----

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|             x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2011 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Large Accelerated Filer                       | o | Accelerated Filer         | x |
|-----------------------------------------------|---|---------------------------|---|
| Non-Accelerated Filer                         | o | Smaller reporting company | o |
| (Do not check if a smaller reporting company) |

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TABLE OF CONTENTS 

TABLE OF CONTENTS

|       |                                                                                        | Page                                                                                                                                                                         |
|------------|---------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                        |                                                                                                                                                                         |
| PART I     | FINANCIAL INFORMATION                                                                       |                                                                                                                                                                         |   |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 1     | Financial Statements                                                                        |                                                                                                                                                                         |   |
|       |                                                                                        |                                                                                                                                                                         |   |
|       | 1)                                                                                          | Condensed Balance Sheet at March 31, 2011 (unaudited) and December 31, 2010                                                                                                  |   | 3 |
|       |                                                                                        |                                                                                                                                                                         |   |   |
|       | 2)                                                                                          | Condensed Statement of Operations (unaudited) for the three months ended March 31, 2011 and 2010  and cumulative from March 19, 2001 (inception) to March 31, 2011 |   | 4 |
|       |                                                                                        |                                                                                                                                                                         |   |   |
|       | 3)                                                                                          | Condensed Statement of Cash Flows (unaudited) for the three months ended March 31, 2011 and 2010  and cumulative from March 19, 2001 (inception) to March 31, 2011 |   | 5 |
|       |                                                                                        |                                                                                                                                                                         |   |   |
|       | 4)                                                                                          | Notes to Condensed Financial Statements (unaudited)                                                                                                                          |   | 7 |
|       |                                                                                        |                                                                                                                                                                         |   |   |
| Item 2     | Management’s Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                                                                         | 37 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 3     | Quantitative and Qualitative Disclosures About Market Risk                                  |                                                                                                                                                                         | 46 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 4     | Controls and Procedures                                                                     |                                                                                                                                                                         | 46 |
|       |                                                                                        |                                                                                                                                                                         |   |
| PART II    | OTHER INFORMATION                                                                           |                                                                                                                                                                         |   |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 1     | Legal Proceedings                                                                           |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 1A    | Risk Factors                                                                                |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 2     | Unregistered Sales of Equity Securities and Use of Proceeds                                 |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 3     | Defaults Upon Senior Securities                                                             |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 4     | (Removed and Reserved)                                                                      |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 5     | Other Information                                                                           |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |   |
| Item 6     | Exhibits                                                                                    |                                                                                                                                                                         | 47 |
|       |                                                                                        |                                                                                                                                                                         |
| SIGNATURES |                                                                                        | 48                                                                                                                                                                           |

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TABLE OF CONTENTS

Condensed Balance Sheet

|                                                                                                                                                             | March 31, 2011(unaudited) |   | December 31, 2010 |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------|------------------------|---------|
| ASSETS                                                                                                                                                           |                           |
| Current Assets:                                                                                                                                                  |                           |   |                   |    |
| Cash and cash equivalents                                                                                                                                        |                           | $      | 20,513,075             |    |   | $ | 12,340,239 |   |
| Marketable securities (note 4)                                                                                                                                   |                           |   | 2,450,260              |    |   |   | 2,451,620 |   |
| Research tax credit receivable                                                                                                                                   |                           |   | —                |    |   |   | 145,513 |   |
| Prepaid expenses and other current assets (note 5)                                                                                                               |                           |   | 725,122                |    |   |   | 706,649 |   |
| Note receivable – current portion (note 6)                                                                                                                 |                           |   | 28,023                 |    |   |   | 28,023 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Total Current Assets                                                                                                                                             |                           |   | 23,716,480             |    |   |   | 15,672,044 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Restricted Cash Equivalents (note 18)                                                                                                                            |                           |   | 3,359,456              |    |   |   | 401,893 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Note Receivable (note 6)                                                                                                                                         |                           |   | 11,676                 |    |   |   | 18,682 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Equipment, Net (note 7)                                                                                                                                          |                           |   | 109,438                |    |   |   | 123,565 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Total Assets                                                                                                                                                     |                           | $      | 27,197,050             |    |   | $ | 16,216,184 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                       |                           |
| Current Liabilities:                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Accounts payable and accrued expenses (note 8)                                                                                                                   |                           | $      | 2,939,634              |    |   | $ | 1,820,900 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Deferred Revenue (note 9)                                                                                                                                        |                           |   | 881,250                |    |   |   | 900,000 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Other Liabilities (note 10)                                                                                                                                      |                           |   | 128,005                |    |   |   | 133,117 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Warrant Liabilities (note 15)                                                                                                                                    |                           |   | 6,114,800              |    |   |   | 2,966,710 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Total Liabilities                                                                                                                                                |                           |   | 10,063,689             |    |   |   | 5,820,727 |   |
| Commitments and Contingencies (note 18)                                                                                                                          |                           |   |                   |    |   |   |   |   |
| Stockholders’ Equity (note 13):                                                                                                                            |                           |   |                   |    |   |   |   |   |
| Preferred stock, par value $0.0001, 100,000,000 authorized shares, none issued and outstanding                                                                   |                           |   | —                |    |   |   | — |   |
| Common stock, par value $0.0001, 500,000,000 authorized shares, 95,251,861 (2010 – 84,175,504) issued and outstanding 95,237,656 (2010 – 84,160,849) |                           |   | 9,525                  |    |   |   | 8,418 |   |
| Additional paid-in capital                                                                                                                                       |                           |   | 67,331,770             |    |   |   | 56,157,452 |   |
| Accumulated other comprehensive loss                                                                                                                             |                           |   | (3,700                 | )       |   |   | (2,340 | ) |
| Accumulated deficit during the development stage                                                                                                                 |                           |   | (50,175,824            | )       |   |   | (45,739,663 | ) |
| Treasury stock, 14,205 shares, at cost                                                                                                                           |                           |   | (28,410                | )  |   |   | (28,410 | ) |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Total Stockholders’ Equity                                                                                                                                 |                           |   | 17,133,361             |    |   |   | 10,395,457 |   |
|                                                                                                                                                             |                           |   |                   |    |   |   |   |   |
| Total Liabilities and Stockholders’ Equity                                                                                                                 |                           | $      | 27,197,050             |    |   | $ | 16,216,184 |   |

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TABLE OF CONTENTS

Condensed Statement of Operations

|                                                             |   |                                 |             |   |           |   |       | Cumulative     |   |
|------------------------------------------------------------------|--------|--------------------------------------|------------------|--------|----------------|--------|------------|----------------|--------|
|                                                             |   |                                 |             |   |           |   |       | from March 19, |   |
|                                                             |   |                                 |             |   |           |   |       | 2001           |   |
|                                                             |   | For the Three Months Ended March 31, |             |   | (Inception) to |   |
|                                                             |   | 2011                                 |             |   | 2010           |   |       | March 31, 2011 |   |
|                                                             |   |                                 |             |   | (Restated)     |   |       |           |   |
| Revenues:                                                        |   |                                 |             |   |           |   |
| Research                                                         |   | $                                    | 18,750           |   |           | $      | 18,750     |           |   | $ | 618,750 |   |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Expenses:                                                        |   |                                 |             |   |           |   |       |           |   |   |   |   |
| General and administrative                                       |   |                                 | 1,109,172        |   |           |   | 1,056,465  |           |   |   | 24,908,339 |   |
| Research and development                                         |   |                                 | 2,736,277        |   |           |   | 491,122    |           |   |   | 23,229,794 |   |
| Patent fees                                                      |   |                                 | 72,514           |   |           |   | 52,734     |           |   |   | 1,627,492 |   |
| Depreciation and amortization                                    |   |                                 | 14,127           |   |           |   | 11,547     |           |   |   | 609,594 |   |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Total Expenses                                                   |   |                                 | 3,932,090        |   |           |   | 1,611,868  |           |   |   | 50,375,219 |   |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Loss from Operations                                             |   |                                 | (3,913,340       | )      |           |   | (1,593,118 | )              |   |   | (49,756,469 | ) |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Other Income (Expense)                                           |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Realized loss on marketable securities                           |   |                                 | —          |   |           |   | —    |           |   |   | (9,341 | ) |
| Interest income                                                  |   |                                 | 42,471           |   |           |   | 22,014     |           |   |   | 1,354,540 |   |
| Interest expense                                                 |   |                                 | —          |   |           |   | —    |           |   |   | (301,147 | ) |
| Other income                                                     |   |                                 | —          |   |           |   | —    |           |   |   | 56,047 |   |
| Unrealized loss on fair value of warrants                        |   |                                 | (467,625         | )      |           |   | (6,560,205 | )              |   |   | (1,569,970 | ) |
| Unrealized gain on fair value of put feature on common stock     |   |                                 | —          |   |           |   | 97,713     |           |   |   | 2,315,539 |   |
| Financing expense                                                |   |                                 | (97,667          | )      |           |   | —    |           |   |   | (640,023 | ) |
| Beneficial conversion feature                                    |   |                                 | —          |   |           |   | —    |           |   |   | (1,625,000 | ) |
| Total Other Income (Expense)                                     |   |                                 | (522,821         | )      |           |   | (6,440,478 | )              |   |   | (419,355 | ) |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Net Loss Before Provision for Income Taxes                       |   |                                 | (4,436,161       | )      |           |   | (8,033,596 | )              |   |   | (50,175,824 | ) |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Provision for Income Taxes                                       |   |                                 | —          |   |           |   | —    |           |   |   | — |   |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Net Loss                                                         |   | $                                    | (4,436,161       | )      |           | $      | (8,033,596 | )              |   | $ | (50,175,824 | ) |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Net loss per share, basic and diluted                            |   | $                                    | (0.05            | )      |           | $      | (0.11      | )              |   |   |   |   |
|                                                             |   |                                 |             |   |           |   |       |           |   |   |   |   |
| Weighted average number of shares outstanding, basic and diluted |   |                                 |  86,251,682 |   |           |   | 72,271,780 |           |   |   |   |   |

