**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





**(Mark
      One)**


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





For
      the
      Fiscal Year Ended December 31, 2005





OR





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.**


(Name
      of
      small business issuer in its charter)





**Delaware**
            
            **11**-**3516358**(State
                or other jurisdiction ofincorporation
                or organization)
            
            (IRS
                EmployerIdentification
                No.)





**9620
      Medical Center Drive**


**Rockville,
      Maryland 20850**


(Address
      of principle executive offices)





**(240)
      268-5300**


(Issuer's
      telephone number)





Securities
      registered under Section 12(b) of the Exchange Act:  None





Securities
      registered under Section 12(g) of the Exchange Act:


Common
      Stock, par value $0.0001 per share


(Title
      of
      class)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or 15(d) of the Exchange Act 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  x  No  o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.  x




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




State
      issuer's revenues for its most recent fiscal year:  $265,610




As
      of
      March 27, 2006, the aggregate market value of the voting common equity held
      by
      non-affiliates of the issuer was approximately $8,038,371 based on the closing
      trade reported on the Over-the-Counter Bulletin Board.




As
      of
      March 27, 2006, the number of shares of the issuer's common stock outstanding
      was:  46,415,632




Documents
      incorporated by reference:  None




Traditional
      Small Business Disclosure Format (Check one):  Yes  o  No  x
















**Cautionary
      Statement Regarding Forward-Looking Statements.** This
      Annual Report on Form 10-KSB contains statements (including certain projections
      and business trends) accompanied by such phrases as "believe", "estimate",
      "expect", "anticipate", "will", "intend" and other similar expressions, that
      are
      "forward-looking statements" as defined in the Private Securities Litigation
      Reform Act of 1995. Actual results may differ materially from those projected
      as
      a result of certain risks and uncertainties, including but not limited to the
      following:





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





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





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





·
            demand
                for and market acceptance of our drug
                candidates;





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





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





·
            other
                risks and uncertainties, including those set forth herein under the
                caption "Risk Factors" and 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.





i




**REXAHN
      PHARMACEUTICALS, INC.**








**INDEX**


PAGEPART
                  I
              
              1Item
                  1.
              Description
                  of Business
              1Item
                  2.
              Description
                  of Property
              22Item
                  3.
              Legal
                  Proceedings
              22Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              22PART
                  II
              
              23Item
                  5.
              Market
                  for Common Equity and Related Stockholder
                  Matters
              23Item
                  6.
              Management's
                  Discussion and Analysis or Plan of
                  Operation
              26Item
                  7.
              Financial
                  Statements
              36Item
                  8.
              Changes
                  In and Disagreements With Accountants on Accounting and
                  Financial Disclosure
              60Item
                  8A.
              Controls
                  and Procedures
              60Item
                  8B.
              Other
                  Information
              60PART
                  III
              
              61Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons;
                  Compliance With Section 16(a) of the Exchange Act
              61Item
                  10.
              Executive
                  Compensation
              63Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management
                  and Related Stockholder Matters
              69Item
                  12.
              Certain
                  Relationships and Related
                  Transactions
              71Item
                  13.
              Exhibits
              72Item
                  14.
              Principal
                  Accountant Fees and Services
              73SIGNATURES
              
              74




ii
 *Index*





**PART
      I**





**Item
      1.  Description of Business**





Any
      references to "we", "us", "our," the "Company" or "Rexahn" shall mean Rexahn
      Pharmaceuticals, Inc.





We
      are a
      clinical stage biopharmaceutical company focused on the development of therapies
      for the treatment of cancer and diseases of the central nervous system, or
      CNS.
      We have one drug candidate that is expected to enter a Phase II clinical
      trial later this year, two drug candidates entering into Phase I trials and
      three other drug candidates in pre-clinical development. We intend to leverage
      our drug-discovery technologies, scientific expertise and developmental know-how
      to develop and commercialize signal inhibitor cancer drugs with greater clinical
      benefits for patients and new drugs for the treatment of diseases of the central
      nervous system. We will continue to identify internally developed compounds
      as
      potential drug candidates, as well as assess compounds developed by others
      and,
      if necessary, license the rights to these compounds in order to develop and
      commercialize them as drugs. For a description of our pipeline drug candidates,
      see "Our Pipeline Drug Candidates" in this Item 1.





Our
      principal corporate offices are located at 9620 Medical Center Drive, Rockville,
      Maryland 20850 in Maryland's I-270 technology corridor. Our telephone number
      is
      (240) 268-5300.





Our
      current therapeutic focus in the anti-cancer area is on therapies that target
      signal transduction molecules of cancer cells. Signal transduction is the
      process of transforming external information from the cell surface to a specific
      internal response, such as cell growth or cell death. Signals are conveyed
      through tightly regulated communication networks. The signaling pathways are
      comprised of functionally diverse molecules, including proteins. Most, if not
      all, cancer disease states arise from aberrant cell communication. Recent trends
      in anti-cancer chemotherapy drug development involve signal transduction
      inhibitors that are target-specific. Our signal transduction inhibitors directly
      attack these signaling pathways and halt the growth of cancer cells. We believe
      this approach will lead to the development of more targeted and less toxic
      drugs
      than are currently available to help treat cancer and that may also have
      potential applications in other disease areas.





