UNITED
      STATES


**SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM 10-QSB**
  (Mark
        One)
  T**QUARTERLY REPORT UNDER SECTION 13 OR 15(d)** **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
  **For
        the Quarterly Period Ended September 30, 2007**
  o**TRANSITION REPORT UNDER SECTION 13 OR 15(d)** **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
  **For
        the Transition Period from _________ to _________**
  **Commission
        file number:  000-50590**
  **REXAHN
        PHARMACEUTICALS, INC.**
 (Exact
        name of registrant as specified on its charter)
  **Delaware**
              
              **11-3516358**(State
                  or other jurisdiction of incorporation or organization)
              
              (IRS
                  Employer Identification No.)
  **9620
        Medical Center Drive**
 **Rockville,
        Maryland  20850**
 (Address
        of principle executive offices)
  **(240)
        268-5300**
 (Registrant's
        telephone number, including area code)
  Indicate
        by check mark whether the registrant: (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act
        of 1934 during the past 12 months (or for such shorter period
        that the registrant was required to file such reports), and (2) has been
        subject to such filing requirements for the past 90 days.
        Yes TNo o
  **APPLICABLE
        ONLY TO CORPORATE ISSUERS:**
  Indicate
        by check mark whether the registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act). Yes oNo x
  State
        the
        number of shares outstanding of each of the registrant's classes of common
        equity, as of the latest practicable date: 50,374,837 issued and 50,360,632
        outstanding as of November 14, 2007
  Transitional
        Small Business Disclosure Format (check one):  Yes oNo x
  
 
  **REXAHN
        PHARMACEUTICALS, INC.**
  **INDEX**
 **PAGE(S)****PART
                    I**
                **FINANCIAL
                    INFORMATION**Item 1.
                Condensed
                    Financial Statements:Balance
                    Sheets – September 30, 2007 (unaudited) and
                    December 31, 2006
                2Statements
                    of Operations – Three Months and Nine Months Ended
                    September 30, 2007 and 2006 and March 19, 2001 (Inception) to
                    September 30, 2007 (unaudited)
                3Statements
                    of Cash Flows – Nine Months Ended September 30,
                    2007 and 2006 and March 19, 2001 (Inception) to September
                    30, 2007 (unaudited)
                4Notes
                    to Condensed Financial Statements
                    (unaudited)
                5Item 2.
                Management's
                    Discussion and Analysis or Plan of
                    Operation
                13Item 3.
                Controls
                    and Procedures
                30**PART
                    II**
                **OTHER
                    INFORMATION**Item 1.
                Legal
                    Proceedings
                31Item 2.
                Unregistered
                    Sales of Equity Securities and Use of
                    Proceeds
                31Item 3.
                Defaults
                    upon Senior Securities
                31Item 4.
                Submission
                    of Matters to a Vote of Security
                    Holders
                31Item 5.
                Other
                    Information
                31Item 6.
                Exhibits
                31Signatures
                32
 i
 ***Table
                of
                Contents***
  **PART
        I – FINANCIAL INFORMATION**
  **Item 1.  FINANCIAL
        STATEMENTS**
   **REXAHN
        PHARMACEUTICALS, INC.**
 (A
        Development Stage Company)
 Condensed
        Balance Sheets
  **September 30,**
                **2007**
              
              
              December 31,
                2006**(unaudited)****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              **$**
              **1,367,801**
              
              
              $
              4,034,060Prepaid
                  expenses and other
              
              ****
              **417,330**
              
              
              
              483,186**Total
                  Current Assets**
              
              ****
              **1,785,131**
              
              
              
              4,517,246**Equipment,
                  Net**(note 3)
              
              ****
              **117,356**
              
              
              
              149,993**Intangible
                  Assets, Net**(note 4)
              
              ****
              **308,396**
              
              
              
              321,971**Total
                  Assets**
              
              **$**
              **2,210,883**
              
              
              $
              4,989,210**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities:**Accounts
                  payable and accrued expenses
              
              **$**
              **432,307**
              
              
              $
              575,363**Total
                  Current Liabilities**
              
              ****
              **432,307**
              
              
              
              575,363**Deferred
                  Revenue**(note 5)
              
              ****
              **1,143,750**
              
              
              
              1,200,000**Total
                  Liabilities**
              
              ****
              **1,576,057**
              
              
              
              1,775,363**Commitment
                  and Contingencies**(note 8)**Stockholders'
                  Equity**(note 6):Preferred
                  stock, par value $0.0001, 100,000 authorized shares, none issued
                  and
                  outstanding
              
              ****
              **-**
              
              
              
              -Common
                  stock, par value $0.0001, 500,000,000 authorized shares, 50,374,837
                  (2006
                  – 50,322,337) issued and 50,360,632 (2006 – 50,308,132)
                  outstanding
              
              ****
              **5,037**
              
              
              
              5,032Additional
                  paid-in capital
              
              ****
              **24,755,640**
              
              
              
              23,927,551Accumulated
                  deficit during the development stage
              
              ****
              **(24,097,441**
              **)**
              
              
              (20,690,326
              )Treasury
                  stock, 14,205 shares, at cost
              
              ****
              **(28,410**
              **)**
              
              
              (28,410
              )**Total
                  Stockholders' Equity**
              
              ****
              **634,826**
              
              
              
              3,213,847**Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **2,210,883**
              
              
              $
              4,989,210
  2
 ***Table
            of Contents***
  **REXAHN
        PHARMACEUTICALS, INC.**
 (A
        Development Stage Company)
 Condensed
        Statements of Operations
  (Unaudited)
 Three
                      Months
                    Ended
                      September 30,
                
                
                Nine
                      Months
                    Ended
                      September 30,
                
                
                Cumulativefrom
                  March 19,
                    2001
                  (Inception)to
                  September 30,**2007**
                
                
                2006
                
                
                **2007**
                
                
                2006
                
                
                2007**Revenue:**Research
                
                **$**
                **18,750**
                
                
                $
                18,750
                
                
                **$**
                **56,250**
                
                
                $
                56,250
                
                
                $
                356,250**Expenses:**General
                    and administrative
                
                ****
                **555,625**
                
                
                
                1,004,030
                
                
                ****
                **1,971,891**
                
                
                
                2,662,756
                
                
                
                11,582,473Research
                    and development
                
                ****
                **465,934**
                
                
                
                635,047
                
                
                ****
                **1,441,225**
                
                
                
                3,192,663
                
                
                
                10,716,268Patent
                    fees
                
                ****
                **45,698**
                
                
                
                100,611
                
                
                ****
                **120,536**
                
                
                
                164,900
                
                
                
                639,396Depreciation
                    and amortization
                
                ****
                **14,475**
                
                
                
                54,817
                
                
                ****
                **46,212**
                
                
                
                97,081
                
                
                
                428,603**Total
                    Expenses**
                
                ****
                **1,081,732**
                
                
                
                1,794,505
                
                
                ****
                **3,579,864**
                
                
                
                6,117,400
                
                
                
                23,366,740**Loss
                    from Operations**
                
                ****
                **(1,062,982**
                **)**
                
                
                (1,775,755
                )
                
                ****
                **(3,523,614**
                **)**
                
                
                (6,061,150
                )
                
                
                (23,010,490
                )**Other
                    (Income) Expense**Interest  income
                
                ****
                **(23,606**
                **)**
                
                
                (71,098
                )
                
                ****
                **(116,499**
                **)**
                
                
                (270,377
                )
                
                
                (839,196
                )Interest
                    expense
                
                ****
                **-**
                
                
                
                3,998
                
                
                ****
                **-**
                
                
                
                95,019
                
                
                
                301,147Beneficial
                    conversion feature
                
                ****
                **-**
                
                
                
                -
                
                
                ****
                **-**
                
                
                
                -
                
                
                
                1,625,000****
                **(23,606**
                **)**
                
                
                (67,100
                )
                
                ****
                **(116,499**
                **)**
                
                
                (175,358
                )
                
                
                1,086,951**Net
                    Loss**
                
                **$**
                **(1,039,376**
                **)**
                
                $
                (1,708,655
                )
                
                **$**
                **(3,407,115**
                **)**
                
                $
                (5,885,792
                )
                
                $
                (24,097,441
                )Loss
                    per weighted average number  of shares outstanding basic and
                    diluted
                
                **$**
                **(0.02**
                **)**
                
                $
                (0.03
                )
                
                **$**
                **(0.07**
                **)**
                
                $
                (0.12
                )Weighted
                    average number of shares basic and diluted
                
                ****
                **50,338,393**
                
                
                
                50,265,632
                
                
                ****
                **50,323,209**
                
                
                
                48,990,761
 3
 ***Table
            of Contents***
  **REXAHN
        PHARMACEUTICALS, INC.**
 (A
        Development Stage Company)
 Condensed
        Statements of Cash Flows
  (Unaudited)
  Nine
                  Months Ended September 30,
              
              
              Cumulative
                  from
                March
                  19,2001
                (Inception)
                  to**2007**
              
              
              2006
              
              
              September 30,
                  2007**Cash
                  Flows from Operating Activities:**Net
                  loss
              
              **$**
              **(3,407,115**
              **)**
              
              $
              (5,885,792
              )
              
              $
              (24,097,441
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Beneficial
                  conversion feature
              
              ****
              **-**
              
              
              
              -
              
              
              
              1,625,000Compensatory
                  stock
              
              ****
              **-**
              
              
              
              -
              
              
              
              21,877Depreciation
                  and amortization
              
              ****
              **46,212**
              
              
              
              97,081
              
              
              
              428,984Stock
                  option compensation expense
              
              ****
              **786,094**
              
              
              
              1,312,717
              
              
              
              3,036,596Amortization
                  of deferred revenue
              
              ****
              **(56,250**
              **)**
              
              
              (56,250
              )
              
              
              (356,250
              )Changes
                  in assets and liabilities:Prepaid
                  expenses and other
              
              ****
              **65,856**
              
              
              
              (44,534
              )
              
              
              (417,330
              )Accounts
                  payable and accrued expenses
              
              ****
              **(143,056**
              **)**
              
              
              (297,813
              )
              
              
              432,307**Net
                  Cash Used in Operating Activities**
              
              ****
              **(2,708,259**
              **)**
              
              
              (4,874,591
              )
              
              
              (19,326,257
              )**Cash
                  Flows from Investing Activities:**Purchase
                  of equipment
              
              
              -
              
              
              
              (48,911
              )
              
              
              (498,520
              )**Net
                  Cash Used in Investing Activities**
              
              ****
              **-**
              
              
              
              (48,911
              )
              
              
              (498,520
              )**Cash
                  Flows from Financing Activities:**Issuance
                  of common stock
              
              ****
              **42,000**
              
              
              
              4,609
              
              
              
              14,927,204Proceeds
                  from long-term debt
              
              ****
              **-**
              
              
              
              -
              
              
              
              5,150,000Proceeds
                  from research contribution
              
              ****
              **-**
              
              
              
              -
              
              
              
              1,500,000Payment
                  of licensing fees
              
              ****
              **-**
              
              
              
              (130,570
              )
              
              
              (356,216
              )Principal
                  payments on long-term debt
              
              ****
              **-**
              
              
              
              (28,410
              )
              
              
              (28,410
              )**Net
                  Cash Provided by (Used in) Financing Activities**
              
              ****
              **42,000**
              
              
              
              (154,371
              )
              
              
              21,192,578**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              ****
              **(2,666,259**
              **)**
              
              
              (5,077,873
              )
              
              
              1,367,801**Cash
                  and Cash Equivalents - beginning of period**
              
              ****
              **4,034,060**
              
              
              
              10,116,625
              
              
              
              -**Cash
                  and Cash Equivalents - end of period**
              
              **$**
              **1,367,801**
              
              
              $
              5,038,752
              
              
              $
              1,367,801**Supplemental
                  Cash Flow Information**
              
              **$**
              **-**
              
              
              $
              280,535
              
              
              $
              292,912Interest
                  paid
  4
 ***Table
            of Contents***
  **1.**
              **Operations
                  and Organization and Going
                  Concern**
  **Operations
        and Organization**
  Rexahn
        Pharmaceuticals, Inc. (the "Company" or "Rexahn Pharmaceuticals"), a Delaware
        corporation, is a development stage biopharmaceutical company dedicated to
        the
        discovery, development and commercialization of innovative treatments for
        cancer, central nervous system (CNS) disorders, sexual dysfunction and other
        medical needs.
 