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TABLE OF CONTENTS

Condensed Statement of Cash Flows

|                                                                        |   | For the Three Months EndedMarch 31, |       |   | CumulativeFrom March 19, 2001(Inception) toMarch 31, |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|------------|--------|------------------------------------------------------|--------|
|                                                                        |   | 2011                                |       |   | 2010                                                 |   |   | 2011 |   |
|                                                                        |   |                                |       |   | (Restated)                                           |   |   |   |   |
| Cash Flows from Operating Activities:                                       |   |                                |       |   |                                                 |   |   |   |   |
| Net loss                                                                    |   | $                                   | (4,436,161 | )      |                                                 | $      | (8,033,596 | ) |   | $ | (50,175,824 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: |   |                                |       |   |                                                 |   |   |   |   |   |   |   |
| Beneficial conversion feature                                               |   |                                | —    |   |                                                 |   | — |   |   |   | 1,625,000 |   |
| Compensatory stock                                                          |   |                                | —    |   |                                                 |   | 366,000 |   |   |   | 2,129,877 |   |
| Depreciation and amortization                                               |   |                                | 14,127     |   |                                                 |   | 11,547 |   |   |   | 609,594 |   |
| Stock option compensation                                                   |   |                                | 201,988    |   |                                                 |   | 195,378 |   |   |   | 5,141,010 |   |
| Amortization of deferred revenue                                            |   |                                | (18,750    | )      |                                                 |   | (18,750 | ) |   |   | (618,750 | ) |
| Note receivable                                                             |   |                                | 7,007      |   |                                                 |   | — |   |   |   | (39,698 | ) |
| Realized losses on marketable securities                                    |   |                                | —    |   |                                                 |   | — |   |   |   | 9,341 |   |
| Unrealized loss on fair value of warrants                                   |   |                                | 467,625    |   |                                                 |   | 6,560,205 |   |   |   | 1,569,970 |   |
| Unrealized gain on fair value of put feature on common stock           |   |                                | —    |   |                                                 |   | (97,713 | ) |   |   | (2,315,539 | ) |
| Financing expense                                                           |   |                                | 97,667     |   |                                                 |   | — |   |   |   | 640,023 |   |
| Amortization of deferred lease incentive                                    |   |                                | (5,000     | )      |                                                 |   | (5,000 | ) |   |   | (35,000 | ) |
| Deferred lease expenses                                                     |   |                                | (112       | )      |                                                 |   | 12,420 |   |   |   | 63,005 |   |
| Loss on impairment of intangible assets                                     |   |                                | —    |   |                                                 |   | — |   |   |   | 286,132 |   |
| Changes in assets and liabilities:                                          |   |                                |       |   |                                                 |   |   |   |   |   |   |   |
| Prepaid expenses and other current assets                                   |   |                                | (18,473    | )      |                                                 |   | (170,988 | ) |   |   | (725,122 | ) |
| Research tax credit receivable                                              |   |                                | 145,513    |   |                                                 |   | — |   |   |   | — |   |
| Accounts payable and accrued expenses                                       |   |                                | 1,118,734  |   |                                                 |   | 131,452 |   |   |   | 2,939,634 |   |
| Net Cash Used in Operating Activities                                       |   |                                | (2,425,835 | )      |                                                 |   | (1,049,045 | ) |   |   | (38,896,347 | ) |
|                                                                        |   |                                |       |   |                                                 |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities:                                       |   |                                |       |   |                                                 |   |   |   |   |   |   |   |
| Restricted cash equivalents                                                 |   |                                | (2,957,563 | )      |                                                 |   | 116,233 |   |   |   | (3,359,456 | ) |
| Purchase of equipment                                                       |   |                                | —    |   |                                                 |   | (1,270 | ) |   |   | (548,948 | ) |
| Purchase of marketable securities                                           |   |                                | —    |   |                                                 |   | — |   |   |   | (13,123,960 | ) |
| Proceeds from sales of marketable securities                                |   |                                | —    |   |                                                 |   | — |   |   |   | 10,660,659 |   |
| Payment of licensing fees                                                   |   |                                | —    |   |                                                 |   | — |   |   |   | (356,216 | ) |
| Net Cash (Used in) Provided by Investing Activities                         |   |                                | (2,957,563 | )      |                                                 |   | 114,963 |   |   |   | (6,727,921 | ) |
| Cash Flows from Financing Activities:                                       |   |                                |       |   |                                                 |   |   |   |   |   |   |   |
| Issuance of common stock and units, net of issuance costs                   |   |                                | 13,220,273 |   |                                                 |   | — |   |   |   | 55,805,574 |   |
| Proceeds from exercise of stock options                                     |   |                                | 18,000     |   |                                                 |   | 21,240 |   |   |   | 128,842 |   |
| Proceeds from exercise of stock warrants                                    |   |                                | 317,961    |   |                                                 |   | 1,297,001 |   |   |   | 3,581,337 |   |
| Proceeds from long-term debt                                                |   |                                | —    |   |                                                 |   | — |   |   |   | 5,150,000 |   |
| Proceeds from research contribution                                         |   |                                | —    |   |                                                 |   | — |   |   |   | 1,500,000 |   |
| Purchase of treasury stock                                                  |   |                                | —    |   |                                                 |   | — |   |   |   | (28,410 | ) |
| Net Cash Provided by Financing Activities                                   |   |                                | 13,556,234 |   |                                                 |   | 1,318,241 |   |   |   | 66,137,343 |   |
| Net Increase in Cash and Cash Equivalents                                   |   |                                | 8,172,836  |   |                                                 |   | 384,159 |   |   |   | 20,513,075 |   |
| Cash and Cash Equivalents - beginning of period                             |   |                                | 12,340,239 |   |                                                 |   | 7,298,032 |   |   |   | — |   |
| Cash and Cash Equivalents - end of period                                   |   | $                                   | 20,513,075 |   |                                                 | $      | 7,682,191 |   |   | $ | 20,513,075 |   |

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|                                                       |   | For the Three Months EndedMarch 31, |      |   | CumulativeFrom March 19, 2001(Inception) toMarch 31, |   |
|------------------------------------------------------------|--------|-------------------------------------|-----------|--------|------------------------------------------------------|--------|
|                                                       |   | 2011                                |      |   | 2010                                                 |   |   | 2011 |   |
|                                                       |   |                                |      |   | (Restated)                                           |   |   |   |   |
| Supplemental Cash Flow Information                         |   |                                |      |   |                                                 |   |   |   |   |
| Interest paid                                              |   | $                                   | —   |   |                                                 | $      | — |   |   | $ | 301,147 |   |
| Non-cash financing and investing activities:               |   |                                |      |   |                                                 |   |   |   |   |   |   |   |
| Warrants issued                                            |   | $                                   | 2,924,333 |   |                                                 | $      | — |   |   | $ | 11,054,427 |   |
| Put feature on common stock issued                         |   | $                                   | —   |   |                                                 | $      | — |   |   | $ | 4,954,738 |   |
| Dilutive issuances of common stock                         |   | $                                   | —   |   |                                                 | $      | — |   |   | $ | 2,639,199 |   |
| Warrant liability extinguishment from exercise of warrants |   | $                                   | 243,868   |   |                                                 | $      | 1,301,700 |   |   | $ | 6,180,660 |   |
| Leasehold improvement incentive                            |   | $                                   | —   |   |                                                 | $      | — |   |   | $ | 100,000 |   |
| Settlement of lawsuit                                      |   | $                                   | —   |   |                                                 | $      | — |   |   | $ | 43,953 |   |

