4,772,350
            
            
            $
            -
            
            
            $
            -Liabilities:$
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Total
      Liabilities
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -


20
 Table of Contents




Item 2
              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;·
            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
Staff's 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.


21
 Table of Contents


RECENTLY
ISSUED ACCOUNTING STANDARDS





In
September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, “Fair Value
Measurements” ("SFAS 157"), which is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 codifies the definition of
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. SFAS 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing the asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. In February 2008, FASB issued FSP
SFAS No. 157-2, “Effective date of FASB Statement No. 157” (“FSP SFAS
157-2”).  FSP SFAS 157-2 delays the effective date of SFAS No. 157,
“Fair Value Measurement” to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years.  The Company is currently
assessing the potential impact that the adoption of SFAS 157 could have on its
financial statements.





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 Company is
currently assessing the potential impact that the adoption of SFAS 160 could
have on its financial statements.





In
February 2008, FASB issued FASB Staff Position (“FSP”) SFAS No. 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions” (“FSP SFAS 140-3”).  The objective of this FSP is to
provide guidance on accounting for a transfer of a financial asset and a
repurchase financing.  This FSP presumes that an initial transfer of a
financial asset and a repurchase financing are considered part of the same
arrangement (linked transaction) under SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities” ("SFAS
140").  However, if certain criteria are met, the initial transfer and
repurchase financing shall not be evaluated as a linked transaction and shall be
evaluated separately under SFAS No. 140.  FSP SFAS 140-3 is effective
for financial statements issued for fiscal years beginning after November 15,
2008, and interim periods within these fiscal years.  Earlier
application is not permitted.  The Company is currently reviewing the
effect, if any; the proposed guidance will have on its financial
statements.


22
 Table of Contents


In
February 2008, FASB issued FSP SFAS No. 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13” (“FSP SFAS 157-1”).  FSP SFAS 157-1
amends SFAS 157 to exclude FASB Statement No. 13, "Accounting for Leases”, and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under FASB Statement No.
13.  However, this scope exception does not apply to assets acquired
and liabilities assumed in a business combination that are required to be
measured at fair value under FASB Statement No. 141, “Business Combinations”, or
FASB Statement No. 141 (revised 2007), "Business Combinations", regardless of
whether those assets and liabilities are related to leases.  FSP SFAS
157-1 is effective upon the initial adoption of SFAS 157.





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.





RESULTS
OF OPERATIONS





Comparison
of Three Months Ended March 31, 2008 and 2007:





Total
Revenues





For each
of the three month periods ended March 31, 2008 and 2007, we recorded revenues
of $18,750 from 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 $67,746, or 10.7%, from $633,726 for the
three months ended March 31, 2007 to $565,980 for the three months ended March
31, 2008.  The decrease 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 increased $206,184, or 35.9%, from $573,782 for the
three months ended March 31, 2007 to $779,966 for the three months ended March
31, 2008.  The increase was due primarily to drug candidates moving
into the clinical trials phases of development.


23
 Table of Contents


Patent
Fees





Our
patent fees increased $9,827, or 29.0%, from $33,838 for the three months ended
March 31, 2007 to $43,665 for the three months ended March 31,
2008.  The increase during the 2008 period was due primarily to more
patent issuances during 2008.





Interest
Income





Interest
income increased $52,850, or 96.8%, from $54,591 for the three months ended
March 31, 2007 to $107,441 for the three months ended March 31,
2008.  The increase of $52,850 in interest income or 96.8% in the
three months ended March 31, 2008 compared to the same period in 2007 is
primarily due to higher cash and cash equivalent balances during the 2008
period.





Depreciation
and Amortization





Depreciation
and amortization expenses increased by $1,323 for the three months ended March
31, 2008 to $17,645 compared to $16,322 for the three months ended March 31,
2007.  The increase was due primarily to additional equipment
acquired.





Net
Loss





As a
result of the above, the net loss for the three months ended March 31, 2008 was
$1,303,430, or $0.02per share, compared to a
net loss of $1,184,327, or $0.02 per share, for the three months ended March 31,
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 RX-10100) 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
II clinical trial for Archexin, in patients with renal cell carcinoma
(RCC).  Archexin is currently in Phase II trials.  The costs
incurred for the clinical trial were approximately $2,500,000.


24
 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 future, we plan to
apply Archexin to the treatment of other orphan indications and other
cancers.





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 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 II trials will be
completed in 2009 and will require 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-1αinhibitor





RX-0047-Nano
is a nanoliposomal cancer drugcandidate that
selectively inhibits expression of the HIF-1α transcription factor. HIF-1α 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-1α. HIF-1α 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-1α 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.


25
 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
March 31, 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 $1,186,702 for the three months ended March 31, 2008
compared to cash used in operating activities of $837,952 for the same period
ended March 31, 2007.  The operating cash flows during the three
months ended March 31, 2008 reflect our loss from operations of $1,303,430 and a
net increase in cash components of working capital of $70,356 and by non-cash
charges of $187,085.  Non-cash charges consist of depreciation and
amortization of $17,645, stock option compensation expense of $165,825,
amortization of deferred revenue of $(18,750), and realized loss on securities
of $(22,365).  The decrease in working capital primarily consists of a
$17,390 decrease in accounts payable and accrued expenses and an increase of
$52,967 to prepaid and other assets.