 The
        accompanying unaudited financial statements of the Company have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America for financial information and the requirements of item 310 (b) of
        Regulation S-B. Accordingly, certain information and disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been
        condensed or omitted pursuant to the rules and regulations of the Securities
        and
        Exchange Commission. These condensed financial statements should be read
        in
        conjunction with the financial statements and notes thereto included in the
        Company's Annual Report on Form 10-KSB for the year ended December 31, 2006.
        The
        accompanying condensed financial statements reflect all adjustments (consisting
        only of normal recurring adjustments), which, in the opinion of management,
        are
        necessary for a fair presentation of the results for the periods presented.
        Except for the adoption of new accounting policies as disclosed in note 2,
        there
        have been no significant changes in our accounting policies since December
        31,
        2006. The results of operations for the three and nine month period ended
        September 30, 2007 are not necessarily indicative of the results expected
        for
        the full fiscal year or any future period.
 
 **Going
        Concern**
 
 The
        Company's consolidated condensed financial statements are presented on a
        going
        concern basis, which contemplates the realization of assets and satisfaction
        of
        liabilities in the normal course of business. The Company has experienced
        recurring losses from operations since inception that raise substantial doubt
        as
        to its ability to continue as a going concern. For the nine-month periods
        ended
        September 30, 2007 and 2006, the Company experienced net losses of $3,407,115
        and $5,885,792, respectively. At September 30, 2007, the Company has an
        accumulated deficit of $24,097,441.
 
 The
        Company is negotiating and has received term sheets for $4,000,000 of equity
        with two private investors.  If finalized, the Company believes it
        will have sufficient cash to operate for at least twelve months.  The
        Company’s ability to continue as a going concern is contingent upon its ability
        to maintain the financing and strategic alliances necessary to complete product
        development, obtain the necessary licensing for its products and attain
        profitable operations. Although the Company is in clinical trials, there
        can be
        no assurance of the success of the clinical trials or of the marketability
        of
        the drugs. The Company has entered into negotiations on strategic alliances
        including research funding collaborations, as well as equity financing with
        international pharmaceutical companies and other investors in the United
        States,
        Europe and Asia. The Company also plans to pursue additional
        financing.  There can be no assurance that the Company will be able to
        secure financing when needed or to obtain such financing on terms satisfactory
        to the Company, if at all.  The consolidated condensed financial
        statements do not include any adjustments to reflect the possible future
        effects
        on the recoverability and classification of assets or the amounts and
        classification of liabilities that may result from the possible inability
        of the
        Company to continue as a going concern.
  5
 ***Table
            of Contents***
  
  **2.**
              **Summary
                  of Significant Accounting
                  Policies**
 a)
                The
                    accounting policies of the Company are in accordance with accounting
                    principles generally accepted in the United States of America
                    and their
                    basis of application is consistent with that of the previous
                    year.
  b)
              Recent
                  Accounting Pronouncements Affecting the
                  Company:
 
 In
                  June 2006, FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
                  for Uncertainty in Income Taxes". FIN 48 clarifies the accounting
                  for
                  uncertainty in income taxes recognized in an enterprise's financial
                  statements in accordance with SFAS No. 109, "Accounting for Income
                  Taxes".
                  FIN 48 prescribes a recognition threshold and measurement attributable
                  for
                  the financial statement recognition and measurement of a tax position
                  taken or expected to be taken in a tax return. FIN 48 also provides
                  guidance related to, among other things, classification, accounting
                  for
                  interest and penalties associated with tax positions and disclosure
                  requirements. The Company adopted FIN 48 effective January 1, 2007
                  and
                  there is no impact of adopting FIN 48 on the Company's financial
                  statements to date.
 
 In
                  February 2007, FASB issued Statement of Financial Accounting Standard
                  (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial
                  Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS
                  159”). The fair value option permits entities to choose to measure
                  eligible financial instruments at fair value at specified election
                  dates.
                  The entity will report unrealized gains and losses on the items
                  on which
                  it has elected the fair value option in earnings. SFAS 159 is effective
                  beginning in fiscal year 2008. The Company is currently evaluating
                  the
                  effect of adopting SFAS 159, but does not expect it to have a material
                  impact on its results of operations or financial
                  condition.
 
 c)
              Earnings
                  per share:
 
 The
        following weighted average number of shares was used for the computation
        of
        basic and diluted loss per share:
  Three
                  Months Ended
              
              
              Nine
                  Months EndedSeptember 30,
              
              
              September 30,**2007**
              
              
              2006
              
              
              **2007**
              
              
              2006**Basic**:
              
              
              50,338,393
              
              
              
              50,265,632
              
              
              
              50,323,209
              
              
              
              48,990,761**Diluted:**
              
              
              50,338,393
              
              
              
              50,265,632
              
              
              
              50,323,209
              
              
              
              48,990,761
 
 Basic
        earnings per share is based upon the weighted average number of common shares
        outstanding during the period. Diluted earnings per share is computed on
        the
        same basis, including if dilutive, common share equivalents, which include
        outstanding options and restricted shares. For purpose of computing diluted
        earnings per share, 3,283,800 and 2,980,729 common share equivalents for
        the
        three months and nine months ended September 30, 2007, and 2,788,230 and
        2,924,777 common share equivalents for the three months and nine months ended
        September 30, 2006, respectively, were excluded from the calculation of diluted
        earnings per share because their inclusion would have been anti-dilutive
        as a
        result of the net loss applicable to these periods.
  6
 ***Table
            of Contents***
  **3.**
              **Equipment,
                  Net**
 
 **September 30,**
              
              
              December 31,**2007**
              
              
              2006Furniture
                  and fixtures
              
              **$**
              **31,713**
              
              
              $
              31,713Office
                  equipment
              
              ****
              **43,648**
              
              
              
              43,648Lab
                  equipment
              
              ****
              **416,093**
              
              
              
              416,093Computer
                  equipment
              
              ****
              **5,066**
              
              
              
              5,066Cylinders
                  and designs
              
              ****
              **2,000**
              
              
              
              2,000****
              **498,520**
              
              
              
              498,520Less:
                  Accumulated depreciation
              
              ****
              **381,164**
              
              
              
              348,527Net
                  carrying amount
              
              **$**
              **117,356**
              
              
              $
              149,993
  Depreciation
        expense was $32,637 and $83,723 for the nine months ended September 30, 2007
        and
        2006, respectively.
  **4.**
              **Intangible
                  Assets, Net**
  On
        February 10, 2005, the Company entered into a licensing agreement with Revaax
        Pharmaceuticals LLC ("Revaax"), whereby the Company received an exclusive,
        worldwide, royalty bearing license, with the right to sub-license, of Revaax's
        licensed technology and products.  The agreement called for an initial
        licensing fee of $375,000 to be payable to Revaax in eight quarterly
        installments ending on November 10, 2006.  Accordingly, the Revaax
        license was measured at fair value at the date the licensing agreement was
        entered into.  The fair value of the license component of
        $356,216was
        determined by discounting the stream of future quarterly payments of $46,875
        at
        6%, the prevailing market rate for a debt instrument of comparable maturity
        and
        credit quality.  The asset is amortized on a straightline basis over
        the estimated useful life of 20 years.  The discount was accreted over
        the term of the liability, calculated based on the Company's estimated effective
        market interest rate of 6%. As at December 31, 2006 the outstanding balance
        was
        paid.  Amortization expense was $13,575 and $13,358 for the nine
        months ended September 30, 2007 and 2006, respectively, and $4,453 and $4,561
        for the three months ended September 30, 2007 and 2006,
        respectively.  Management does not believe that there is an impairment
        of intangible assets at September 30, 2007.
  **5.**
              **Deferred
                  Revenue**
  In
        2003,
        the Company entered into a collaborative research agreement with Rexgene
        Biotech
        Co., Ltd. ("Rexgene"), a minority shareholder.  Rexgene is engaged in
        the development of pharmaceutical products in Asia and has agreed to assist
        the
        Company with the research, development and clinical trials necessary for
        registration of the Company's drug candidate, RX-0201, in Asia.  This
        agreement provides Rexgene with exclusive rights to license, sublicense,
        make,
        have made, use, sell and import RX-0201 in Asia. A one-time contribution
        to the
        joint development and research of RX-0201 of $1,500,000 was paid to the Company
        in 2003 in accordance with the agreement.  The amount of revenue from
        this contribution is being recognized as income over the term of the agreement
        which terminates at the later of 20 years or the term of the patent on the
        licensed product. The Company is using 20 years as its basis for recognition
        and
        accordingly $56,250 was included in revenues for the nine months ended September
        30, 2007 and 2006.  The remaining $1,143,750 at September 30, 2007
        (December 31, 2006-$1,200,000) is reflected as deferred revenue on the balance
        sheet.  The Company adopted SAB No. 104, "Revenue Recognition
        Nonrefundable Up-front Fees" with respect to the accounting for this
        transaction. These fees are being used in the cooperative funding of the
        costs
        of development of RX-0201.  Royalties of 3% of net sales of licensed
        products will become payable to the Company on a quarterly basis once commercial
        sales of RX-0201 begin. The product is still under development and commercial
        sales are not expected to begin until at least 2009.
  7
 ***Table
            of Contents***
  **6.**
              **Common
                  Stock**
   The
        following transactions occurred during fiscal years 2001 through September
        30,
        2007:
 a)
                  On
                      May 10, 2001 the Company issued 3,600,000 shares of common
                      stock to the
                      Company's founders for $1.
 b)
              On
                  August 10, 2001 the Company issued:
  i)
              1,208,332
                  shares of common stock to the directors of the Company for cash
                  of
                  $1,450,000.
  ii)
              958,334
                  shares of common stock to Rexgene for cash of
                  $550,000.
  iii)
              360,000
                  shares of common stock in a private placement to individual investors
                  for
                  cash of $1,080,000.
  These
        share purchases were negotiated by the parties at various dates prior to
        the
        August 10, 2001 share issuance date.
  c)
              On
                  October 10, 2001 the Company issued 400,000 shares of common stock
                  to
                  Chong Kun Dang Pharmaceutical Corp. ("CKD") for cash of $479,991
                  and
                  400,000 shares of common stock to an individual investor for cash
                  of
                  $479,991.
  d)
              On
                  October 10, 2001 the Company issued 200,000 shares of common stock
                  to CKD
                  for cash of $479,985.
  e)
              Since
                  inception, the Company's founders have transferred 800,000 shares
                  of the
                  common stock described in a) to officers and directors of the
                  Company.
  f)
              In
                  July 2003, the shareholders described in b)(iii) and e) transferred
                  an
                  aggregate of 1,268,332 shares of common stock to a voting
                  trust.  The trust allows for the unified voting of the stock by
                  the trustees.  The appointed trustees are senior management of
                  the Company who, together with their existing shares, control a
                  majority
                  of the voting power of the Company.
  g)
              On
                  August 20, 2003 the Company issued 500,000 shares of common stock
                  to
                  KT&G Corporation for cash of
                  $2,000,000.
  h)
              On
                  October 29, 2004, an option holder exercised options to purchase
                  shares of
                  the Company’s common stock for cash of $1,800 and the Company issued an
                  aggregate of 1,500 shares.
  i)
              Pursuant
                  to the agreement and plan of merger 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. For purposes of the Statement
                  of
                  Stockholders' Equity, the five-for-one stock split is reflected
                  as a
                  one-line adjustment.  All shares and earnings per share
                  information has been retroactively restated in these financial
                  statements.
  8
 ***Table
            of Contents***
  j)
              On
                  August 8, 2005, the Company issued, in a transaction exempt from
                  registration under the Securities Act, 4,175,000 shares of common
                  stock at
                  a purchase price of $2.00 per
                  share.
  k)
              On
                    October 3, 2005, the Company issued 7,000 shares of common stock
                    for
                    $21,877 and $7,500 cash in exchange for
                    services.
  l)
              On
                  December 2, 2005, the holders of a convertible note, representing
                  $1,300,000 aggregate principal amount, exercised their option to
                  convert
                  the entire principal amount of the note into the Company's common
                  stock.  Based on a $2.00 per share conversion price, the holders
                  received an aggregate of 650,000
                  shares.
  m)
              On
                  December 27, 2005, option holders exercised options to purchase
                  shares of
                  the Company's common stock for cash of $9,600 and the Company issued
                  an
                  aggregate of 40,000 shares.
  n)
              OnFebruary
                  22, 2006, an
                  option holder exercised options to purchase shares of the Company's
                  common
                  stock for cash of $1,200 and the Company issued an aggregate of
                  5,000
                  shares.
  o)
              On
                  April 12, 2006, an option holder exercised options to purchase
                  shares of
                  the Company’s common stock for cash of $3,409 and the Company issued an
                  aggregate of 14,205 shares.  On the same date, the Company
                  agreed to repurchase common stock from the option holder based
                  on the then
                  market price for treasury in exchange for the aggregate purchase
                  price of
                  $28,410 in cash.
  p)
              On
                  May 13, 2006, holders of the $3,850,000 convertible notes issued
                  on
                  February 28, 2005, exercised their rights to convert the entire
                  principal
                  amount of the notes into shares of the Company’s common
                  stock.   Based on a $1.00 per share conversion price, the
                  Company issued 3,850,000 shares of common stock in connection with
                  the
                  conversion.
  q)
              On
                  October 9, 2006, an option holder exercised options to purchase
                  shares of
                  the Company’s common stock for cash of $2,400 and the Company issued an
                  aggregate of 10,000 shares.
  r)
              On
                  November 19, 2006, an option holder exercised options to purchase
                  shares
                  of the Company's common stock for cash of $1,800 and the Company
                  issued an
                  aggregate of 7,500 shares.
  s)
              OnDecember
                  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.
  **7.**
              **Stock-Based
                  Compensation**
  On
        August
        5, 2003, the Company established a stock option plan.  Under the plan,
        the Company grants stock options to key employees, directors and consultants
        of
        the Company.  For all grants prior to September 12, 2005 and grants to
        employees of the Company after September 12, 2005, the vesting period is
        30% on
        the first anniversary of the grant date, an additional 30% on the second
        anniversary and the remaining 40% on the third anniversary.
  9
 ***Table
            of Contents***
  For
        grants to non-employee directors and consultants of the Company after September
        12, 2005, the vesting period is between 1 to 3 years, subject to the fulfillment
        of certain conditions in the individual stock option grant agreements, or
        100%
        upon the occurrence of certain events specified in the individual stock option
        grant agreements.  Options authorized for issuance under the plan
        total 17,000,000 after giving effect to an amendment to the Company's Stock
        Option Plan approved at the Annual Meeting of the Stockholders of the Company
        on
        June 2, 2006 and as of September 30, 2007,
        10,695,000****options are available for
        issuance.
  Prior
        to
        adoption of the plan, the Company made restricted stock
        grants.  During 2003 all existing restricted stock grants were
        converted to stock options.  The converted options maintained the same
        full vesting period as the original restricted stock grants.
  **Accounting
        for Employee Awards**
  Effective
        January 1, 2006, the plan is accounted for in accordance with the recognition
        and measurement provisions of SFAS No. 123R, which replaces SFAS No. 123
        and
        supersedes APB No. 25, and related interpretations. SFAS No. 123R requires
        compensation costs related to share-based payment transactions, including
        employee stock options, to be recognized in the financial statements. In
        addition, the Company adheres to the guidance set forth in SEC SAB No. 107,
        which provides the SEC staff's views regarding the interaction between SFAS
        No.
        123R and certain SEC rules and regulations and provides interpretations with
        respect to the valuation of share-based payments for public
        companies.
  In
        adopting SFAS No. 123R, the Company applied the modified prospective approach
        to
        transition. Under the modified prospective approach, the provisions of SFAS
        No.
        123R are to be applied to new employee awards and to employee awards modified,
        repurchased, or cancelled after the required effective date. Additionally,
        compensation cost for the portion of employee awards for which the requisite
        service has not been rendered that are outstanding as of the required effective
        date will be recognized as the requisite service is rendered on or after
        the
        required effective date.
  The
        compensation cost for that portion of employee awards will be based on the
        grant-date fair value of those awards as calculated for either recognition
        or
        pro-forma disclosures under SFAS No. 123.
  As
        a
        result of the adoption of SFAS No. 123R, the Company's results of operations
        for
        the three months and nine months periods ended September 30, 2007 include
        share-based employee compensation expense totaling $144,880 and $447,996
        respectively, and for the three months and nine months periods ended September
        30, 2006 include $175,336 and $505,131 respectively. Such amounts have been
        included in the Statements of Operations in general and administrative and
        research and development expenses.
  Employee
        stock option compensation expense in the first three quarters of 2007 is
        the
        estimated fair value of options granted amortized on a straight-line basis
        over
        the requisite service period for the entire portion of the award. The Company
        has not adjusted the expense by estimated forfeitures, as required by SFAS
        No.
        123R for employee options, since the forfeiture rate based upon historical
        data
        was determined to be immaterial.
  **Accounting
        for Non-Employee Awards**
  The
        Company previously accounted for options granted to its non-employee consultants
        and non-employee registered representatives using the fair value cost in
        accordance with SFAS No. 123 and  EITF 96-18.  The adoption
        of SFAS No. 123R and SAB No. 107, as of January 1, 2006, had no material
        impact
        on the accounting for non-employee awards.  The Company continues to
        consider the additional guidance set forth in EITF Issue No. 96-18.
  Stock
        compensation expense related to non-employee options were $69,188 and $338,098
        for the three months and nine months periods ended September 30, 2007,
        respectively, and $329,062 and $807,586 for the three months and nine months
        periods ended September 30, 2006, respectively.
  10
 ***Table
            of Contents***
  Such
        amounts have been included in the Statements of Operations in general and
        administrative and research and development expenses.
 