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Notes to Condensed Financial Statements

| 1. | Operations and Organization |
|----|-----------------------------|

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TABLE OF CONTENTS

| STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 |   |
|-------------------------------------------------------------------|--------|
|                                                              |   | As previously reported |   |   | Effect of Restatement |   |   | As restated |   |
|                                                              |   |   |   |   |   |   |   |   |   |
| Unrealized loss on fair value of warrants                         |   | $ | — |   |   | $ | (6,560,205 | ) |   | $ | (6,560,205 | ) |
| Unrealized gain on fair value of put feature on common stock      |   |   | — |   |   |   | 97,713 |   |   |   | 97,713 |   |
| Total other income (expense)                                      |   |   | 22,014 |   |   |   | (6,462,492 | ) |   |   | (6,440,478 | ) |
| Net loss before provision for income taxes                        |   |   | (1,571,104 | ) |   |   | (6,462,492 | ) |   |   | (8,033,596 | ) |
| Net loss                                                          |   |   | (1,571,104 | ) |   |   | (6,462,492 | ) |   |   | (8,033,596 | ) |
| Net loss per share, basic and diluted                             |   |   | (0.02 | ) |   |   | (0.09 | ) |   |   | (0.11 | ) |

| STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2010 |   |
|-------------------------------------------------------------------|--------|
|                                                              |   | As previously reported |   |   | Effect of Restatement |   |   | As restated |   |
| Net loss                                                          |   | $ | (1,571,104 | ) |   | $ | (6,462,492 | ) |   | $ | (8,033,596 | ) |
| Unrealized gain on fair value of put feature on common stock      |   |   | — |   |   |   | (97,713 | ) |   |   | (97,713 | ) |
| Unrealized loss on fair value of warrants                         |   |   | — |   |   |   | 6,560,205 |   |   |   | 6,560,205 |   |
| Net cash used in operating activities                             |   |   | (1,049,045 | ) |   |   | — |   |   |   | (1,049,045 | ) |

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| 4. | Marketable Securities |
|----|-----------------------|

| Securities available-for-sale   |   | CostBasis |      |   | Gross UnrealizedLosses |   |   | FairValue |   |
|---------------------------------|--------|-----------|-----------|--------|------------------------|--------|--------|-----------|--------|
| March 31, 2011:                 |   |      |      |   |                   |   |   |      |   |
| State and municipal obligations |   | $         | 2,453,960 |   |                   | $      | (3,700 | )         |   | $ | 2,450,260 |   |
|                            |   |      |      |   |                   |   |   |      |   |   |   |   |
| December 31, 2010:              |   |      |      |   |                   |   |   |      |   |   |   |   |
| State and municipal obligations |   | $         | 2,453,960 |   |                   | $      | (2,340 | )         |   | $ | 2,451,620 |   |

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| 4. | Marketable Securities (cont’d) |
|----|--------------------------------------|

| Maturity         |   | CostBasis |      |   | GrossUnrealizedLosses |   |    | FairValue |   |
|------------------|--------|-----------|-----------|--------|-----------------------|--------|---------|-----------|--------|
| 1 year or less   |   | $         | 503,960   |   |                  | $      | (3,700  | )         |   | $ | 500,260 |   |
| 10 years or more |   |      | 1,950,000 |   |                  |   | — |      |   |   | 1,950,000 |   |
|             |   |      |      |   |                  |   |    |      |   |   |   |   |
|             |   | $         | 2,453,960 |   |                  | $      | (3,700  | )         |   | $ | 2,450,260 |   |

|                  |   | March 31,2011 |    |   | December 31,2010 |   |
|-----------------------|--------|---------------|---------|--------|------------------|--------|
|                  |   |          |    |   |             |   |
| Deposits on contracts |   | $             | 631,112 |   |             | $      | 564,074 |   |
| Other assets          |   |          | 94,010  |   |             |   | 142,575 |   |
|                  |   |          |    |   |             |   |   |   |
|                  |   | $             | 725,122 |   |             | $      | 706,649 |   |

| 6. | Note Receivable |
|----|-----------------|

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| 6. | Note Receivable (cont’d) |
|----|--------------------------------|

|                                     |   |            |   |
|------------------------------------------|--------|-----------------|--------|
| Principal Amortization                   |   | ExpectedPayment |   |
| Within 1 year                            |   | $               | 28,023 |   |
| 1 year to Maturity Date (August 1, 2012) |   |            | 11,676 |   |
|                                     |   |            |   |   |
|                                     |   | $               | 39,699 |   |

|                           |   | March 31, 2011 |     |   | December 31, 2010 |   |
|--------------------------------|--------|----------------|----------|--------|------------------------|--------|
|                           |   |           |     |   |                   |   |
| Furniture and fixtures         |   | $              | 32,169   |   |                   | $      | 32,169 |   |
| Office equipment               |   |           | 77,032   |   |                   |   | 77,032 |   |
| Lab and computer equipment     |   |           | 429,415  |   |                   |   | 429,415 |   |
| Leasehold improvements         |   |           | 110,713  |   |                   |   | 110,713 |   |
|                           |   |           |     |   |                   |   |   |   |
| Total fixed assets             |   |           | 649,329  |   |                   |   | 649,329 |   |
| Less: Accumulated depreciation |   |           | (539,891 | )      |                   |   | (525,764 | ) |
|                           |   |           |     |   |                   |   |   |   |
| Net carrying amount            |   | $              | 109,438  |   |                   | $      | 123,565 |   |

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| 8. | Accounts Payable and Accrued Expenses |
|----|---------------------------------------|

|                                            |   | March 31,2011 |      |   | December 31,2010 |   |
|-------------------------------------------------|--------|---------------|-----------|--------|-----------------------|--------|
|                                            |   |          |      |   |                  |   |
| Trade payables                                  |   | $             | 878,051   |   |                  | $      | 487,527 |   |
| Accrued expenses                                |   |          | 817,199   |   |                  |   | 18,466 |   |
| Accrued research and development contract costs |   |          | 1,129,339 |   |                  |   | 1,239,233 |   |
| Payroll liabilities                             |   |          | 115,045   |   |                  |   | 73,674 |   |
|                                            |   |          |      |   |                  |   |   |   |
|                                            |   | $             | 2,939,634 |   |                  | $      | 1,820,900 |   |

|   | On June 29, 2009, the Company entered into a five year office lease agreement as discussed in note 18.  The lessor agreed to grant a leasehold improvement allowance of $100,000 to the Company to be used for the construction cost of improvements to the leased property, which included architectural and engineering fees, government agency plan check, permit and other fees, sales and use taxes, testing and inspection costs, and telephone and data cabling and wiring in the premises.  The Company accounts for the benefit of the leasehold improvement allowance as a reduction of rental expense over the five-year term of the office lease. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                          |   |          |    |   |             |   |
|-------------------------------|--------|---------------|---------|--------|------------------|--------|
|                          |   | March 31,2011 |    |   | December 31,2010 |   |
|                          |   |          |    |   |             |   |
| Deferred lease incentive      |   | $             | 100,000 |   |             | $      | 100,000 |   |
| Less accumulated amortization |   |          | (35,000 | )      |             |   | (30,000 | ) |
|                          |   |          |    |   |             |   |   |   |
| Balance                       |   | $             | 65,000  |   |             | $      | 70,000 |   |

| 11. | Comprehensive Loss |
|-----|--------------------|

| 12. | Net Loss per Common Share |
|-----|---------------------------|

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| 13. | Common Stock |
|-----|--------------|

|   | The following transactions occurred from March 19, 2001 (inception) to March 31, 2011: |
|--------|----------------------------------------------------------------------------------------|
|   |                                                                                   |
|   | a)                                                                                     | On May 10, 2001, the Company issued 3,600,000 shares of common stock to the Company’s founders for cash of $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. |
|   |                                                                                   |   |
|   | 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 stockholders 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 consideration of $2,000,000. |
|   |                                                                                   |   |
|   | h)                                                                                     | On October 29, 2004, an option holder exercised options to purchase shares of common stock for cash of $1,800 and the Company issued an aggregate of 1,500 shares. |
|   |                                                                                   |   |
|   | i)                                                                                     | Pursuant to the agreement and plan of merger which occurred on May 13, 2005, (i) each share of the issued and outstanding common stock of Rexahn, Corp (“Rexahn”) (other than dissenting shares) was converted into the right to receive five shares of Rexahn Pharmaceuticals common stock; (ii) each issued, outstanding and unexercised option to purchase a share of Rexahn common stock was converted into an option to purchase five shares of Rexahn Pharmaceuticals’ common stock and (iii) the par value of Rexahn’s common stock was adjusted to reflect the par value of Corporate Road Show  Com Inc. (“CRS”) common stock. In the acquisition merger, 289,780,000 CRS pre-reverse stock split shares were converted into 2,897,802 post-reverse stock split Rexahn Pharmaceuticals shares, and an additional 500,000 post-reverse stock split Rexahn Pharmaceuticals shares were issued to a former executive of CRS.  All shares and earnings per share information have been retroactively restated in these financial statements. |
|   |                                                                                   |   |
|   | j)                                                                                     | On August 8, 2005, the Company issued, in a transaction exempt from registration under the Securities Act of 1993, as amended, 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 legal services from W. Rosenstadt and Steve Sanders. |