Cash used
in investing activities of $1,422,867 during the three months ended March 31,
2008 consisted of $25,274 purchases of equipment, $5,848,176 purchases of
securities available-for-sale, and $4,450,583 from proceeds of disposition of
securities available-for-sale.  There was no cash used in investing
activities during the three months ended March 31, 2007.





Cash
provided by financing activities of $900,001 during the three months ended March
31, 2008 was the result of the proceeds from the issuance of 642,858 common
stock units.





For the
three months ended March 31, 2008 and the years ended December 31, 2007 and
2006, we experienced net losses of $1,303,430, $4,304,005 and $6,486,003,
respectively.  Our accumulated deficit as of March 31, 2008, and
December 31, 2007 and 2006 was $26,297,761, $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 three months ended March 31, 2008, we had a
net decrease in cash and cash equivalents of $1,709,568 resulting from the cash
used in operating activities.  Total cash and cash equivalents as of
March 31, 2008 were $2,100,003 compared to $3,809,571 as of December 31,
2007.





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.


26
 Table of Contents


CONTRACTUAL
OBLIGATIONS




On
October 2, 2003, we contracted with Amarex to conduct certain Phase I clinical
studies for ArchexinTM (then RX-0201).  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 $193,331, of all which was paid as of March 31,
2008.





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, but Georgetown
University has not yet billed the Company for the services.  We expect
to make a 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 March 31, 2008 are as
follows:





Remainder
      of 2008
            
            $
            166,9912009
            
            
            112,972$
            279,963




On
September 12, 2005, we entered into an employment agreement with Chang H.
Ahn.  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 II clinical
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 $577,610 towards the initial cost of
the study as of March 31, 2008 and December 31, 2007 respectively.





On April
3, 2006, we contracted with UPM Pharmaceuticals, Inc. to develop several release
formulations for SerdaxinTM and ZoraxelTM.  In accordance with the
agreement, the estimated contract duration was seven months for an estimated
cost of $443,975, of which $159,280 was paid as of  March 31,
2008.   The service for $90,950 of original contract has been
cancelled.  The service costs were payable based upon a payment
schedule related to certain milestones.  During 2007 and 2008,
additional services were added to the project.  The cost of the
additional services is $302,200, of which $110,515 was paid as of March 31,
2008.





On
February 1, 2007, we entered into 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 March
31, 2008.


27
 Table of Contents


On June
13, 2007, we contracted with Formatech to test the stability of 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.





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





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 $223,000 on facilities
rent.  We plan to initiate Phase II clinical trials of Serdaxin 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 II clinical trials for new product candidates, as well as other research
and development projects, which together with the minimum operating plan for the
next 12 months, could aggregate up to $6 million through the first quarter of
2009.




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.


28
 Table of Contents




Item 3
            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.


29
 Table of Contents




Item 4T
            Controls
      and Procedures





As of
March 31, 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 March 31, 2008 that have materially affected, or are reasonably
likely to affect, our financial reporting.


30
 Table of Contents


PART
II





Item 1
              Legal
      Proceedings
 
 None
 
 Item 2
              Unregistered
      Sales of Equity Securities and Use of
Proceeds
 
 None
 
 Item 3
              Defaults
      Upon Senior Securities
 
 None
 
 Item 4
              Submission
      of Matters to a Vote of Security
Holders
 
 None
 
 Item 5
              Other
      Information
 
 None
 
 Item 6
              Exhibits


Exhibit
      No
            
            Description
            
            Location10.1
            
            Securities
      Purchase Agreement, dated as of March 20, 2008, by and between Rexahn
      Pharmaceuticals, Inc. and Jungwoo Family Co., Ltd.
            
            Filed
      as Exhibit 10.1 to the Current Report on Form 8-K of Rexahn
      Pharmaceuticals, Inc. filed on March 26, 2008 and incorporated herein by
      reference.10.2
            
            Securities
      Purchase Agreement, dated as of March 20, 2008, by and between Rexahn
      Pharmaceuticals, Inc. and Super Bio Co. Ltd.
            
            Filed
      as Exhibit 10.2 to the Current Report on Form 8-K of Rexahn
      Pharmaceuticals, Inc. filed on March 26, 2008 and incorporated herein by
      reference.10.3
            
            Form
      of Warrant issued pursuant to the Jungwoo Securities Purchase Agreement
      and the Super Bio Securities Purchase Agreement
            
            Filed
      as Exhibit 10.3 to the Current Report on Form 8-K of Rexahn
      Pharmaceuticals, Inc. filed on March 26, 2008 and incorporated herein by
      reference.31.1
            
            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


31
 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)By:
            /s/
      Chang H. AhnDate:
      May 15, 2008
            
            Chang
      H. AhnChairman
      and Chief Executive OfficerBy:
            /s/
      Ted T.H. JeongDate:
      May 15, 2008
            
            Ted
      T.H. JeongChief
      Financial Officer and Secretary


32
 Table of Contents


INDEX
TO EXHIBITS


Quarterly
Report on Form 10-Q


Dated
March 31, 2008








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