 There
        were 425,000 stock options granted during the nine month period ended September
        30, 2007. A total of 1,045,000 stock options were granted in the same period
        last year. The fair value of options at the date of grant was estimated using
        the Black-Scholes option pricing model. During the first three quarters of
        2007,
        the Company took into consideration guidance under SFAS No. 123R and SAB
        No. 107
        when reviewing and updating assumptions. The expected volatility is based
        upon
        historical volatility of the Company's stock and other contributing factors.
        The
        expected term is based upon the contract life with non-employees.
  The
        assumptions made in calculating the fair values of options are as
        follows:
 
 
 Three
                  Months Ended
                September 30
              
              
              Nine
                  Months Ended
                September 30**2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Black-Scholes
                  Weighted Average  Assumptions:Expected
                  dividend
              
              ****
              **0**
              
              
              
              0
              
              
              ****
              **0**
              
              
              
              0Expected
                  volatility
              
              ****
              **100%**
              
              
              
              100%
              
              
              ****
              **100%**
              
              
              
              100%Risk
                  free interest rate
              
              ****
              **2.67-4.99%**
              
              
              
              4.59%
              
              
              ****
              **2.67-4.99%**
              
              
              
              4.59%Expected
                  term (in
                  years)
              
              **0.3-
                  5 years**
              
              
              5
                  years
              
              
              **0.3-
                  5 years**
              
              
              5
                  years
 
 
 **2007**
              
              
              2006**Shares**
                **Subject
                  to**
                **Options**
              
              
              **Weighted**
                **Avg.
                  Option**
                **Prices**
              
              
              **Shares**
                **Subject
                  to**
                **Options**
              
              
              **Weighted**
                **Avg.
                  Option**
                **Prices**Outstanding
                  at January 1
              
              
              6,123,295
              
              
              $
              0.94
              
              
              
              5,770,000
              
              
              $
              0.84Granted
              
              
              425,000
              
              
              
              1.44
              
              
              
              1,045,000
              
              
              
              1.20Exercised
              
              
              (52,500
              )
              
              
              0.80
              
              
              
              (19,205
              )
              
              
              0.24Cancelled
              
              
              (352,500
              )
              
              
              1.35
              
              
              
              (525,000
              )
              
              
              0.80**Outstanding
                  at September 30**
              
              ****
              **6,143,295**
              
              
              **$**
              **0.95**
              
              
              
              6,270,795
              
              
              $
              0.90
 
 
 **Shares**
                **Subject
                  to**
                **Options**
              
              
              **Weighted**
                **Avg.
                  Option**
                **Prices**
              
              **Weighted
                  Avg.**
                **Remaining**
                **Contractual
                  Term****Outstanding
                  at September 30, 2007**
              
              ****
              **6,143,295**
              
              
              **$**
              **0.95**
              
              **7.1
                  years****Exercisable
                  at September 30, 2007**
              
              ****
              **3,093,420**
              
              
              **$**
              **0.84**
              
              **6.9
                  years**
  11
 ***Table
            of Contents***
 
 **Shares
                  Subject to Options**
              
              
              **Weighted
                  Avg. Option Prices**
              
              **Weighted
                  Avg.**
                **Remaining**
                **Contractual
                  Term**Outstanding
                  at September 30, 2006
              
              
              6,270,795
              
              
              $
              0.90
              
              8.2
                  yearsExercisable
                  at September 30, 2006
              
              
              2,937,129
              
              
              $
              0.82
              
              7.7
                  years
   As
        of
        September 30, 2007 and 2006, there was $1,883,885 and $3,506,296 of total
        unrecognized compensation cost, respectively, net of estimated forfeitures,
        related to all unvested stock options, which is expected to be recognized
        over a
        weighted average vesting period of 1.2 years and 1.75 years,
        respectively.
  **8.**
              **Commitments
                  and Contingencies**
  a)
              The
                  Company has contracted with various vendors to provide research
                  and
                  development services. The terms of these agreements usually require
                  an
                  initiation fee and monthly or periodic payments over the terms
                  of the
                  agreement, ranging from 6 months to 24 months. The costs to be
                  incurred
                  are estimated and are subject to revision. As of September 30,
                  2007, the
                  total value of these agreements was approximately $2,273,406 and
                  the
                  Company had made payments totaling $1,370,061 under the terms of
                  the
                  agreements as at September 30, 2007.  All of these agreements
                  may be terminated by either party upon appropriate notice as stipulated
                  in
                  the respective agreements.
 
 b)
              On
                  September 12, 2005 the Company and three of its key executives
                  entered
                  into employment agreements. One of the three agreements with an
                  annual
                  commitment of $200,000 expired in September 2006. Another one of
                  the three
                  agreements was renewed on September 12, 2007 and results in an
                  annual
                  commitment of $160,000 and expires September 12, 2009. One agreement
                  expires on September 12, 2010 and results in an annual commitment
                  of
                  $350,000.
  c)
              In
                  April 2004, the Company signed a 5 year lease for 8,030 square
                  feet of
                  office space in Rockville, Maryland commencing July 2004. The lease
                  requires annual base rents of $200,750 subject to annual increases
                  of 3%
                  of the preceding years adjusted base rent. Under the leasing agreement,
                  the Company also pays its allocable portion of real estate taxes
                  and
                  common area operating charges.
   Minimum
                  future rental payments under this lease as of September 30, 2007
                  are as
                  follows:
 
 Remainder
                  of
              2007
              
              $
              54,8412008
              
              
              222,6552009
              
              
              112,973$
              390,469
  d)
              Regulation
                  by governmental authorities in the United States and in other countries
                  constitutes a significant consideration in our product development,
                  manufacturing and marketing strategies. The Company expects that
                  all of
                  drug candidates will require regulatory approval by appropriate
                  governmental agencies prior to commercialization and will be subjected
                  to
                  rigorous pre-clinical, clinical, and post-approval testing, as
                  well as to
                  other approval processes by the FDA and by similar health authorities
                  in
                  foreign countries. United States federal regulations control the
                  ongoing
                  safety, manufacture, storage, labeling, record keeping, and marketing
                  of
                  all biopharmaceutical products intended for therapeutic purposes.
                  The
                  Company believes that it is in compliance in all material respects
                  with
                  currently applicable rules and
                  regulations.
  12
 ***Table
            of Contents***
  e)
              On
                  January 4, 2007 The Company signed an agreement with Interventure
                  Co. Ltd
                  (“Interventure”) engaging Interventure to provide financial and business
                  consulting services to the Company. The Company agreed to pay Interventure
                  $20,000 upon closing of the financing of over $1,000,000 of financing
                  secured by Interventure. In addition, in the event that additional
                  financing is arranged by Interventure and successfully consummated
                  by the
                  Company, the Company agreed to pay Interventure a success fee of
                  3% of
                  such financing.
 
 f)
              On
                  March 5, 2007, the Company entered into an agreement with Rx
                  Communications Group LLC (“Rx”) for Rx to provide investor relations
                  services to the Company. Under this agreement, the Company agreed
                  to pay
                  Rx a monthly fixed retainer amount of $10,000 commencing March
                  1,
                  2007.  In accordance with the agreement, the contract may be
                  terminated by either party upon thirty (30) days prior written
                  notice to
                  the other party.
 
 g)
              On
                  May 30, 2007, the Company engaged Rodman and Renshaw, LLC (“Rodman”) to
                  serve as the placement agent in connection with the proposed offer
                  and
                  placement of securities of the Company. Pursuant to the agreement,
                  the
                  Company shall pay Rodman a cash placement fee equal to 7% of the
                  aggregate
                  proposed offering.
 