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | l) | On December 2, 2005, the holders of a convertible note that was issued on August 8, 2005 and, represented $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) | On February 22, 2006, an option holder exercised options to purchase shares of the Company’s common stock for cash of $1,200 and the Company issued an aggregate of 5,000 shares. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | w) | On December 18, 2007, the Company issued 4,857,159 units 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. The Company has recorded the warrants as liabilities at fair value as discussed in footnote 15.  Private placement closing costs of $139,675 were recorded as a reduction of the issuance proceeds.  Private placements costs also consist of 107,144 warrants, valued at $138,326, and were recorded as a financing expense. The Company extended anti-dilutive protection to the investors. The anti-dilution protection provision is structured in a way that is designed to protect a holder’s position from being diluted and contains a price protection based on a mathematical calculation, and is recorded as a liability at fair value, as discussed in footnote 16.   The Company revalues these liabilities each reporting period, with the unrealized gain (loss) recorded as other income (expense). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A summary of the allocation of the proceeds of the offering is shown below: |
|--------|-----------------------------------------------------------------------------|

| Gross Proceeds:                             |   | $      | 6,800,023 |   |
|---------------------------------------------|--------|--------|-----------|--------|
|                                        |   |   |      |   |
| Allocated to liabilities:                   |   |   |      |   |
| Warrant liabilities                         |   |   | 1,392,476 |   |
| Put feature on common stock                 |   |   | 4,401,169 |   |
| Total allocated to liabilities              |   |   | 5,793,645 |   |
|                                        |   |   |      |   |
| Allocated to equity:                        |   |   |      |   |
| Common stock and additional paid-in capital |   |   | 1,144,704 |   |
|                                        |   |   |      |   |
| Allocated to expense:                       |   |   |      |   |
| Financing expense                           |   |   | (138,326  | )      |
|                                        |   |   |      |   |
| Total allocated gross proceeds:             |   | $      | 6,800,023 |   |

|   | 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. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | y) | On March 20, 2008, the Company issued 642,858 units consisting of one share of the Company’s common stock and one warrant for every five common shares purchased in a private placement at a price of $1.40 per unit 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, and is recorded as a liability at fair value.  The Company extended anti-dilution protection to investors, and the provision is structured in a way that is designed to protect the holder’s position from being diluted and contains a price based on a mathematical computation. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A summary of the allocation of the proceeds of the offering is shown below: |
|--------|-----------------------------------------------------------------------------|

| Gross Proceeds:                                           |   | $      | 900,001 |   |
|-----------------------------------------------------------|--------|--------|---------|--------|
|                                                      |   |   |    |   |
| Allocated to liabilities:                                 |   |   |    |   |
|      Warrant liabilities         |   |   | 190,917 |   |
|      Put feature on common stock |   |   | 553,569 |   |
| Total allocated to liabilities                            |   |   | 744,486 |   |
|                                                      |   |   |    |   |
| Allocated to common stock and additional paid-in capital  |   |   | 155,515 |   |
| Total allocated gross proceeds:                           |   | $      | 900,001 |   |

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

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

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

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | ac) | On June 5, 2009 the Company closed on a purchase agreement to issue 2,857,143 shares of common stock at a price of $1.05 per share to an institutional investor for total gross proceeds of $3,000,000 and incurred $289,090 of stock issuance costs.  The investor was also issued: |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | Series I warrants to purchase 2,222,222 shares of common stock at a purchase price of $1.05 per share at any time before September 3, 2009; |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Series II warrants to purchase 1,866,666 shares of common stock at a purchase price of $1.25 per share at any time from December 3, 2009 to June 5, 2012; and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | Series III warrants to purchase 1,555,555 shares of common stock at a purchase price of $1.50 per share at any time from December 3, 2009 to June 5, 2014. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A summary of the allocation of the proceeds of the offering is shown below: |
|--------|-----------------------------------------------------------------------------|

| Gross Proceeds:                             |   | $      | 3,000,000 |   |
|---------------------------------------------|--------|--------|-----------|--------|
|                                        |   |   |      |   |
| Allocated to liabilities:                   |   |   |      |   |
| Warrant liabilities                         |   |   | 3,451,194 |   |
|                                        |   |   |      |   |
| Allocated to equity:                        |   |   |      |   |
| Common stock and additional paid-in capital |   |   | —   |   |
|                                        |   |   |      |   |
| Allocated to expense:                       |   |   |      |   |
| Financing expense                           |   |   | (122,257  | )      |
| Derivative loss at inception                |   |   | (328,937  | )      |
| Total allocated to expense                  |   |   | (451,194  | )      |
|                                        |   |   |      |   |
| Total allocated gross proceeds:             |   | $      | 3,000,000 |   |

|   | ad) | On June 9, 2009, the Company issued 1,833,341 shares of common stock and 862,246 warrants to purchase common stock at a purchase price of $1.05 per share to existing stockholders pursuant to the anti-dilution protection provisions of the private placements transacted on December 18, 2007 and March 20, 2008.  The issuance of additional warrants resulted in an increase in fair value of approximately $422,300.  |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ae) | On September 4, 2009, an option holder exercised options to purchase shares of the Company’s common stock for cash of $3,600 and the Company issued an aggregate of 15,000 shares. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | af) | On September 21, 2009, the Company issued 3,102,837 shares of common stock at a purchase price of $1.13 per share to an institutional investor for net proceeds of $3,371,340, which includes $128,659 of stock issuance costs. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | ag) | On October 23, 2009, the Company closed on a purchase agreement to issue 6,072,383 shares of common stock at a price of $0.82 per share to five institutional investors for gross proceeds of $5,000,000, which includes $351,928 of stock issuance costs.  The investors were also issued warrants to purchase 2,125,334 shares of common stock at a purchase price of $1.00 per share, exercisable on or after the date of delivery until the five-year anniversary, and were recorded as liabilities at fair value. The closing costs included 245,932 warrants valued at $101,693 and were recorded as a financing expense. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | A summary of the allocation of the proceeds of the offering is shown below: |
|--------|--------|-----------------------------------------------------------------------------|

| Gross Proceeds:                             |   | $      | 5,000,000 |   |
|---------------------------------------------|--------|--------|-----------|--------|
|                                        |   |   |      |   |
| Allocated to liabilities:                   |   |   |      |   |
| Warrant liabilities                         |   |   | 1,114,627 |   |
|                                        |   |   |      |   |
| Allocated to equity:                        |   |   |      |   |
| Common stock and additional paid-in capital |   |   | 3,987,066 |   |
|                                        |   |   |      |   |
| Allocated to expense:                       |   |   |      |   |
| Financing expense                           |   |   | (101,693  | )      |
|                                        |   |   |      |   |
| Total allocated gross proceeds:             |   | $      | 5,000,000 |   |

|   | ah) | On October 23, 2009, the Company issued 2,018,143 shares of common stock and 569,502 warrants to purchase common stock at a purchase price of $0.82 per share to existing stockholders pursuant to anti-dilution protection provisions of the private placements transacted on December 24, 2007 and March 20, 2008. The issuance of additional warrants resulted in an increase in fair value of approximately $476,200. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ai) | On February 12, 2010, the Company entered into two consulting agreements pursuant to which the Company issued 300,000 shares of common stock upon the execution of the agreements.  Upon the extension of the term, 200,000 shares of common stock for each month will be issued until the termination of services. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table lists the issuances of shares by the Company under the consulting agreement: |
|--------|--------------------------------------------------------------------------------------------------|

| Date of Issuance   |   | Number of Shares Issued |      |   | Market Value Per Share |   |   | Total Market Value of ShareIssuance |   |
|--------------------|--------|-------------------------|-----------|--------|------------------------|--------|--------|-------------------------------------|--------|
| February 12, 2010  |   |                    | 300,000   |   |                   | $      | 1.22   |                                |   | $ | 366,000 |   |
| May 24, 2010       |   |                    | 200,000   |   |                   |   | 1.40   |                                |   |   | 280,000 |   |
| June 15, 2010      |   |                    | 200,000   |   |                   |   | 1.15   |                                |   |   | 230,000 |   |
| August 2, 2010     |   |                    | 400,000   |   |                   |   | 1.37   |                                |   |   | 548,000 |   |
| September 21, 2010 |   |                    | 200,000   |   |                   |   | 1.20   |                                |   |   | 240,000 |   |
| October 21, 2010   |   |                    | 200,000   |   |                   |   | 1.16   |                                |   |   | 232,000 |   |
| November 11, 2010  |   |                    | 200,000   |   |                   |   | 1.06   |                                |   |   | 212,000 |   |
|               |   |                    |      |   |                   |   |   |                                |   |   |   |   |
| Total              |   |                    | 1,700,000 |   |                   |   |   |                                |   | $ | 2,108,000 |   |

|   | The market value of these shares was recorded as an expense and is reflected in general and administrative expenses in the Company’s statement of operations.  The agreements were terminated by the Company on November 11, 2010. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | aj) | In March 2010, warrant holders exercised their warrants to purchase shares of Company’s common stock for cash of $1,297,001 and the Company issued an aggregate of 1,197,001 shares. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ak) | In March 2010, option holders exercised options to purchase shares of Company’s common stock for cash of $21,240 and the Company issued an aggregate of 48,000 shares. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | al) | In April 2010, warrant holders exercised their warrants to purchase shares of Company’s common stock for cash of $1,966,375 and the Company issued an aggregate of 1,595,825 shares. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | am) | On April 20, 2010, an option holder exercised options to purchase shares of Company’s common stock for cash of $86,000 and the Company issued an aggregate of 107,500 shares. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | an) | In May 2010, warrant holders exercised warrants to obtain shares of Company’s common stock and the Company issued an aggregate of 547,674 shares. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ao) | On June 30, 2010, the Company entered into a purchase agreement to issue 6,666,667 shares of common stock at a price of $1.50 per share to investors for gross proceeds of $10,000,000, which includes $681,773 of stock issuance costs.  The investors were also issued warrants to purchase 2,000,000 shares of common stock at an exercise price of $1.90 per share.  The warrants became immediately exercisable on the date of delivery until the four-year anniversary of the date of issuance.  These warrants have been valued at $1,800,800 and recorded as warrant liabilities.  The closing costs included 200,000 warrants valued at $180,080 and were recorded as a financing expense. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Gross Proceeds:                                                     |   | $      | 10,000,000 |   |
|---------------------------------------------------------------------|--------|--------|------------|--------|
|                                                                |   |   |       |   |
| Allocated to liabilities:                                           |   |   |       |   |
|      Warrant liabilities                   |   |   | 1,980,880  |   |
|                                                                |   |   |       |   |
| Allocated to equity:                                                |   |   |       |   |
|     Common stock and additional paid-in capital |   |   | 8,199,200  |   |
|                                                                |   |   |       |   |
| Allocated to expense:                                               |   |   |       |   |
|     Financing expense                           |   |   | (180,080   | )      |
|                                                                |   |   |       |   |
| Total allocated gross proceeds:                                     |   | $      | 10,000,000 |   |

|   | ap) | In November 2010, warrant holders exercised 936,883 cashless warrants to obtain shares of Company’s common stock and the Company issued an aggregate of 247,491 shares. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | aq) | In December 2010, warrant holders exercised 530,900 cashless warrants to obtain shares of Company’s common stock and the Company issued an aggregate of 126,195 shares. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ar) | On January 19, 2011, the Company issued 2,334,515 shares of common stock at a purchase price of $1.69 per share to an institutional investor for net proceeds of $3,926,397, which includes $23,603 of stock issuance costs. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | as) | On February 15, 2011, a warrant holder exercised warrants to purchase shares of the Company’s common stock for cash of $215,104 and the Company issued 209,042 shares. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | at) | On February 28, 2011, an option holder exercised options to purchase shares of Company’s common stock for cash of $6,000 and the Company issued 25,000 shares. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | au) | On March 11, 2011, an option holder exercised options to purchase shares of Company’s common stock for cash of $12,000 and the Company issued 50,000 shares. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 13. | Common Stock (cont’d) |
|-----|-----------------------------|

|   | av) | On March 28, 2011,warrant holders exercised their warrants to purchase shares of the Company’s common stock for cash of $102,857 and the Company issued 124,917 shares. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | aw) | On March 31, 2011, the Company closed on a purchase agreement to issue 8,333,333 shares of common stock at a price of $1.20 per share to five institutional investors for gross proceeds of $10,000,000, which includes $803,791 of stock issuance costs.  The investors were also issued warrants to purchase 3,333,333 shares of common stock at a purchase price of $1.50 per share, exercisable on or after six months after the closing date until the five-year anniversary of the initial exercise date, and were recorded as liabilities at fair value. The closing costs included 208,333 warrants valued at $97,667 and were recorded as a financing expense. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | A summary of the allocation of the proceeds of the offering is shown below: |
|--------|--------|-----------------------------------------------------------------------------|

| Gross Proceeds:                                                     |   | $      | 10,000,000 |   |
|---------------------------------------------------------------------|--------|--------|------------|--------|
|                                                                |   |   |       |   |
| Allocated to liabilities:                                           |   |   |       |   |
|      Warrant liabilities                   |   |   | 2,924,333  |   |
|                                                                |   |   |       |   |
| Allocated to equity:                                                |   |   |       |   |
|     Common stock and additional paid-in capital |   |   | 7,173,334  |   |
|                                                                |   |   |       |   |
| Allocated to expense:                                               |   |   |       |   |
|     Financing expense                           |   |   | (97,667    | )      |
|                                                                |   |   |       |   |
| Total allocated gross proceeds:                                     |   | $      | 10,000,000 |   |

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| 14. | Stock-Based Compensation (cont’d) |
|-----|-----------------------------------------|

|                                   |   | Three Months Ended March 31, |    |   | Cumulative from March 19, 2001 |   |
|----------------------------------------|--------|------------------------------|---------|--------|--------------------------------|--------|
|                                   | 2011   |                         |    | 2010   |                           |   | (Inception) toMarch 31, 2011 |   |
| Statement of operations line item:     |   |                         |    |   |                           |   |   |   |   |
| General and administrative:            |   |                         |    |   |                           |   |   |   |   |   |   |   |
| Payroll                                |   | $                            | 126,202 |   |                           | $      | 100,886 |   |   | $ | 2,119,718 |   |
| Consulting and other professional fees |   |                         | 35,649  |   |                           |   | 75,444 |   |   |   | 795,606 |   |
| Research and development:              |   |                         |    |   |                           |   |   |   |   |   |   |   |
| Payroll                                |   |                         | 24,044  |   |                           |   | 15,384 |   |   |   | 900,340 |   |
| Consulting and other professional fees |   |                         | 16,093  |   |                           |   | 3,664 |   |   |   | 1,325,346 |   |
|                                   |   |                         |    |   |                           |   |   |   |   |   |   |   |
| Total                                  |   | $                            | 201,988 |   |                           | $      | 195,378 |   |   | $ | 5,141,010 |   |

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TABLE OF CONTENTS

| 14. | Stock-Based Compensation (cont’d) |
|-----|-----------------------------------------|

|                                       |   |                         |   |   |        |   |
|--------------------------------------------|--------|------------------------------|--------|--------|-------------|--------|
|                                       |   | Three Months Ended March 31, |   |
|                                       |   |                         |   |
|                                       |   | 2011                         |   |   | 2010        |   |
|                                       |   |                         |   |   |        |   |
| Black-Scholes weighted average assumptions |   |                         |   |   |        |   |
| Expected dividend yield                    |   |                         | 0      | %      |        |   | 0 | % |
| Expected volatility                        |   |                         | 101    | %      |        |   | 107 | % |
| Risk free interest rate                    |   |                         | 2.29   | %      |        |   | 2.4%-4.1 | % |
| Expected term (in years)                   |   | 5 years                      |   |   | 1 - 5 years |   |

|                    |   | 2011                      |      |   | 2010                              |   |
|-------------------------|--------|---------------------------|-----------|--------|-----------------------------------|--------|
|                    |   |                      |      |   |                              |   |   |   |   |   |   |   |
|                    |   | Shares Subject to Options |      |   | Weighted Avg. Exercise Price |   |   | Shares Subject to Options |   |   | Weighted Avg. Exercise Prices |   |
| Outstanding at     |   |                      |      |   |                              |   |   |   |   |   |   |   |   |   |   |   |
| January 1               |   |                      | 8,076,795 |   |                              | $      | 1.02 |   |   |   | 7,715,795 |   |   | $ | 0.98 |   |
| Granted                 |   |                      | 130,000   |   |                              |   | 1.84 |   |   |   | 375,000 |   |   |   | 1.33 |   |
| Exercised               |   |                      | (75,000   | )      |                              |   | 0.24 |   |   |   | (48,000 | ) |   |   | 0.44 |   |
| Cancelled               |   |                      | (89,000   | )      |                              |   | 1.16 |   |   |   | — |   |   |   | — |   |
|                    |   |                      |      |   |                              |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at March 31 |   |                      | 8,042,795 |   |                              | $      | 1.03 |   |   |   | 8,042,795 |   |   | $ | 1.01 |   |

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TABLE OF CONTENTS

|                             |   | Shares Subject to Options |      |   | Weighted Avg. Exercise Prices |   | Weighted Average Remaining Contractual Term |   | Aggregate Intrinsic Value |   |
|----------------------------------|--------|---------------------------|-----------|--------|-------------------------------|--------|---------------------------------------------|--------|---------------------------|--------|
| Outstanding at March 31, 2011    |   |                      | 8,042,795 |   |                          | $      | 1.03                                        |   | 5.2 years                 |   | $ | 2,440,797 |   |
|                             |   |                      |      |   |                          |   |                                        |   |                      |   |   |   |   |
| Exercisable at March 31, 2011    |   |                      | 6,792,795 |   |                          | $      | 1.01                                        |   | 4.7 years                 |   | $ | 2,239,447 |   |
|                             |   |                      |      |   |                          |   |                                        |   |                      |   |   |   |   |
| Outstanding at December 31, 2010 |   |                      | 8,076,795 |   |                          | $      | 1.01                                        |   | 5.4 years                 |   | $ | 2,198,790 |   |
|                             |   |                      |      |   |                          |   |                                        |   |                      |   |   |   |   |
| Exercisable at December 31, 2010 |   |                      | 6,762,795 |   |                          | $      | 1.00                                        |   | 4.8 years                 |   | $ | 2,023,980 |   |

|                        |   | 2011               |      |
|-----------------------------|--------|--------------------|-----------|
|                        |   | Subject to Options |      |   | Weighted Average Fair Value at Grant Date |   |
| Unvested at January 1, 2011 |   |               | 1,314,000 |   |   | $ | 0.77 |   |
| Granted                     |   |               | 130,000   |   |   | $ | 1.39 |   |
| Vested                      |   |               | (105,000  | ) |   | $ | 0.79 |   |
| Cancelled                   |   |               | (89,000   | ) |   | $ | 0.90 |   |
|                        |   |               |      |   |   |   |   |   |
| Unvested at March 31, 2011  |   |               | 1,250,000 |   |   | $ | 0.81 |   |