 **Item 2.  MANAGEMENT'S
        DISCUSSION AND ANALYSIS OR
        PLAN OF OPERATION**
  **OVERVIEW**
  Our
        efforts and resources have been focused primarily on acquiring and developing
        our pharmaceutical technologies, raising capital and recruiting
        personnel.  We are a development stage company and have no product
        sales to date and we will not generate any product sales until we receive
        approval from the FDA or equivalent foreign regulatory bodies to begin selling
        our pharmaceutical candidates.  Our major sources of working capital
        have been proceeds from various private financings, primarily private sales
        of
        common stock and debt securities, and collaboration agreements with our
        strategic investors.
  **SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS**
  The
        following discussion should be read in conjunction with the unaudited
        consolidated financial statements and notes thereto set forth in Item 1 of
        this Quarterly Report.  This Quarterly Report contains statements
        accompanied by such phrases as "believe", "estimate", "expect", "anticipate",
        "may", "intend" and other similar expressions, that are "forward-looking
        statements" as defined in the Private Securities Litigation Reform Act
        of 1995.  Actual results may differ materially from those
        projected as a result of certain risks and uncertainties, including but not
        limited to the following:
  ·
              our
                  lack of profitability and the need to raise additional capital
                  to operate
                  our business;
 ·
              our
                  ability to obtain the necessary U.S. and worldwide regulatory
                  approvals for our drug candidates;
 ·
              successful
                  and timely completion of clinical trials for our drug
                  candidates;
 ·
              demand
                  for and market acceptance of our drug
                  candidates;
 ·
              the
                  availability of qualified third-party researchers and manufacturers
                  for
                  our drug development programs;
 ·
              our
                  ability to develop and obtain protection of our intellectual property;
                  and
 ·
              other
                  risks and uncertainties, including those detailed from time to
                  time in our
                  filings with the Securities and Exchange
                  Commission.
  These
        forward-looking statements are made only as of the date hereof, and we undertake
        no obligation to update or revise the forward-looking statements, whether
        as a
        result of new information, future events or otherwise.  The safe
        harbors for forward-looking statements provided by the Private Securities
        Litigation Reform Act are unavailable to issuers of "penny
        stock".  Our shares may be considered a penny stock and, as a result,
        the safe harbors may not be available to us.
  13
 ***Table
            of Contents***
  **CRITICAL
        ACCOUNTING POLICIES**
  A
        "critical accounting policy" is one which is both important to the portrayal
        of
        our financial condition and results and requires our management's most
        difficult, subjective or complex judgments, often as a result of the need
        to
        make estimates about the effect of matters that are inherently
        uncertain.  Our accounting policies are in accordance with United
        States generally accepted accounting principles, or GAAP, and their basis
        of
        application is consistent with that of the previous year.
  ***Use
        of Estimates***
  The
        preparation of financial statements in conformity with GAAP requires management
        to make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and the disclosure of contingent assets and liabilities at the
        date
        of the financial statements and the reported amounts of revenues and expenses
        during the reporting period.  These estimates are based on
        management's best knowledge of current events and actions the Company may
        undertake in the future.  Actual results may ultimately differ from
        those estimates.  These estimates are reviewed periodically and as
        adjustments become necessary, they are reported in earnings in the period
        in
        which they become available.
  ***Stock-Based
        Compensation***
  In
        December 2004, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards ("SFAS") No. 123
        (Revised 2004), "Share-Based Payment" ("SFAS No. 123R").  This
        pronouncement amends SFAS No. 123, "Accounting for Stock-Based Compensation"
        and
        supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting
        for Stock Issued to Employees".  SFAS No. 123R requires that companies
        account for awards of equity instruments issued to employees under the fair
        value method of accounting and recognize such amount in the statement of
        operations.  The implementation of this statement was effective
        January 1, 2006 and has been adopted by the Company using the modified
        prospective method.
  For
        all
        non-employee stock-based compensation the Company uses the fair value method
        in
        accordance with SFAS No. 123 and EITF 96-18.
  In
        management's opinion, existing stock option valuation models do not provide
        a
        reliable single measure of the fair value of employee stock options that
        have
        vesting provisions and are not transferable.  As option valuation
        models require the input of highly subjective assumptions, changes in such
        subjective assumptions can materially affect the fair value estimate of employee
        stock options.
  Prior
        to
        the adoption of SFAS No. 123R, the Company used the intrinsic value method
        to
        account for stock-based compensation in accordance with APB Opinion No. 25
        and,
        as permitted by SFAS No. 123, provided pro forma disclosures of net loss
        and loss per common share as if the fair value methods had been applied in
        measuring compensation expense.  Under the intrinsic value method,
        compensation cost for employee stock awards is recognized as the excess,
        if any,
        of the deemed fair value for financial reporting purposes of our common stock
        on
        the date of grant over the amount an employee must pay to acquire the
        stock.  Compensation cost is amortized over the vesting period using
        an accelerated graded method in accordance with FASB Interpretation No. 28,
        "Accounting for Stock Appreciation Rights and Other Variable Stock Option
        or
        Award Plans".
  Our
        results include non-cash compensation expense as a result of stock option
        grants.  For stock-based awards prior to January 1, 2006, we
        accounted for stock-based employee compensation arrangements in accordance
        with
        the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
        and comply with the disclosure provisions of SFAS No. 123, "Accounting for
        Stock-Based Compensation" ("SFAS No. 123").  Compensation expense for
        options granted to employees represents the difference between the fair market
        value of our common stock and the exercise price of the options at the date
        of
        grant.  This amount is being recorded over the respective vesting
        periods of the individual stock options.  We expect to record
        additional non-cash compensation expense in the future, which may be
        significant.  Compensation for options granted to non-employees has
        been determined in accordance with SFAS No. 123 and EITF 96-18, "Accounting
        for Equity Instruments that are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services," as the fair value of the
        equity
        instruments issued.
  14
 ***Table
            of Contents***
  On
        August 5, 2003, the Company established a stock option plan.  The
        plan grants stock options to key employees, directors and consultants of
        the
        Company.  For grants prior to September 12, 2005 and grants to
        employees of the Company after September 12, 2005, the vesting period
        is 30% after the first year, an additional 30% after the second year
        and the remaining 40% after the third year.  For grants to
        non-employee directors and consultants of the Company after September 12,
        2005, the vesting period is 100% after the first year, subject to the
        fulfillment of certain conditions in the individual stock option grant
        agreements, or 100% upon the occurrence of certain events specified in the
        individual stock option grant agreements, subject to the fulfillment of certain
        conditions in the individual stock option grant agreements.
  The
        exercise prices of the options granted to employees were below the fair market
        value of the common stock on the date of the grant.  In
        December 2005, employees holding stock options that were not vested as of
        December 31, 2004 and stock options that were granted on or after
        January 1, 2005 agreed to amend the exercise prices of those options from
        $0.24 per share to $0.80 per share, the fair market value of the
        common stock (as determined by the board of directors), in order to comply
        with
        the requirements of Internal Revenue Code Section 409A.  The
        repricing of the options issued to employees was accounted as a cancellation
        of
        existing options and issuance of new options.  The effective date of
        this repricing was January 1, 2005.  The amendment was accounted
        for prospectively and resulted in a reversal of stock option compensation
        expense of $306,896 related to employee options recorded in the period from
        January 1, 2005 to September 30, 2005.  There was no impact
        on the Company's results of operations for the year ended December 31,
        2004.  Using the intrinsic value method, the total compensation cost
        for the year ended December 31, 2005 amounted to $0 (2004-$658,000) and is
        being amortized over the vesting period.
  The
        options issued to certain non-employees accounted under the fair value method
        were similarly repriced as of January 1, 2005.  As a result,
        stock compensation expense of $158,531 recorded in the period from
        January 1, 2005 to September 30, 2005, related to non-employee options
        was reversed.  The stock compensation expense related to non-employees
        during 2005 was $436,748, after accounting for the repricing
        adjustment.
  **RECENTLY
        ISSUED ACCOUNTING STANDARDS**
  In
        June 2006, FASB issued FASB Interpretation No. 48 ("FIN 48"),
        "Accounting for Uncertainty in Income Taxes".  FIN 48 clarifies
        the accounting for uncertainty in income taxes recognized in an enterprise's
        financial statements in accordance with SFAS No. 109, "Accounting for
        Income Taxes".  FIN 48 prescribes a recognition threshold and
        measurement attributable for the financial statement recognition and measurement
        of a tax position taken or expected to be taken in a tax
        return.  FIN 48 also provides guidance related to, among other
        things, classification, accounting for interest and penalties associated
        with
        tax positions and disclosure requirements.  The Company adopted
        FIN 48 effective January 1, 2007 and there is no impact of adopting
        FIN 48 on the Company's financial statements to date.
  In
        February 2007, FASB issued Statement of Financial Accounting Standard
        (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial
        Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS
        159”). The fair value option permits entities to choose to measure eligible
        financial instruments at fair value at specified election dates. The entity
        will
        report unrealized gains and losses on the items on which it has elected the
        fair
        value option in earnings. SFAS 159 is effective beginning in fiscal year
        2008.
        The Company is currently evaluating the effect of adopting SFAS 159, but
        does
        not expect it to have a material impact on its results of operations or
        financial condition.
  15
 ***Table
            of Contents***
  **RESULTS
        OF OPERATIONS**
  **Comparison
        of the Three Months and Nine Months Ended September 30, 2007
        and 2006:**
  ***Total
        Revenues***
  For
        the
        three months and nine months ended September 30, 2007, we recorded revenue
        of
        $18,750 and $56,250, respectively, compared to $18,750 and $56,250,
        respectively, in the same period last year.  Revenues result from the
        amortization of deferred revenue from a $1,500,000 contribution made in 2003
        to
        us under a collaborative research agreement with Rexgene Biotech Co., Ltd.,
        a
        minority shareholder.
  ***General
        and Administrative Expenses***
  General
        and administrative expenses consist primarily of salaries and related benefits
        and stock option compensation expenses for executive, finance and other
        administrative personnel, recruitment expenses, professional fees and other
        corporate expenses, including business development and general legal
        activities.
  General
        and administrative expenses decreased $447,405 and $690,865, respectively,
        or
        45% and 26%, respectively, from $1,004,030 and $2,662,756, respectively,
        for the
        three months and nine months ended September 30, 2006 to $555,625 and
        $1,971,891, respectively, for the three months and nine  months ended
        September 30, 2007.  The decreases were primarily due to lower stock
        option compensation expenses.  Higher general and administrative
        expenses during the 2006 periods were attributable to stock option compensation
        expense of $311,387 and $810,397 respectively, for the three months and nine
        months ended September 30, 2006 compared to $115,565 and $421,487, respectively,
        for the three months and nine months ended September 30, 2007.
  ***Research
        and Development Expenses***
  Research
        and development expenses consist primarily of salaries and related personnel
        costs, fees paid to consultants and outside service providers for laboratory
        development and other expenses relating to the design, development, testing,
        and
        enhancement of our drug candidates.  We expense our research and
        development costs as they are incurred.
  Research
        and development expenses decreased $169,113 and $1,751,438, respectively,
        or 27%
        and 55%, respectively, from $635,047 and $3,192,663, respectively, for the
        three
        months and nine months ended September 30, 2006 to $465,934 and $1,441,225,
        respectively, for the three months and nine months ended September 30,
        2007.  The decreases were due primarily to the fact that several of
        our drug candidates underwent clinical trials in 2006 and we had taken
        preliminary steps to prepare other drug candidates for clinical trials during
        that time.  Dependent upon the Company raising sufficient capital, we
        expect that research and development expenses will increase as additional
        drug
        candidates move into the clinical trials phases of
        development.  Higher research and development expenses during the 2006
        periods were also attributable to stock option compensation expense of $193,011
        and $502,319, respectively, for the three months and nine months ended September
        30, 2006 compared to $98,506 and $364,607, respectively, for the three months
        and nine months ended September 30, 2007.
  ***Patent
        Fees***
  Our
        patent fees decreased $54,913 and $44,364, respectively, or 55% and 27%,
        respectively, from $100,611and $164,900, respectively, for the three months
        and
        nine months ended September 30, 2006 to $45,698 and $120,536, respectively,
        for the three months and nine months ended September 30,
        2007.  The decrease during the three months and nine months ended
        September 30, 2007 were due primarily to a decrease in the number of patent
        filings made during three and nine months ended September 30, 2007 compared
        to
        the same periods last year.
  16
 ***Table
            of Contents***
  ***Interest
        Expense***
  Interest
        expense decreased $3,998, and $95,019, respectively, or 100% and 100%,
        respectively, from $3,998 and $95,019, respectively, for the three months
        and
        nine months ended September 30, 2006 to $0, for the three months and nine
        months ended September 30, 2007.  The decreases during the three
        months and nine months ended September 30, 2007 were primarily due to conversion
        of $3,850,000 of principal amount of the Company's convertible notes into
        common
        stock in May 2006.
  ***Interest
        Income***
  Interest
        income decreased $47,492 and $153,878, respectively, or 67% and 57%,
        respectively, from $71,098 and $270,377, respectively, for the nine months
        ended
        September 30, 2006 to $23,606 and $116,499, respectively, for the three months
        and nine months ended September 30, 2007.  The decreases during the
        three month and nine month periods ended September 30, 2007 were primarily
        due
        to higher cash and cash equivalent balances in the same periods last
        year.
  ***Depreciation
        and Amortization***
  Depreciation
        and amortization expenses decreased $40,342 and $50,869, respectively, or
        74%
        and 52%, respectively, from $54,817 and $97,081 respectively, for the three
        months and nine months ended September 30, 2006 to $14,475 and $46,212,
        respectively, for the three months and nine months ended September 30,
        2007.  The decreases were due primarily to amortization of fixed
        assets.
  ***Net
        Loss***
  As
        a
        result of the above, the net loss for the three months and nine months ended
        September 30, 2007 was $1,039,376 and $3,407,115, respectively, or $0.02
        and $0.07, per share, respectively, compared to a net loss of $1,708,655
        and
        $5,855,792, or $0.03 and $0.12 per share, respectively, for the three
        months and nine months ended September 30, 2006.
  **Research
        and Development Projects**
  Research
        and development costs are expensed as incurred.  Research and
        development expenses consist primarily of salaries and related personnel
        costs,
        costs to acquire pharmaceutical products and product rights for development
        and
        amounts paid to contract research organizations, hospitals and laboratories
        for
        the provision of services and materials for drug development and clinical
        trials.  Costs incurred in obtaining the license rights to technology
        in the research and development stage and that have no alternative future
        uses
        are expensed as incurred.  Our research and development programs are
        related to our five lead drug candidates, Archexin (which was previously
        referred to as RX-0201), RX-0047, RX-5902, Serdaxin and Zoraxel (Serdaxin
        and
        Zoraxel were previously referred to as RX-10100).
  We
        have
        allocated direct and indirect costs to each program based on certain assumptions
        and our review of the status of each program, payroll-related expenses and
        other
        overhead costs based on estimated usage by each program.  Each of our
        lead drug candidates is in various stages of completion as described
        below.  As we expand our clinical studies, we will enter into
        additional development agreements.  Significant additional
        expenditures will be required if we complete our clinical trials, start new
        trials, apply for regulatory approvals, continue development of our
        technologies, expand our operations and bring our products to
        market.  The eventual total cost of each clinical trial is dependent
        on a number of uncertainties such as trial design, the length of the trial,
        the
        number of clinical sites and the number of patients.  The process of
        obtaining and maintaining regulatory approvals for new therapeutic products
        is
        lengthy, expensive and uncertain.  Because the successful development
        of our most advanced drug candidates, Archexin, Serdaxin and Zoraxel, is
        uncertain, and because RX-0047 and RX-5902 are in early-stage development,
        we
        are unable to estimate the costs of completing our research and development
        programs, the timing of bringing such programs to market and, therefore,
        when
        material cash inflows could commence from the sale of these drug
        candidates.
  17
 ***Table
            of Contents***
  ***Archexin***
  In
        October 2006, we announced the conclusion of the Phase I clinical trial of
        Archexin, our leading drug candidate.  In May 2007, we received
        approval from the U.S. Food & Drug Administration (FDA) to initiate a Phase
        II clinical trial for our lead oncology compound, Archexin, in patients with
        renal cell carcinoma (RCC).  Enrollment is expected to begin in the
        fourth quarter of 2007.  The costs incurred for the clinical trial
        were approximately $1,500,000.
  The
        Phase
        I clinical trial of Archexin, which took place at Georgetown University's
        Lombardi Cancer Center beginning in September 2004 and at the University of
        Alabama at Birmingham beginning in August 2005, was primarily to determine
        the safety and tolerability of the drug in patients with advanced
        cancer.  We expect to file a complete final report of Phase I results
        with the Food and Drug Administration this year. As the main purpose of the
        clinical trial was to establish the safety of Archexin, the parameters that
        determined the completion of this project were a direct function of the safety
        profile of this compound in humans.  As this was the first time that
        Archexin had been administered to humans, the safety profile in humans was
        unknown and therefore, the number of doses required to determine the dosage
        at
        which the FDA safety endpoints would be met was estimated.
  The
        Phase
        II clinical trial of Archexin began in the third quarter of this year in
        patients with advanced renal cell carcinoma who have failed previous
        treatments.  The trial is the first of multiple trials planned for
        Archexin.  We estimate that the Phase II trials will be completed
        in 2009 and will require approximately $5,000,000.  In
        January 2005, we received "orphan drug designation" from the FDA for
        Archexin for five cancer indications, including renal cell carcinoma, ovarian
        cancer, glioblastoma, stomach cancer, and pancreatic cancer.  The
        orphan drug program is intended to provide patients with faster access to
        drug
        therapies for diseases and conditions that affect fewer than 200,000
        people.  Companies that receive orphan drug designation are provided
        an accelerated review process, tax advantages, and seven years of market
        exclusivity in the United States.  In the future, we plan to apply
        Archexin to the treatment of other orphan indications and other
        cancers.
  ***Serdaxin
        and Zoraxel***
  Serdaxin
        and Zoraxel are scheduled to enter Phase II trials in 2007, subject to
        obtaining sufficient additional financing. ****We currently
        estimate that these studies will require approximately $4,000,000 and
        $3,000,000, respectively.
  ***RX-0047
        and RX-5902***
  RX-0047
        and RX-5902 are both in a pre-clinical stage of development and the next
        scheduled program for each compound is a pre-clinical toxicology study required
        prior to submission of an Investigational New Drug ("IND") application to
        the FDA.  Through September 30, 2007, the costs incurred for
        development of these compounds to date have been approximately $800,000 for
        RX-0047, and $300,000 for RX-5902.  The estimated cost to complete
        pre-clinical toxicology and Phase I clinical trials is estimated to be
        approximately $1,500,000 per compound for a total of
        $3,000,000.  In June of 2007, we were granted a U.S. patent for
        our RX-0047 compound, which is scheduled to enter Phase I Clinical trials
        in 2008.  RX-5902 may be entered into these Phase I clinical
        trials in 2008.
  The
        conduct of the clinical trial and toxicology studies described above are
        being
        accomplished in conjunction with third-party clinical research organizations,
        or
        CROs, at external locations.  This business practice is typical for
        the pharmaceutical industry and companies like us.  As a result, the
        risk of completion or delay of these studies is not within our direct control
        and a program delay may occur due to circumstances outside our
        control.  A delay in any of these programs may not necessarily have a
        direct impact on our daily operations.  However, to the extent that a
        delay results in additional cost to us, a higher than expected expense may
        result.
  18
 ***Table
            of Contents***
  **LIQUIDITY
        AND CAPITAL RESOURCES**
  Cash
        used
        in operating activities was $2,708,259 for the nine months ended September
        30,
        2007 compared to cash used in operating activities of $4,874,591 for the
        same
        period ended September 30, 2006.  The operating cash flows during the
        nine months ended September 30, 2007 reflect our loss from operations of
        $3,407,115, offset by non-cash charges of $776,056 and a net decrease in
        cash
        components of working capital of $77,200.  Non-cash charges consist of
        depreciation and amortization of $46,212, stock option compensation expense
        of
        $786,094 and amortization of deferred revenue of $(56,250).  The
        decrease in working capital primarily consists of a $143,056 decrease in
        accounts payable and accrued expenses and a decrease of $65,856 of prepaid
        and
        other assets.
  There
        was
        no cash provided by or used in investing activities during the nine months
        ended
        September 30, 2007 and $48,911 used in 2006.
  Cash
        provided by financing activities was $42,000 for the nine months ended September
        30, 2007 compared to cash used in financing activities of $154,371 for the
        same
        period ended September 30, 2006.   The cash provided by financing
        activities during the nine months ended September 30, 2007 consists of issuance
        of common stock.  The increase in cash flows from financing activities
        is mainly due to principal payments on long-term debt of $28,410 and payment
        of
        licensing fees of $130,570 in the nine month period ended September 30,
        2006.  There were no such costs incurred in the current
        period.
  For
        the
        nine months ended September 30, 2007, and the year ended December 31,
        2006, we experienced net losses of $3,407,115 and $6,486,003,
        respectively.  Our accumulated deficit as of September 30, 2007,
        and December 31, 2006 and 2005 was $24,097,441, $20,690,326 and
        $14,204,323, respectively.
  We
        have
        financed our operations since inception primarily through equity and convertible
        debt financings and interest income from investments of cash and cash
        equivalents.  During the nine months ended September 30, 2007, we
        had a net decrease in cash and cash equivalents of $2,666,259 resulting from
        the
        cash used in operating activities.  Total cash and cash equivalents as
        of September 30, 2007 were $1,367,801 compared to $4,034,060 as of
        December 31, 2006.
  The
        Company is negotiating and has
        received term sheets for $4,000,000 of equity with two private
        investors.  If finalized, the Company believes it will have sufficient
        cash to operate for at least twelve months.  The Company’s ability to
        continue as a going concern is contingent upon its ability to maintain the
        financing and strategic alliances necessary to complete product development,
        attain the necessary licensing for its products and attain profitable
        operations. Although the Company is in clinical trials, there can be no
        assurance of the success of the clinical trials or of the marketability of
        the
        drug.  The Company has entered into negotiations on strategic
        alliances including research funding collaborations, as well as equity financing
        with international pharmaceutical companies and other investors in the United
        States, Europe and Asia. The Company also plans to pursue additional
        financing.  There can be no assurance that the Company will be able to
        secure financing when needed or to obtain such financing on terms satisfactory
        to the Company, if at all.
  **CONTRACTUAL
        OBLIGATIONS**
  In
        April 2004, we signed a 5-year lease for 8,030 square feet of
        office space in Rockville, Maryland commencing July 2004.  The
        lease requires annual base rents of $200,750 subject to annual increases
        of 3% of the preceding years adjusted base rent.  Under the
        leasing agreement, we also pay our allocable portion of real estate taxes
        and
        common area operating charges.
  19
 ***Table
            of Contents***
  Minimum
        future rental payments under this lease as of September 30, 2007 are as
        follows:
 
 Remainder
                  of
              2007
              
              $
              54,8412008
              
              
              222,6552009
              
              
              112,973$
              390,469
 
 On
        September 12, 2005, the Company and three of its key executives entered into
        employment agreements.  One of the three agreements with an annual
        commitment of $200,000 expired in September 2006.  Another one of the
        three agreements was renewed on September 12, 2007 and results in an annual
        commitment of $160,000. One agreement expires on September 12, 2010 and results
        in an annual commitment of $350,000.
 
 On
        January 6, 2006, we contracted with Amarex, LLC to conduct Phase II
        clinical studies for Archexin.  In accordance with the agreement, the
        estimated contract duration is 24 months for a total cost of $596,244
        plus pass through expenses.  The service costs are payable
        in 24 monthly payments of $18,633 plus an initiation fee of $149,061
        due upon signing.  We paid $167,693 and $361,973 towards the cost of
        the study in the nine months ended September 30, 2007 and in the year ended
        December 31, 2006, respectively.
  On
        April 3, 2006, we contracted with UPM Pharmaceuticals, Inc. to develop a
        short-acting extended release formulation for Serdaxin and
        Zoraxel.  In accordance with the agreement, the estimated contract
        duration is seven months for an estimated cost of $443,975 plus pass through
        expenses, of which $0 and $112,124 was paid during the nine months ended
        September 30, 2007 and the year ended December 31, 2006,
        respectively.  The service costs are payable based upon a payment
        schedule related to certain milestones.****On January 4,
        2007, the Company signed a one year agreement with Interventure Co. Ltd
        ("Interventure") engaging Interventure to provide financial and business
        consulting services to the Company.  The Company agreed to pay
        Interventure $20,000 upon closing of over $1,000,000 of financing secured
        by
        Interventure.  In addition, in the event that additional financing is
        arranged by Interventure and successfully consummated by the Company, the
        Company agreed to pay Interventure a success fee of 3% of such
        financing.
  On
        February 1, 2007, we contracted with the University of Maryland Baltimore
        to develop polymer conjugates for cancer therapy.  In accordance with
        the agreement, the contract duration is 12 months for a total cost of
        $55,000, all of which was paid in April 2007.
  On
        March
        5, 2007, the Company entered into an agreement with Rx Communications Group
        LLC
        ("Rx") for Rx to provide investor relations services to the
        Company.  Under this agreement, the Company agreed to pay Rx a monthly
        fixed retainer amount of $10,000 commencing March 1, 2007.  In
        accordance with the agreement, the contract may be terminated by either party
        upon thirty (30) days' prior written notice to the other party.
  On
        May
        18, 2007, we contracted with LabConnect to conduct Phase II clinical trials
        laboratory testing services for Archexin.  In accordance with the
        agreement, the estimated contract duration is until the end of 2009 for a
        total
        cost of $197,220.  We paid $54,444 towards the cost of the study in
        the nine months ended September 30, 2007.
  On
        May
        30, 2007, the Company engaged Rodman and Renshaw, LLC ("Rodman") to serve
        as the
        placement agent in connection with the proposed offer and placement of our
        securities.  Pursuant to the agreement, we will pay Rodman a cash
        placement fee equal to 7% of the aggregate proposed offering.
  The
        Company also has agreements with other companies to perform clinical studies
        with various remaining terms from two months to three years.  The
        total cost for these agreements is approximately $120,000, of which $58,000
        has
        been expended.  These agreements may be terminated upon written notice
        to the other party.
  20
 ***Table
            of Contents***
  Although
        we currently believe that our cash and cash equivalents will be sufficient
        to
        meet our minimum planned operating needs for the next 3 months,
        including the amounts payable under the contractual commitments described
        above,
        as our drug candidates move into the clinical trials phase of development,
        we
        expect to enter into additional agreements of the same type, which may require
        additional contractual commitments.  These additional commitments may
        have a negative impact on our future cash flows.  For the foreseeable
        future, we will have to fund all of our operations and capital expenditures
        from
        the net proceeds of equity or debt offerings we may have, cash on hand,
        licensing fees and grants.  Although we have plans to pursue
        additional financing, there can be no assurance that we will be able to secure
        financing when needed or obtain such financing on terms satisfactory to us,
        if
        at all, or that any additional funding we do obtain will be sufficient to
        meet
        our needs in the long term.  If additional funding cannot be obtained,
        we will review alternative courses of action to conserve our cash
        flow.
  **CURRENT
        AND FUTURE FINANCING NEEDS**
  We
        have
        incurred negative cash flow from operations since we started our
        business.  We have spent, and expect to continue to spend, substantial
        amounts in connection with implementing our business strategy, including
        our
        planned product development efforts, our clinical trials, and our research
        and
        development efforts.  Based on our current plans and our capital
        resources (but without giving effect the $4,000,000 financing for which we
        have
        received term sheets and are currently negotiating), we believe that our
        cash
        and cash equivalents will be sufficient to enable us to meet our minimum
        planned
        operating needs for at least the next three months, which would entail
        focusing our resources on Phase II clinical trials of Archexin.  Over
        the next 12 months we expect to spend a minimum of approximately
        $500,000 on clinical development for Phase II clinical trials of Archexin,
        $2
        million on general corporate expenses, and approximately $219,000 on facilities
        rent.  We plan to initiate, subject to obtaining sufficient additional
        financing, Phase II clinical trials of Serdaxin and Zoraxel beginning in
        the
        winter of 2007 at an additional cost of up to approximately
        $3 million.  We may seek additional financing to implement and
        fund other drug candidate development, clinical trial and research and
        development efforts to the maximum extent of our operating plan, including
        in-vivo animal and pre-clinical studies and Phase I clinical trials for RX-0047
        and RX-5902, Phase II clinical trials for new product candidates, as well
        as
        other research and development projects, which together with the minimum
        operating plan for the next 12 months, could aggregate up to $7
        million through the third quarter of 2008.
  However,
        the actual amount of funds we will need to operate is subject to many factors,
        some of which are beyond our control.  These factors include the
        following:
  ·
              the
                  progress of our product development
                  activities;
  ·
              the
                  number and scope of our product development
                  programs;
  ·
              the
                  progress of our pre-clinical and clinical trial
                  activities;
  ·
              additional
                  contractual commitments which may be required as our drug candidates
                  move
                  into the clinical trials phase of
                  development;
  ·
              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.
  21
 ***Table
            of Contents***
  **IMPACT
        OF INFLATION**
  To
        date,
        inflationary factors have not had a significant effect on our
        operations.
  **OFF-BALANCE
        SHEET ARRANGEMENTS**
  We
        do not
        have any off-balance sheet arrangements.
  **CERTAIN
        BUSINESS RISKS**
  ***We
        currently have no product revenues and will need to raise additional capital
        to
        operate our business.***
  To
        date,
        we have generated no product revenues.  Until we receive approval from
        the FDA and other regulatory authorities for our drug candidates, we cannot
        sell
        our drugs and will not have product revenues.  Therefore, for the
        foreseeable future, we will have to fund all of our operations and capital
        expenditures from the net proceeds of equity or debt offerings we may make,
        cash
        on hand, licensing fees and grants.  Based on our current plans and
        our capital resources, we believe that our cash and cash equivalents will
        be
        sufficient to enable us to meet our planned operating needs for at least
        the
        next six months, including the clinical trials of Archexin.  We plan
        to initiate, subject to obtaining sufficient additional financing, Phase
        II
        clinical trials of Serdaxin and Zoraxel beginning in the winter of 2007 at
        an additional cost of up to approximately $3 million.
  However,
        changes may occur that would consume our existing capital at a faster rate
        than
        projected, including but not limited to, the progress of our research and
        development efforts, the cost and timing of regulatory approvals and the
        costs
        of protecting our intellectual property rights.  We may seek
        additional financing to implement and fund other drug candidate development,
        clinical trial and research and development efforts, including Phase I clinical
        trials for other new drug candidates, as well as other research and development
        projects, which together with the current operating plan for the next year,
        could aggregate up to $ 7 million through the third quarter
        of 2008.
  We
        will
        need additional financing to continue to develop our drug candidates, which
        may
        not be available on favorable terms, if at all.  If we are unable to
        secure additional financing in the future on acceptable terms, or at all,
        we may
        be unable to complete our planned pre-clinical and clinical trials or obtain
        approval of our drug candidates from the FDA and other regulatory
        authorities.  In addition, we may be forced to reduce or discontinue
        product development or product licensing, reduce or forego sales and marketing
        efforts and forego attractive business opportunities in order to improve
        our
        liquidity to enable us to continue operations.  Any additional sources
        of financing will likely involve the sale of our equity securities or securities
        convertible into our equity securities, which may have a dilutive effect
        on our
        stockholders.
  ***We
        are not currently profitable and may never become
        profitable.***
  We
        have
        generated no revenues to date from product sales.  Our accumulated
        deficit as of September 30, 2007 and December 31, 2006 was $24,097,441
        and $20,690,326, respectively.  For the nine months ended
        September 30, 2007 and the year ended December 31, 2006, we had net
        losses of $3,407,115 and $6,486,003, respectively, primarily as a result
        of
        expenses incurred through a combination of research and development activities
        related to the various technologies under our control and expenses supporting
        those activities.  Even if we succeed in developing and
        commercializing one or more of our drug candidates, we expect to incur
        substantial losses for the foreseeable future and may never become
        profitable.  We also expect to continue to incur significant operating
        and capital expenditures and anticipate that our expenses will increase
        substantially in the foreseeable future, based on the following
        considerations:
  ·
              continued
                  pre-clinical development and clinical trials for our current and
                  new drug
                  candidates;
  22
 ***Table
            of Contents***
  ·
              efforts
                  to seek regulatory approvals for our drug
                  candidates;
  ·
              implementing
                  additional internal systems and
                  infrastructure;
  ·
              licensing
                  in additional technologies to develop;
                  and
  ·
              hiring
                  additional personnel.
  We
        also
        expect to continue to experience negative cash flow for the foreseeable future
        as we fund our operating losses and capital expenditures.  As a
        result, we will need to generate significant revenues in order to achieve
        profitability.
  ***We
        have a limited operating history.***
  We
        are a
        development-stage company with a limited number of drug
        candidates.  To date, we have not demonstrated an ability to perform
        the functions necessary for the successful commercialization of any of our
        drug
        candidates.  The successful commercialization of our drug candidates
        will require us to perform a variety of functions, including, but not limited
        to:
  ·
              conducting
                  pre-clinical and clinical trials;
  ·
              participating
                  in regulatory approval processes;
  ·
              formulating
                  and manufacturing products; and
  ·
              conducting
                  sales and marketing activities.
  To
        date,
        our operations have been limited to organizing and staffing our company,
        acquiring, developing and securing our proprietary technology and undertaking,
        through third parties, pre-clinical trials and clinical trials of our principal
        drug candidates.  These operations provide a limited basis for
        assessment of our ability to commercialize drug candidates.
  ***We
        may not obtain the necessary U.S. or worldwide regulatory approvals to
        commercialize our drug candidates.***
  We
        will
        need FDA approval to commercialize our drug candidates in the U.S. and
        approvals from the FDA-equivalent regulatory authorities in foreign
        jurisdictions to commercialize our drug candidates in those
        jurisdictions.  In order to obtain FDA approval of our drug
        candidates, we must submit to the FDA a New Drug Application
        ("NDA") demonstrating that the drug candidate is safe for humans and
        effective for its intended use.  This demonstration requires
        significant research and animal tests, which are referred to as pre-clinical
        studies, as well as human tests, which are referred to as clinical
        trials.  Satisfaction of the FDA's regulatory requirements typically
        takes many years, and depends upon the type, complexity and novelty of the
        drug
        candidate and requires substantial resources for research, development and
        testing.  We cannot predict whether our research and clinical
        approaches will result in drugs that the FDA considers safe for humans and
        effective for indicated uses.  Two of our drug candidates, Archexin
        and RX-0047, are ASO compounds.  To date, the FDA has not approved any
        NDAs for any ASO compounds, except one eye care medicine, Vitravene (fomivirsen
        sodium injectable).****In addition, both Archexin and RX-0047
        are of a drug class (Akt inhibitor, in the case of Archexin, and HIF
        inhibitor, in the case of RX-0047) that has not been approved by the FDA
        to
        date.**** After the clinical trials are completed, the FDA
        has substantial discretion in the drug approval process and may require us
        to
        conduct additional pre-clinical and clinical testing or to perform
        post-marketing studies.
  In
        foreign jurisdictions, we must receive approval from the appropriate regulatory
        authorities before we can commercialize our drugs.  Foreign regulatory
        approval processes generally include all of the risks associated with the
        FDA