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TABLE OF CONTENTS

|                        |   | 2011               |      |   | 2010                            |   |
|-----------------------------|--------|--------------------|-----------|--------|---------------------------------|--------|
|                        |   | Number of warrants |      |   | Weighted average exercise price |   |   | Number of warrants |   |   | Weighted average exercise price |   |
| Balance, January 1          |   |               | 5,624,583 |   |                            | $      | 1.48 |   |   |   | 8,575,243 |   |   | $ | 1.10 |   |
| Issued during the period    |   |               | 3,541,666 |   |                            | $      | 1.50 |   |   |   | — |   |   | $ | — |   |
| Exercised during the period |   |               | (333,959  | )      |                            | $      | (0.95 | ) |   |   | (1,197,001 | ) |   | $ | (1.08 | ) |
| Expired during the period   |   |               | (156,148  | )      |                            | $      | (0.82 | ) |   |   | — |   |   | $ | — |   |
|                        |   |               |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Balance, March 31           |   |               | 8,676,142 |   |                            | $      | 1.53 |   |   |   | 7,378,242 |   |   | $ | 1.10 |   |

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TABLE OF CONTENTS

| 15. | Warrants (cont’d) |
|-----|-------------------------|

| Fair Values:                                                      |   | March 31, 2011 |      |   | December 31, 2010 |   |      | Transaction Date |   |
|-------------------------------------------------------------------|--------|----------------|-----------|--------|------------------------|--------|-----------|------------------|--------|
| December 18, 2007 financing                                       |   | $              | —   |   |                   | $      | —   |             |   | $ | 1,392,476 |   |
| March 20, 2008 financing                                          |   |           | —   |   |                   |   | 123,558   |             |   |   | 190,917 |   |
| June 5, 2009 financing:                                           |   |           |      |   |                   |   |      |             |   |   |   |   |
|      Series I warrants                   |   |           | —   |   |                   |   | —   |             |   |   | 707,111 |   |
|      Series II warrants                  |   |           | —   |   |                   |   | —   |             |   |   | 1,315,626 |   |
|      Series III warrants                 |   |           | 942,666   |   |                   |   | 751,022   |             |   |   | 1,306,200 |   |
|      Warrants to placement agent         |   |           | 84,545    |   |                   |   | 69,032    |             |   |   | 122,257 |   |
| October 23, 2009 financing:                                       |   |           |      |   |                   |   |      |             |   |   |   |   |
|      Warrants to institutional investors |   |           | 937,095   |   |                   |   | 694,377   |             |   |   | 1,012,934 |   |
|      Warrants to placement agent         |   |           | 10,881    |   |                   |   | 111,241   |             |   |   | 101,693 |   |
| June 30, 2010 financing                                           |   |           | 1,215,280 |   |                   |   | 1,217,480 |             |   |   | 1,980,880 |   |
| March 31, 2011 financing:                                         |   |           |      |   |                   |   |      |             |   |   |   |   |
|      Warrants to institutional investors |   |           | 2,826,666 |   |                   |   | —   |             |   |   | 2,826,666 |   |
|      Warrants to placement agent         |   |           | 97,667    |   |                   |   | —   |             |   |   | 97,667 |   |
| Total:                                                            |   | $              | 6,114,800 |   |                   | $      | 2,966,710 |             |   | $ | 11,054,427 |   |

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TABLE OF CONTENTS

| 15. | Warrants (cont’d) |
|-----|-------------------------|

| Number of Shares indexed:           |   | March 31,2011 |      |   | December 31,2010 |   |      | TransactionDate |   |
|-------------------------------------|--------|---------------|-----------|--------|------------------|--------|-----------|-----------------|--------|
| December 18, 2007 financing         |   |          | —   |   |             |   | —   |            |   |   | 1,078,579 |   |
| March 20, 2008 financing            |   |          | —   |   |             |   | 281,065   |            |   |   | 128,572 |   |
| June 5, 2009 financing:             |   |          |      |   |             |   |      |            |   |   |   |   |
| Series I warrants                   |   |          | —   |   |             |   | —   |            |   |   | 2,222,222 |   |
| Series II warrants                  |   |          | —   |   |             |   | —   |            |   |   | 1,866,666 |   |
| Series III warrants                 |   |          | 1,555,555 |   |             |   | 1,555,555 |            |   |   | 1,555,555 |   |
| Warrants to placement agent         |   |          | 132,143   |   |             |   | 132,143   |            |   |   | 142,857 |   |
| October 23, 2009 financing:         |   |          |      |   |             |   |      |            |   |   |   |   |
| Warrants to institutional investors |   |          | 1,228,333 |   |             |   | 1,228,333 |            |   |   | 2,125,334 |   |
| Warrants to placement agent         |   |          | 18,445    |   |             |   | 227,487   |            |   |   | 245,932 |   |
| June 30, 2010 financing             |   |          | 2,200,000 |   |             |   | 2,200,000 |            |   |   | 2,200,000 |   |
| March 31, 2011 financing:           |   |          |      |   |             |   |      |            |   |   |   |   |
| Warrants to institutional investors |   |          | 3,333,333 |   |             |   | —   |            |   |   | 3,333,333 |   |
| Warrants to placement agent         |   |          | 208,333   |   |             |   | —   |            |   |   | 208,333 |   |
| Total:                              |   |          | 8,676,142 |   |             |   | 5,624,243 |            |   |   | 15,107,383 |   |

| December 18, 2007 financing:                                 |   | March 31,2011 |    |   | December 31, 2010 |   |    | TransactionDate |   |
|--------------------------------------------------------------|--------|---------------|---------|--------|-------------------|--------|---------|-----------------|--------|
| Trading market prices                                        |   | $             | — |   |              | $      | — |            |   | $ | 1.75 |   |
| Estimated future volatility                                  |   |          | — |   |              |   | — |            |   |   | 143 | % |
| Dividend                                                     |   |          | — |   |              |   | — |            |   |   | — |   |
| Estimated future risk-free rate                              |   |          | — |   |              |   | — |            |   |   | 3.27 | % |
| Equivalent volatility                                        |   |          | — |   |              |   | — |            |   |   | 106 | % |
| Equivalent risk-free rate                                    |   |          | — |   |              |   | — |            |   |   | 3.26 | % |
| Estimated additional shares to be issued upon dilutive event |   |          | — |   |              |   | — |            |   |   | 98,838 |   |

| March 20, 2008 financing:                                    |   | March 31,2011 |    |   | December 31, 2010 |   |    | TransactionDate |   |
|--------------------------------------------------------------|--------|---------------|---------|--------|-------------------|--------|---------|-----------------|--------|
| Trading market prices                                        |   | $             | — |   |              | $      | 1.12    |            |   | $ | 2.14 |   |
| Estimated future volatility                                  |   |          | — |   |              |   | 75      | %               |   |   | 142 | % |
| Dividend                                                     |   |          | — |   |              |   | — |            |   |   | — |   |
| Estimated future risk-free rate                              |   |          | — |   |              |   | 0.47    | %               |   |   | 1.95 | % |
| Equivalent volatility                                        |   |          | — |   |              |   | 42      | %               |   |   | 97 | % |
| Equivalent risk-free rate                                    |   |          | — |   |              |   | 0.12    | %               |   |   | 1.31 | % |
| Estimated additional shares to be issued upon dilutive event |   |          | — |   |              |   | 25,462  |            |   |   | 7,479 |   |

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| 15. | Warrants (cont’d) |
|-----|-------------------------|

| June 5, 2009 financing:         |   | March 31,2011 |      |   | December 31, 2010 |   |      | TransactionDate |   |
|---------------------------------|--------|---------------|-----------|--------|-------------------|--------|-----------|-----------------|--------|
| Trading market prices           |   | $             | 1.18      |   |              | $      | 1.12      |            |   | $ | 1.14 |   |
| Estimated future volatility     |   |          | 100       | %      |              |   | 94-100    | %               |   |   | 100 | % |
| Dividend                        |   |          | —   |   |              |   | —   |            |   |   | — |   |
| Estimated future risk-free rate |   |          | 2.25      | %      |              |   | 1.84-4.18 | %               |   |   | 0.63-4.31 | % |
| Equivalent volatility           |   |          | 87        | %      |              |   | 72-73     | %               |   |   | 103-117 | % |
| Equivalent risk-free rate       |   |          | 0.58-0.59 | %      |              |   | 0.52      | %               |   |   | 0.20-1.44 | % |

| October 23, 2009 financing:     |   | March 31,2011 |      |   | December 31, 2010 |   |      | TransactionDate |   |
|---------------------------------|--------|---------------|-----------|--------|-------------------|--------|-----------|-----------------|--------|
| Trading market prices           |   | $             | 1.18      |   |              | $      | 1.12      |            |   | $ | 0.69 |   |
| Estimated future volatility     |   |          | 100       | %      |              |   | 100       | %               |   |   | 100 | % |
| Dividend                        |   |          | —   |   |              |   | —   |            |   |   | — |   |
| Estimated future risk-free rate |   |          | 1.32-2.25 | %      |              |   | 1.84      | %               |   |   | 2.63-3.80 | % |
| Equivalent volatility           |   |          | 79-90     | %      |              |   | 65-74     | %               |   |   | 98-99 | % |
| Equivalent risk-free rate       |   |          | 0.41-0.67 | %      |              |   | 0.38-0.58 | %               |   |   | 0.93-1.16 | % |

| June 30, 2010 financing:        |   | March 31,2011 |    |   | December 31, 2010 |   |    | TransactionDate |   |
|---------------------------------|--------|---------------|---------|--------|-------------------|--------|---------|-----------------|--------|
| Trading market prices           |   | $             | 1.18    |   |              | $      | 1.12    |            |   | $ | 1.43 |   |
| Estimated future volatility     |   |          | 99      | %      |              |   | 67      | %               |   |   | 100 | % |
| Dividend                        |   |          | — |   |              |   | — |            |   |   | — |   |
| Estimated future risk-free rate |   |          | 2.25    | %      |              |   | 1.84    | %               |   |   | 1.78 | % |
| Equivalent volatility           |   |          | 87      | %      |              |   | 89      | %               |   |   | 98 | % |
| Equivalent risk-free rate       |   |          | 0.58    | %      |              |   | 0.52    | %               |   |   | 0.59 | % |

| March 31, 2011 financing:       |   | March 31,2011 |      |   | December 31, 2010 |   |    | TransactionDate |   |
|---------------------------------|--------|---------------|-----------|--------|-------------------|--------|---------|-----------------|--------|
| Trading market prices           |   | $             | 1.18      |   |              | $      | — |            |   | $ | 1.18 |   |
| Estimated future volatility     |   |          | 100       | %      |              |   | — |            |   |   | 100 | % |
| Dividend                        |   |          | —   |   |              |   | — |            |   |   | — |   |
| Estimated future risk-free rate |   |          | 1.32-3.64 | %      |              |   | — |            |   |   | 1.32-3.64 | % |
| Equivalent volatility           |   |          | 79-96     | %      |              |   | — |            |   |   | 79-96 | % |
| Equivalent risk-free rate       |   |          | 0.39-1.09 | %      |              |   | — |            |   |   | 0.39-1.09 | % |

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| 15. | Warrants (cont’d) |
|-----|-------------------------|

|                                |   | Three Months Ended March 31, 2011 |     |   | Three Months Ended March 31, 2010(Restated) |   |       | Cumulativefrom March 19, 2001 (Inception) to March 31, 2011 |   |
|-------------------------------------|--------|---------------------------------------------|----------|--------|-------------------------------------------------------|--------|------------|-----------------------------------------------------------------------|--------|
| December 18, 2007 financing         |   | $                                      | —  |   |                                                  | $      | (1,678,319 | )                                                                     |   | $ | 50,722 |   |
| March 20, 2008 financing            |   |                                        | 92,704   |   |                                                  |   | (194,434   | )                                                                     |   |   | 160,063 |   |
| June 5, 2009 financing:             |   |                                        |     |   |                                                  |   |       |                                                                  |   |   |   |   |
| Series I warrants                   |   |                                        | —  |   |                                                  |   | —    |                                                                  |   |   | 707,111 |   |
| Series II warrants                  |   |                                        | —  |   |                                                  |   | (1,369,686 | )                                                                     |   |   | (2,191,175 | ) |
| Series III warrants                 |   |                                        | (191,644 | )      |                                                  |   | (1,301,066 | )                                                                     |   |   | 363,534 |   |
| Warrants to placement agent         |   |                                        | (15,513  | )      |                                                  |   | (120,429   | )                                                                     |   |   | 23,332 |   |
| Derivative loss at inception        |   |                                        | —  |   |                                                  |   | —    |                                                                  |   |   | (328,937 | ) |
| October 23, 2009 financing:         |   |                                        |     |   |                                                  |   |       |                                                                  |   |   |   |   |
| Warrants to institutional investors |   |                                        | (242,718 | )      |                                                  |   | (1,698,124 | )                                                                     |   |   | (973,401 | ) |
| Warrants to placement agent         |   |                                        | (112,654 | )      |                                                  |   | (198,147   | )                                                                     |   |   | (146,819 | ) |
| June 30, 2010 financing             |   |                                        | 2,200    |   |                                                  |   | —    |                                                                  |   |   | 765,600 |   |
| March 31, 2011 financing:           |   |                                        |     |   |                                                  |   |       |                                                                  |   |   |   |   |
| Warrants to institutional investors |   |                                        | —  |   |                                                  |   | —    |                                                                  |   |   | — |   |
| Warrants to placement agent         |   |                                        | —  |   |                                                  |   | —    |                                                                  |   |   | — |   |
| Total:                              |   | $                                           | (467,625 | )      |                                                  | $      | (6,560,205 | )                                                                     |   | $ | (1,569,970 | ) |

| 16. | Put feature on Common Stock |
|-----|-----------------------------|

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| 16. | Put feature on Common Stock (cont’d) |
|-----|--------------------------------------------|

| Fair Values:                |   | March 31,2011 |    |   | December 31, 2010 |   |    | TransactionDate |   |
|-----------------------------|--------|---------------|---------|--------|-------------------|--------|---------|-----------------|--------|
| December 18, 2007 financing |   | $             | — |   |              | $      | — |            |   | $ | 4,401,169 |   |
| March 20, 2008 financing    |   |          | — |   |              |   | — |            |   |   | 553,569 |   |
| Total:                      |   | $             | — |   |              | $      | — |            |   | $ | 4,954,738 |   |

| Number of Shares indexed:   |   | March 31,2011 |    |   | December 31, 2010 |   |    | TransactionDate |   |
|-----------------------------|--------|---------------|---------|--------|-------------------|--------|---------|-----------------|--------|
| December 18, 2007 financing |   |          | — |   |              |   | — |            |   |   | 4,857,159 |   |
| March 20, 2008 financing    |   |          | — |   |              |   | — |            |   |   | 642,858 |   |
| Total:                      |   |          | — |   |              |   | — |            |   |   | 5,500,017 |   |

| December 18, 2007 financing:    |   | March 31,2011 |    |   | December 31, 2010 |    |    | TransactionDate |   |
|---------------------------------|--------|--------------------|---------|--------|-------------------|---------|---------|-----------------|--------|
| Trading market prices           |   | $                  | — |   |              | $  | — |            |   | $ | 1.75 |   |
| Estimated future stock price    |   | $             | — |   |              | $  | — |            |   | $ | 0.98-1.73 |   |
| Estimated future volatility     |   |               | — |   |              |    | — |            |   |   | 143 | % |
| Dividend                        |   |               | — |   |              |    | — |            |   |   | — |   |
| Estimated future risk-free rate |   |               | — |   |              |    | — |            |   |   | 3.14 | % |

| March 20, 2008 financing:       |   | March 31,2011 |    |   | December 31, 2010 |    |    | TransactionDate |   |
|---------------------------------|--------|--------------------|---------|--------|-------------------|---------|---------|-----------------|--------|
| Trading market prices           |   | $             | — |   |              | $  | — |            |   | $ | 2.14 |   |
| Estimated future stock price    |   | $             | — |   |              | $  | — |            |   | $ | 1.36-2.10 |   |
| Estimated future volatility     |   |               | — |   |              |    | — |            |   |   | 142 | % |
| Dividend                        |   |               | — |   |              |    | — |            |   |   | — |   |
| Estimated future risk-free rate |   |               | — |   |              |    | — |            |   |   | 1.85 | % |

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TABLE OF CONTENTS

| 16. | Put feature on Common Stock (cont’d) |
|-----|--------------------------------------------|

|                        |   | Three Months Ended March 31, 2011 |    |   | Three Months Ended March 31, 2010(Restated) |   |    | Cumulativefrom March 19, 2001 (Inception) to March 31, 2011 |   |
|-----------------------------|--------|---------------------------------------------|---------|--------|--------------------------------------------------|--------|---------|------------------------------------------------------------------|--------|
| December 18, 2007 financing |   | $                                           | — |   |                                             | $      | — |                                                             |   | $ | 2,148,418 |   |
| March 20, 2008 financing    |   |                                        | — |   |                                             |   | 97,713  |                                                             |   |   | 167,121 |   |
| Total:                      |   | $                                           | — |   |                                             | $      | 97,713  |                                                             |   | $ | 2,135,539 |   |

| 17. | Income Taxes |
|-----|--------------|

|                             |   | March 31, |        |   | December 31, |   |
|----------------------------------|--------|-----------|-------------|--------|--------------|--------|
|                             |   | 2011      |        |   | 2010         |   |
|                             |   |      |        |   |         |   |
| Net Operating Loss Carryforwards |   | $         | 19,597,110  |   |         | $      | 18,050,380 |   |
| Valuation Allowance              |   |      | (19,597,110 | )      |         |   | (18,050,380 | ) |
|                             |   |      |        |   |         |   |   |   |
| Net Deferred Tax Assets          |   | $         | —     |   |         | $      | — |   |