        approval procedures described above.  We cannot assure you that we
        will receive the approvals necessary to commercialize our drug candidates
        for
        sale outside the United States.
  23
 ***Table
            of Contents***
  ***Our
        drug candidates are in early stages of clinical
        trials.***
  Our
        drug
        candidates are in an early stage of development and require extensive clinical
        testing, which is very expensive, time-consuming and difficult to
        design.  In 2007,  Archexin, an oncology drug
        candidate, entered Phase II clinical
        trials.  ****We plan to initiate, subject to
        obtaining sufficient additional financing, Phase II clinical trials of Serdaxin
        and Zoraxel, neuroscience and sexual dysfunction drug candidates, beginning
        in
        the winter of 2007.
  ***Clinical
        trials are very expensive, time-consuming and difficult to design and
        implement.***
  Human
        clinical trials are very expensive and difficult to design and implement,
        in
        part because they are subject to rigorous regulatory
        requirements.  The clinical trial process is also time
        consuming.  We estimate that clinical trials of our current drug
        candidates will take at least three years to complete.  Furthermore,
        failure can occur at any stage of the trials, and we could encounter problems
        that cause us to abandon or repeat clinical trials.  The commencement
        and completion of clinical trials may be delayed by several factors, including,
        but not limited to:
  ·
              unforeseen
                  safety issues;
  ·
              determination
                  of dosing issues;
  ·
              lack
                  of effectiveness during clinical
                  trials;
  ·
              reliance
                  on third party suppliers for the supply of drug candidate
                  samples;
  ·
              slower
                  than expected rates of patient
                  recruitment;
  ·
              inability
                  to monitor patients adequately during or after
                  treatment;
  ·
              inability
                  or unwillingness of medical investigators and institutional review
                  boards
                  to follow our clinical protocols;
                  and
  ·
              lack
                  of sufficient funding to finance the clinical
                  trials.
  In
        addition, we or the FDA may suspend clinical trials at any time if it appears
        that we are exposing participants to unacceptable health risks or if the
        FDA
        finds deficiencies in our IND submissions or the conduct of these
        trials.
  ***If
        the results of our clinical trials fail to support our drug candidate claims,
        the completion of development of such drug candidate may be significantly
        delayed or we may be forced to abandon development altogether, which will
        significantly impair our ability to generate product
        revenues.***
  Even
        if
        our clinical trials are completed as planned, we cannot be certain that our
        results will support our drug candidate claims.  Success in
        pre-clinical testing and early clinical trials does not ensure that later
        clinical trials will be successful, and we cannot be sure that the results
        of
        later clinical trials will replicate the results of prior clinical trials
        and
        pre-clinical testing.  The clinical trial process may fail to
        demonstrate that our drug candidates are safe for humans and effective for
        indicated uses.  This failure would cause us to abandon a drug
        candidate and may delay development of other drug candidates.  Any
        delay in, or termination of, our clinical trials will delay the filing of
        our
        NDAs with the FDA and, ultimately, delay our ability to commercialize our
        drug
        candidates and generate product revenues.  In addition, our trial
        designs may involve a small patient population.  Because of the small
        sample size, the results of early clinical trials may not be indicative of
        future results.
  ***If
        physicians and patients do not accept and use our drugs, our ability to generate
        revenue from sales of our products will be materially
        impaired.***
  Even
        if
        the FDA approves our drug candidates, physicians and patients may not accept
        and
        use them.  Future acceptance and use of our products will depend upon
        a number of factors including:
  ·
              awareness
                  of the drug's availability and
                  benefits;
  24
 ***Table
            of Contents***
  ·
              perceptions
                  by members of the health care community, including physicians,
                  about the
                  safety and effectiveness of our
                  drugs;
  ·
              pharmacological
                  benefit and cost-effectiveness of our product relative to competing
                  products;
  ·
              availability
                  of reimbursement for our products from government or other healthcare
                  payers;
  ·
              effectiveness
                  of marketing and distribution efforts by us and our licensees and
                  distributors, if any; and
  ·
              the
                  price at which we sell our
                  products.
  Because
        we expect sales of our current drug candidates, if approved, to generate
        substantially all of our product revenues for the foreseeable future, the
        failure of any of these drugs to find market acceptance would harm our business
        and could require us to seek additional financing.
  ***Much
        of our drug development program depends upon third-party researchers, and
        the
        results of our clinical trials and such research activities are, to a limited
        extent, beyond our control.***
  We
        depend
        upon independent investigators and collaborators, such as universities and
        medical institutions, to conduct our pre-clinical and clinical trials and
        toxicology studies.  This business practice is typical for the
        pharmaceutical industry and companies like us.  For example, the
        Phase I clinical trials of Archexin were conducted at the Lombardi
        Comprehensive Cancer Center of Georgetown Medical Center and the University
        of
        Alabama at Birmingham, with the assistance of Amarex, LLC, a pharmaceutical
        clinical research service provider who is responsible for creating the reports
        that will be submitted to the FDA.  We also relied on TherImmune
        Research Corporation (now named Bridge Global Pharmaceutical Services, Inc.),
        a
        discovery and pre-clinical service provider, to summarize Archexin 's
        pre-clinical data.  While we make every effort internally to oversee
        their work, these collaborators are not our employees and we cannot control
        the
        amount or timing of resources that they devote to our programs.  These
        investigators may not assign priority to our programs or pursue them as
        diligently as we would if we were undertaking such programs
        ourselves.  If outside collaborators fail to devote sufficient time
        and resources to our drug-development programs, or if their performance is
        substandard, the approval of our FDA applications, if any, and our introduction
        of new drugs, if any, may be delayed.  The risk of completion or delay
        of these studies is not within our direct control and a program delay may
        occur
        due to circumstances outside our control.  A delay in any of these
        programs may not necessarily have a direct impact on our daily
        operations.  However, to the extent that a delay results in additional
        cost to us, a higher than expected expense may result.  These
        collaborators may also have relationships with other commercial entities,
        some
        of whom may compete with us.  If our collaborators assist our
        competitors at our expense, our competitive position would be
        harmed.
  ***We
        rely exclusively on third parties to formulate and manufacture our drug
        candidates, which expose us to a number of risks that may delay development,
        regulatory approval and commercialization of our products or result in higher
        product costs.***
  We
        have
        no experience in drug formulation or manufacturing.  Internally, we
        lack the resources and expertise to formulate or manufacture our own drug
        candidates.  Therefore, we rely on third party expertise to support us
        in this area.  For example, we have entered into contracts with
        third-party manufacturers such as Raylo Chemicals Inc., Formatech, Inc.,
        Avecia
        Biotechnology Inc. and UPM Pharmaceuticals, Inc. to manufacture, supply,
        store
        and distribute supplies of our drug candidates for our clinical
        trials.  If any of our drug candidates receive FDA approval, we will
        rely on these or other third-party contractors to manufacture our
        drugs.  Our reliance on third-party manufacturers exposes us to the
        following potential risks:
  ·
              We
                  may be unable to identify manufacturers on acceptable terms or
                  at all
                  because the number of potential manufacturers is limited and the
                  FDA must
                  approve any replacement contractor.  This approval would require
                  new testing and compliance inspections.  In addition, a new
                  manufacturer would have to be educated in, or develop substantially
                  equivalent processes for, the production of our products after
                  receipt of
                  FDA approval, if any.
  25
 ***Table
            of Contents***
  ·
              Our
                  third-party manufacturers might be unable to formulate and manufacture
                  our
                  drugs in the volume and of the quality required to meet our clinical
                  needs
                  and commercial needs.
  ·
              Our
                  contract manufacturers may not perform as agreed or may not remain
                  in the
                  contract manufacturing business for the time required to supply
                  our
                  clinical trials or to successfully produce, store and distribute
                  our
                  products.
  ·
              Drug
                  manufacturers are subject to ongoing periodic unannounced inspection
                  by
                  the FDA, the Drug Enforcement Agency ("DEA"), and corresponding
                  state
                  agencies to ensure strict compliance with good manufacturing practice
                  and
                  other government regulations and corresponding foreign
                  standards.  We do not have control over third-party
                  manufacturers' compliance with these regulations and standards,
                  but we may
                  be ultimately responsible for any of their
                  failures.
  ·
              If
                  any third-party manufacturer makes improvements in the manufacturing
                  process for our products, we may not own, or may have to share,
                  the
                  intellectual property rights to the
                  innovation.
  Each
        of
        these risks could delay our clinical trials, drug approval and commercialization
        and potentially result in higher costs and/or reduced revenues.
  ***We
        have no experience selling, marketing or distributing products and currently
        no
        internal capability to do so.***
  We
        currently have no sales, marketing or distribution
        capabilities.  While we intend to have a role in the commercialization
        of our products, we do not anticipate having the resources in the foreseeable
        future to globally develop sales and marketing capabilities for all of our
        proposed products.  Our future success depends, in part, on our
        ability to enter into and maintain collaborative relationships with other
        companies having sales, marketing and distribution capabilities, the
        collaborator's strategic interest in the products under development and such
        collaborator's ability to successfully market and sell any such
        products.  To the extent that we decide not to, or are unable to,
        enter into collaborative arrangements with respect to the sales and marketing
        of
        our proposed products, significant capital expenditures, management resources
        and time will be required to establish and develop an in-house marketing
        and
        sales force with technical expertise.  We cannot assure you that we
        will be able to establish or maintain relationships with third party
        collaborators or develop in-house sales and distribution
        capabilities.  To the extent that we depend on third parties for
        marketing and distribution, any revenues we receive will depend upon the
        efforts
        of such third parties, as well as the terms of its agreements with such third
        parties, which cannot be predicted at this early stage of our
        development.  We cannot assure you that such efforts will be
        successful.  In addition, we cannot assure you that we will be able to
        market and sell our products in the United States or overseas.
  ***Developments
        by competitors may render our products or technologies obsolete or
        non-competitive.***
  We
        will
        compete against fully integrated pharmaceutical companies and smaller companies
        that are collaborating with larger pharmaceutical companies, academic
        institutions, government agencies and other public and private research
        organizations, such as Keryx Biopharmaceuticals Genta Incorporated and Imclone
        Systems Incorporated.  In addition, many of these competitors, either
        alone or together with their collaborative partners, operate larger research
        and
        development programs or have substantially greater financial resources than
        we
        do, as well as more experience in:
  ·
              developing
                  drugs;
  ·
              undertaking
                  pre-clinical testing and human clinical
                  trials;
  ·
              obtaining
                  FDA and other regulatory approvals of
                  drugs;
  ·
              formulating
                  and manufacturing drugs; and
  ·
              launching,
                  marketing and selling drugs.
  26
 ***Table
            of Contents***
  Large
        pharmaceutical companies such as Bristol-Myers, Squibb, Eli-Lilly, Novartis
        and
        Glaxo-SmithKline currently sell both generic and proprietary compounds for
        the
        treatment of cancer.  In addition, companies pursuing different but
        related fields represent substantial competition.  Many of these
        organizations have substantially greater capital resources, larger research
        and
        development staffs and facilities, longer drug development history in obtaining
        regulatory approvals and greater manufacturing and marketing capabilities
        than
        we do.  These organizations also compete with us to attract qualified
        personnel, parties for acquisitions, joint ventures or other
        collaborations.
  ***If
        we fail to adequately protect or enforce our intellectual property rights
        or
        secure rights to patents of others, the value of our intellectual property
        rights would diminish and our business and competitive position would
        suffer.***
  Our
        success, competitive position and future revenues will depend in part on
        our
        ability and the abilities of our licensors to obtain and maintain patent
        protection for our products, methods, processes and other technologies, to
        preserve our trade secrets, to prevent third parties from infringing on our
        proprietary rights and to operate without infringing the proprietary rights
        of
        third parties.  We have filed U.S. and PCT patent applications
        for anti-Akt compounds, including Archexin, and for anti-HIF compounds,
        including RX-0047.  In November 2006, we were granted a
        U.S. patent for our anti-Akt compounds, including Archexin.  The
        patent covers the nucleotide sequences of the anti-sense compounds that target
        and inhibit the expression of Akt in human tissues or cells.  The