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| 18. | 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 initial fee and monthly or periodic payments over the term of the agreement, ranging from 2 months to 36 months. The costs to be incurred are estimated and are subject to revision. As of March 31, 2011, the total estimated cost to be incurred under these agreements was approximately $17,812,861 and the Company had made payments totaling $7,040,380 under the terms of the agreements as of March 31, 2011.  All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | The Company and three of its key executives entered into employment agreements. Each of these agreements was renewed on August 10, 2009 and expires on August 10, 2012.  The agreements result in annual commitments for each key executive of $350,000, $250,000 and $200,000, respectively.  The employment agreements were amended on September 9, 2010 and will expire on September 9, 2013. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology (“KRICT”) to acquire the rights to all intellectual properties related to Quinoxaline-Piperazine derivatives that were synthesized under a Joint Research Agreement.  The initial license fee was $100,000, all of which was paid as of December 31, 2009.  The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of the first commercial product arising out of or in connection with the use of KRICT’s intellectual properties.  As of March 31, 2011, the milestone has not occurred. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | On June 29, 2009, the Company signed a five year commercial lease agreement for 5,466 square feet of office space in Rockville, Maryland commencing on June 29, 2009.  The lease agreement requires annual base rents of $76,524 with increases over the next five years.  Under the lease agreement, the Company pays its allocable portion of real estate taxes and common area operating charges. Rent paid under the Company’s lease during the three months ended March 31, 2011 and 2010 was $35,078 and $19,131, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Future rental payments over the next five years and thereafter are as follows: |
|--------|--------------------------------------------------------------------------------|

| 2011   |   | $      | 113,515 |   |
|--------|--------|--------|---------|--------|
| 2012   |   |   | 158,835 |   |
| 2013   |   |   | 162,806 |   |
| 2014   |   |   | 82,408  |   |
|   |   | $      | 517,564 |   |

|   | In connection with the lease agreement, the Company issued a letter of credit of $100,000 in favor of the lessor.  The Company has restricted cash equivalents of the same amount for the letter of credit.  On August 2, 2010, the letter of credit was amended and reduced to $50,000. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | On September 21, 2009, the Company closed on a securities purchase agreement with Teva Pharmaceutical Industries Limited (“Teva”), under which Teva purchased 3,102,837 shares of our common stock for $3.5 million. Contemporaneous with the execution and delivery of this agreement, the parties executed a research and exclusive license option agreement (“RELO”) pursuant to which the Company agreed to use $2,000,000 from the gross proceeds of the issuance and sale of shares to Teva to fund a research and development program for the pre-clinical development of RX-3117.  On January 19, 2011, the Company entered into a second amendment to the securities purchase agreement (the “Second Amendment”) in which Teva purchased 2,334,515 shares of the common stock of the Company for gross proceeds of $3,950,000, which the Company agreed to use for the further preclinical development of RX-3117.  Currently, the Company has proceeds remaining of $3,309,456 and has included this amount in restricted cash equivalents.  The Company will be eligible to receive royalties on net sales of RX-3117 worldwide. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 18. | Commitments and Contingencies (cont’d) |
|-----|----------------------------------------------|

|   | f) | The Company has a 401(k) plan established for its employees.  The Company elected to match 100% of the first 3% of the employee’s compensation plus 50% of an additional 2% of the employee’s deferral. Expense related to this matching contribution aggregated $16,129 and $18,643 for the three months ended March 31, 2011 and 2010, respectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g) | On June 28, 2010, the Company signed a one year renewal to use lab space commencing on July 1, 2010.  The lease requires monthly rental payments of $4,554. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 19. | Fair Value Measurements |
|-----|-------------------------|

| 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.                              |

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| 19. | Fair Value Measurements (cont’d) |
|-----|----------------------------------------|

| Fair Value Measurements at March 31, 2011 |   |
|-------------------------------------------|--------|
|                                      |   | Total |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Assets:                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restricted Cash equivalents               |   | $ | 3,359,456 |   |   | $ | 3,309,456 |   |   | $ | 50,000 |   |   | $ | — |   |
| Marketable Securities                     |   |   | 2,450,260 |   |   |   | 2,450,260 |   |   |   | — |   |   |   | — |   |
| Total Assets:                             |   | $ | 5,807,916 |   |   | $ | 5,759,716 |   |   | $ | 50,000 |   |   | $ | — |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Warrant Liabilities                       |   | $ | 6,114,800 |   |   |   | — |   |   |   | — |   |   | $ | 6,114,800 |   |

| Fair Value Measurements at December 31, 2010 |   |
|----------------------------------------------|--------|
|                                         |   | Total |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Assets:                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Restricted Cash equivalents                  |   | $ | 401,893 |   |   | $ | 351,893 |   |   | $ | 50,000 |   |   | $ | — |   |
| Marketable Securities                        |   |   | 2,451,620 |   |   |   | 2,451,620 |   |   |   | — |   |   |   | — |   |
| Total Assets:                                |   | $ | 2,853,513 |   |   |   | 2,803,513 |   |   | $ | 50,000 |   |   | $ | — |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Warrant Liabilities                          |   | $ | 2,966,710 |   |   |   | — |   |   |   | — |   |   | $ | 2,966,710 |   |

|   | a) | Money market funds valued at the net asset value of shares held by the Company and is classified within level 1 of the fair value hierarchy; |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | Certificate of deposit valued based upon the underlying terms of a letter of credit, as discussed in note 18, and classified within level 2 of the fair value hierarchy |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                           |   | Warrant Liabilities |      |   | Put Featureon CommonStock |   |    | Total Level 3 Liabilities |   |
|--------------------------------|--------|---------------------|-----------|--------|---------------------------|--------|---------|---------------------------|--------|
| Balance at January 1, 2011     |   | $                   | 2,966,710 |   |                      | $      | — |                      |   | $ | 2,966,710 |   |
| Additions                      |   |                | 2,924,333 |   |                      |   | — |                      |   |   | 2,924,333 |   |
| Unrealized losses              |   |                | 506,194   |   |                      |   | — |                      |   |   | 506,194 |   |
| Unrealized gains on expiration |   |                | (38,569   | )      |                      |   | — |                      |   |   | (38,569 | ) |
| Transfers out of level 3       |   |                | (243,868  | )      |                      |   | — |                      |   |   | (243,868 | ) |
| Balance at March 31, 2011      |   | $                   | 6,114,800 |   |                      | $      | — |                      |   | $ | 6,114,800 |   |

|                           |   | Warrant Liabilities |       |   | Put Featureon CommonStock |   |    | Total Level 3 Liabilities |   |
|--------------------------------|--------|---------------------|------------|--------|---------------------------|--------|---------|---------------------------|--------|
| Balance at January 1, 2010     |   | $                   | 3,099,476  |   |                      | $      | 97,713  |                      |   | $ | 3,197,189 |   |
| Additions                      |   |                | —    |   |                      |   | — |                      |   |   | — |   |
| Unrealized losses              |   |                | 6,560,205  |   |                      |   | — |                      |   |   | 6,560,205 |   |
| Unrealized gains on expiration |   |                | —    |   |                      |   | (97,713 | )                         |   |   | (97,713 | ) |
| Transfers out of level 3       |   |                | (1,301,700 | )      |                      |   | — |                      |   |   | (1,301,700 | ) |
| Balance at March 31, 2010      |   | $                   | 8,357,981  |   |                      | $      | — |                      |   | $ | 8,357,981 |   |

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

|   | ● | 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 (the “SEC”). |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | ● | 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. |
|--------|---------|-----------------------------------------------|

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 4. Controls and Procedures.

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Item 1. Legal Proceedings.

Item 1A.Risk Factors.

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

Item 3. Defaults Upon Senior Securities.

Item 4. (Removed and Reserved).

Item 5. Other Information.

Item 6. Exhibits.

| Exhibit No |   | Description                                                                                                                               |   | Location |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
|       |   |                                                                                                                                      |   |     |
| 31.1       |   | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) / 15d-14(a)                                                          |   |     |
|       |   |                                                                                                                                      |   |     |
| 31.2       |   | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) / 15d-14(a)                                                          |   |     |
|       |   |                                                                                                                                      |   |     |
| 32.1       |   | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   |     |
|       |   |                                                                                                                                      |   |     |
| 32.2       |   | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   |     |

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SIGNATURES

|              |   | REXAHN PHARMACEUTICALS, INC.                                                                                                                                       |
|-------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                          (Registrant) |
|              |   |                                                                                                                                                               |
|              | By:    | /s/ Chang H. Ahn                                                                                                                                                   |
| Date: May 9, 2011 |   | Chang H. Ahn                                                                                                                                                       |
|              |   | Chairman and Chief Executive Officer(principal executive officer)                                                                                                  |
|              |   |                                                                                                                                                               |
|              | By:    | /s/ Tae Heum Jeong                                                                                                                                                 |
| Date: May 9, 2011 |   | Tae Heum Jeong                                                                                                                                                     |
|              |   | Chief Financial Officer and Secretary(principal financial and accounting officer)                                                                                  |

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| Exhibit No |   | Description                                                                                                                               |   | Location       |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|       |   |                                                                                                                                      |   |           |
| 31.1       |   | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) / 15d-14(a)                                                          |   | Filed herewith |
|       |   |                                                                                                                                      |   |           |
| 31.2       |   | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) / 15d-14(a)                                                          |   | Filed herewith |
|       |   |                                                                                                                                      |   |           |
| 32.1       |   | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed herewith |
|       |   |                                                                                                                                      |   |           |
| 32.2       |   | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed herewith |

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