        patent also covers the method of using the compounds to induce cytotoxicity
        in
        cancer cells.  In June of 2007, we were granted a U.S. patent for
        our RX-0047 compound, which is scheduled to enter Phase I Clinical trials
        in 2008.  We have also filed three U.S. provisional patent
        applications for new anti-cancer quinazoline compounds, new anti-cancer
        nucleoside products and a drug target, cenexin, a polo-box binding
        protein.  In December 2004, we also filed two Korean patent
        applications for new anti-cancer piperazine compounds.  Through our
        licensing agreement with Revaax, we hold exclusive rights to five patents
        and 14 patent applications, with respect to certain chemical structures
        related to antibiotics, but without antibiotic efficacy.  However, we
        cannot predict:
  ·
              the
                  degree and range of protection any patents will afford us against
                  competitors, including whether third parties will find ways to
                  invalidate
                  or otherwise circumvent our licensed
                  patents;
  ·
              if
                  and when patents will be issued;
  ·
              whether
                  or not others will obtain patents claiming aspects similar to those
                  covered by our licensed patents and patent applications;
                  or
  ·
              whether
                  we will need to initiate litigation or administrative proceedings
                  which
                  may be costly whether we win or
                  lose.
  Our
        success also depends upon the skills, knowledge and experience of our scientific
        and technical personnel, our consultants and advisors as well as our licensors
        and contractors.  To help protect our proprietary know-how and our
        inventions for which patents may be unobtainable or difficult to obtain,
        we rely
        on trade secret protection and confidentiality agreements.  To this
        end, we require all employees to enter into agreements that prohibit the
        disclosure of confidential information and, where applicable, require disclosure
        and assignment to us of the ideas, developments, discoveries and inventions
        important to our business.  These agreements may not provide adequate
        protection for our trade secrets, know-how or other proprietary information
        in
        the event of any unauthorized use or disclosure or the lawful development
        by
        others of such information.  If any of our trade secrets, know-how or
        other proprietary information is disclosed, the value of our trade secrets,
        know-how and other proprietary rights would be significantly impaired and
        our
        business and competitive position would suffer.
  ***If
        we infringe the rights of third parties we could be prevented from selling
        products and be forced to pay damages and defend against
        litigation.***
  If
        our
        products, methods, processes and other technologies infringe the proprietary
        rights of other parties, we could incur substantial costs and may have
        to:
  27
 ***Table
            of Contents***
  ·
              obtain
                  licenses, which may not be available on commercially reasonable
                  terms, if
                  at all;
  ·
              redesign
                  our products or processes to avoid
                  infringement;
  ·
              stop
                  using the subject matter claimed in the patents held by others,
                  which
                  could cause us to lose the use of one or more of our drug
                  candidates;
  ·
              pay
                  damages; or
  ·
              defend
                  litigation or administrative proceedings which may be costly whether
                  we
                  win or lose, and which could result in a substantial diversion
                  of our
                  management resources.
  Although
        to date, we have not received any claims of infringement by any third parties,
        as our drug candidates move into clinical trials and commercialization, our
        public profile and that of our drug candidates may be raised and generate
        such
        claims.
  ***Our
        license agreement with Revaax may be terminated in the event we commit a
        material breach, the result of which would significantly harm our business
        prospects.***
  Our
        license agreement with Revaax is subject to termination by Revaax if we
        materially breach our obligations under the agreement, including breaches
        with
        respect to certain installment payments and royalty payments, if such breaches
        are not cured within a 60-day period.  The agreement also
        provides that it may be terminated if we become involved in a bankruptcy,
        insolvency or similar proceeding.  If this license agreement is
        terminated, we will lose all of our rights to develop and commercialize the
        licensed compounds, including Serdaxin and Zoraxel, which would significantly
        harm our business and future prospects.
  ***If
        we are unable to successfully manage our growth, our business may be
        harmed.***
  In
        addition to our own internally developed drug candidates, we proactively
        seek
        opportunities to license in and advance compounds in oncology and other
        therapeutic areas that are strategic and have value creating potential to
        take
        advantage of our development know-how.  We are actively pursuing
        additional drug candidates to acquire for development.  Such
        additional drug candidates could significantly increase our capital requirements
        and place further strain on the time of our existing personnel, which may
        delay
        or otherwise adversely affect the development of our existing drug
        candidates.  Alternatively, we may be required to hire more employees,
        further increasing the size of our organization and related
        expenses.  If we are unable to manage our growth effectively, we may
        not efficiently use our resources, which may delay the development of our
        drug
        candidates and negatively impact our business, results of operations and
        financial condition.
  ***We
        may not be able to attract and retain qualified personnel necessary for the
        development and commercialization of our drug candidates.  Our success
        may be negatively impacted if key personnel leave.***
  Attracting
        and retaining qualified personnel will be critical to our future
        success.  We compete for qualified individuals with numerous
        biopharmaceutical companies, universities and other research
        institutions.  Competition for such individuals is intense, and we
        cannot assure you that we will be successful.
  The
        loss
        of the technical knowledge and management and industry expertise of any of
        our
        key personnel, especially Dr. Chang H. Ahn, our Chairman and Chief
        Executive Officer and regulatory expert, could result in delays in product
        development and diversion of management resources, which could adversely
        affect
        our operating results.  We do not have "key person" life insurance
        policies for any of our officers.
  ***We
        may incur substantial liabilities and may be required to limit commercialization
        of our products in response to product liability
        lawsuits.***
  The
        testing and marketing of medical products entail an inherent risk of product
        liability.  If we cannot successfully defend ourselves against product
        liability claims, we may incur substantial liabilities or be required to
        limit
        commercialization of our products.  Our inability to obtain sufficient
        product liability insurance at an acceptable cost to protect against potential
        product liability claims could prevent or inhibit the commercialization of
        pharmaceutical products we develop, alone or with
        collaborators.  Although we currently carry clinical trial insurance
        and product liability insurance we, or any collaborators, may not be able
        to
        maintain such insurance at a reasonable cost.  Even if our agreements
        with any future collaborators entitles us to indemnification against losses,
        such indemnification may not be available or adequate should any claim
        arise.
  28
 ***Table
            of Contents***
  ***An
        investment in shares of our common stock is very speculative and involves
        a very
        high degree of risk.***
  To
        date,
        we have generated no revenues from product sales and only minimal revenues
        from
        a research agreement with a minority shareholder, and interest on bank account
        balances and short-term investments.  Our accumulated deficit as of
        September 30, 2007 and December 31, 2006 was $24,097,441 and
        $20,690,326, respectively.  For nine months ended September 30,
        2007 and the year ended December 31, 2006, we had net losses of $3,407,115
        and $6,486,003, respectively, primarily as a result of expenses incurred
        through
        a combination of research and development activities related to the various
        technologies under our control and expenses supporting those
        activities.  Until we receive approval from the FDA and other
        regulatory authorities for our drug candidates, we cannot sell our drugs
        and
        will not have product revenues.
  ***The
        market price of our common stock may fluctuate
        significantly.***
  The
        market price of our common stock may fluctuate significantly in response
        to
        factors, some of which are beyond our control, such as:
  ·
              the
                  announcement of new products or product enhancements by us or our
                  competitors;
  ·
              developments
                  concerning intellectual property rights and regulatory
                  approvals;
  ·
              variations
                  in our and our competitors' results of
                  operations;
  ·
              changes
                  in earnings estimates or recommendations by securities analysts;
                  and
  ·
              developments
                  in the biotechnology industry.
  Further,
        the stock market, in general, and the market for biotechnology companies,
        in
        particular, have experienced extreme price and volume
        fluctuations.  Continued market fluctuations could result in extreme
        volatility in the price of our common stock, which could cause a decline
        in the
        value of our common stock.  You should also be aware that price
        volatility might be worse if the trading volume of our common stock is low,
        which has been the case historically.  We have not paid, and do not
        expect to pay, any cash dividends because we anticipate that any earnings
        generated from future operations will be used to finance our operations and
        as a
        result, you will not realize any income from an investment in our common
        stock
        until and unless you sell your shares at a profit.
  Some
        or
        all of the "restricted" shares of our common stock issued in the merger of
        CPRD
        and Rexahn, Corp in May 2007 or held by other stockholders may be offered
        from
        time to time in the open market pursuant to Rule 144, and these sales may
        have a depressive effect on the market for our common stock.  In
        general, a person who has held restricted shares for a period of one year
        may,
        upon filing with the SEC a notification on Form 144, sell into the market
        common stock in an amount equal to 1 percent of the outstanding shares
        (approximately 500,000 shares) during a three-month period.  Any
        of the restricted shares may be freely sold by a non-affiliate after they
        have
        been held two years.
  ***Trading
        of our common stock is limited.***
  Trading
        of our common stock is currently conducted on the National Association of
        Securities Dealers' Over-the-Counter Bulletin Board ("OTC-BB").  The
        liquidity of our securities has been limited, not only in terms of the number
        of
        securities that can be bought and sold at a given price, but also through
        delays
        in the timing of transactions and reduction in security analysts' and the
        media's coverage of us.
  29
 ***Table
            of Contents***
  These
        factors may result in lower prices for our common stock than might otherwise
        be
        obtained and could also result in a larger spread between the bid and asked
        prices for our common stock.  Currently, there are approximately 510
        holders of record of our common stock.
  ***Because
        our common stock may be a "penny stock," it may be more difficult for you
        to
        sell shares of our common stock, and the market price of our common stock
        may be
        adversely affected.***
  Our
        common stock may be a "penny stock" if, among other things, the stock price
        is
        below $5.00 per share, we are not listed on a national securities exchange
        or approved for quotation on the Nasdaq Stock Market, or we have not met
        certain
        net tangible asset or average revenue requirements.  Broker-dealers
        who sell penny stocks must provide purchasers of these stocks with a
        standardized risk-disclosure document prepared by the SEC.  This
        document provides information about penny stocks and the nature and level
        of
        risks involved in investing in the penny-stock market.  A broker must
        also give a purchaser, orally or in writing, bid and offer quotations and
        information regarding broker and salesperson compensation, make a written
        determination that the penny stock is a suitable investment for the purchaser,
        and obtain the purchaser's written agreement to the
        purchase.  Broker-dealers must also provide customers that hold penny
        stock in their accounts with such broker-dealer a monthly statement containing
        price and market information relating to the penny stock.  If a penny
        stock is sold in violation of the penny stock rules, purchasers may be able
        to
        cancel their purchase and get their money back.  If applicable, the
        penny stock rules may make it difficult for investors to sell their shares
        of
        our stock.  Because of the rules and restrictions applicable to a
        penny stock, there is less trading in penny stocks and the market price of
        our
        common stock may be adversely affected.  Also, many brokers choose not
        to participate in penny stock transactions.  Accordingly, purchasers
        may not always be able to resell shares of our common stock publicly at times
        and prices that they feel are appropriate.
  **Item 3.  CONTROLS
        AND
        PROCEDURES**
  **Evaluation
        of Disclosure Controls and Procedures**
  As
        of
        September 30, 2007, our management carried out an evaluation, under the
        supervision of our Chief Executive Officer and Chief Financial Officer of
        the
        effectiveness of the design and operation of our system of disclosure controls
        and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the
        Securities Exchange Act of 1934, as amended, or the Exchange
        Act.  Based upon that evaluation, the Chief Executive Officer and the
        Chief Financial Officer have concluded that our disclosure controls and
        procedures were effective, as of the date of this evaluation, for the purposes
        of recording, processing, summarizing and timely reporting material information
        required to be disclosed in reports filed by us under the Exchange
        Act.
  There
        were no changes in our internal control over financial reporting during the
        quarter ended September 30, 2007 that have materially affected, or are
        reasonably likely to affect, our financial reporting.
  30
 ***Table
            of Contents***
  **PARTII
–
OTHER
        INFORMATION**
  **Item 1.  LEGAL
        PROCEEDINGS**
  We
        are
        not subject to any pending legal proceedings, nor are we aware of any threatened
        claim against us.
  **Item 2.  UNREGISTERED
        SALES OF EQUITY SECURITIES
        AND USE OF PROCEEDS**
  None.
  **Item 3.  DEFAULTS
        UPON SENIOR
        SECURITIES**
  None.
  **Item 4.  SUBMISSION
        OF MATTERS TO A VOTE OF
        SECURITY HOLDERS**
  None
   **Item 5.  OTHER
        INFORMATION**
  None
 
 **Item 6.
        EXHIBITS**
  ExhibitNumber
              Description 31.1
              Certification
                  of Chief Executive Officer of Periodic Report Pursuant to
                  Rule 13a-15(e) or
                  Rule 15d-15(e) 31.2
              Certification
                  of Chief Financial Officer of Periodic Report Pursuant to
                  Rule 13a-15(e) or
                  Rule 15d-15(e)
 32.1
              Certification
                  of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
                  Section 1350
 32.2
              Certification
                  of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
                  Section 1350
  31
 ***Table
            of Contents***
  **SIGNATURES**
  In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  **REXAHN
                  PHARMACEUTICALS, INC.**/s/
                  Ted T. H. JeongName:
                  Ted T. H. JeongTitle:
                  Chief Financial Officer and SecretaryDate:  November
                  14, 2007
  32
 ***Table
            of Contents***
  **EXHIBIT INDEX**
  Number
              Description
 31.1
              Certification
                  of Chief Executive Officer of Periodic Report Pursuant to
                  Rule 13a-15(e) or
                  Rule 15d-15(e)
 31.2
              Certification
                  of Chief Financial Officer of Periodic Report Pursuant to
                  Rule 13a-15(e) or
                  Rule 15d-15(e)
 32.1
              Certification
                  of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
                  Section 1350
 32.2
              Certification
                  of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
                  Section 1350






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