Our
      focus
      in the CNS area is on products that act on both serotonin and dopamine, which
      are major neurotransmitters controlling anxiety and depression. RX-10100, our
      lead CNS product is being positioned as a potential treatment for anxiety and
      depression. Its active ingredient has been in medical use for more than two
      decades and its safety has been well established. In animal studies, it has
      shown its efficacy against anxiety and depression in a far lower concentration
      than is currently being used in currently prescribed formulations. This
      background gives RX-10100 a stronger safety record than an entirely new drug
      candidate, alleviating some of the burden of clinical trials and future risk
      of
      side effects. While all existing anxiety and depression drugs, mostly selective
      seretonin reuptake inhibitors (SSRIs), have been developed to work on serotonin,
      RX-10100 is believed to modulate both serotonin and dopamine at the same time.
      This means that RX-10100 has the potential to be a more efficient treatment
      of
      both anxiety and depression, since many patients suffer from both at the same
      time. In addition to anxiety and depression, we are evaluating the benefits
      of
      RX-10100 for the treatment of sexual dysfunction. This potential application
      of
      RX-10100 arises from the observation that SSRIs with short half-lives have
      been
      studied for the treatment of male sexual dysfunction. Given that RX-10100 has
      demonstrated similar effects on serotonin release as SSRIs and with a short
      half-life, we believe it has high potential for efficacy in the treatment of
      sexual dysfunction.





1
 *Index*





**Company
      Background**





Our
      company resulted from a merger of Corporate Road Show.Com Inc., originally
      a New
      York corporation ("CPRD"), and Rexahn, Corp, a Maryland corporation, immediately
      after giving effect to a 1-for-100 reverse stock split and the reincorporation
      of CPRD as a Delaware corporation under the name "Rexahn Pharmaceuticals, Inc."
      ("Rexahn Pharmaceuticals"), with Rexahn, Corp surviving as a wholly owned
      operating subsidiary of ours (the "Merger"). The Merger was effective as of
      May 13, 2005. On September 29, 2005, our wholly owned subsidiary, Rexahn,
      Corp, was merged with and into us and Rexahn, Corp's separate existence was
      terminated.





Rexahn,
      Corp was founded in March 2001 and began as a biopharmaceutical company focusing
      on oncology drugs. Dr. Chang Ahn, our Chairman, a former Food and Drug
      Administration, or FDA, reviewer, and National Cancer Institute, or NCI,
      research scientist, helped guide the company's initial research efforts toward
      signal inhibitor therapies. Our mission is to discover, develop and market
      innovative therapeutics that address unmet medical needs.





**Industry
      Background**





***Overview***




Our
      research and development focuses on two therapeutic areas that affect the lives
      of many people—cancer and diseases of the central nervous system, namely
      anxiety, depression and sexual dysfunction. All of these disorders can have
      a
      debilitating effect on the quality of life for patients who suffer from
      them.





According
      to the American Cancer Society's Cancer Facts & Figures 2006, cancer is
      the second leading cause of death among Americans and is responsible for one
      of
      every four deaths in the United States. In 2006, more than 560,000 Americans
      are
      expected to die of cancer and close to 1.4
      million new cases are expected to be diagnosed .
      These
      estimates do not include non-invasive cancer or more than 1 million cases
      of non-melanoma skin cancer expected to be diagnosed in 2006.





The
      National Institute of Mental Health, or NIMH, estimates that 26.2 percent of
      adults, or 57.7 million people, suffer from a diagnosable mental disorder in
      a
      given year. The NIMH also reports that nearly half of those with a mental
      disorder suffer from two or more disorders. With this large prevalence and
      given
      many people suffer from more than one mental disorder at a given time, the
      burden of illness is significant and mental disorders are the leading cause
      of
      disability in the United States.





**Current****Cancer
      Treatments**




Traditional
      cancer treatments include surgery, radiation therapy, and chemotherapy. Surgery
      is widely used to treat cancer, and in many cases cure cancer, provided the
      cancer has not metastasized. However, the complications associated with surgery
      are significant. Even if a cure may be achieved through surgery, the costs
      to
      the patient in terms of health and reduced quality of life often does not
      support the surgical option.





Radiation
      therapy, or radiotherapy, is the treatment of cancer and other diseases with
      ionizing radiation and can be highly effective for treating cancers. Ionizing
      radiation deposits energy that injures or destroys cells in the area being
      treated by damaging their genetic material, making it impossible for these
      cells
      to continue to grow. Although radiation damages both cancer cells and normal
      cells, the normal cells are generally able to repair themselves and function
      properly. In certain cancer tumor types, radiotherapy cure rates are as high
      as
      for surgery and can be used when surgery would be unable to remove the tumor
      completely or is deemed inappropriate.





2
 *Index*





Chemotherapy
      destroys cancer tumor cells by interfering with various stages of the cell
      division process. Chemotherapy is used as a primary treatment for leukemia,
      other blood cancers, and inoperable or metastatic solid cancer tumors. However,
      many current chemotherapy drugs have limited efficacy and debilitating adverse
      side effects and may result in the development of multi-drug resistance.





***Unmet
      Need*** **s
      *in Cancer Therapies***





While
      surgery remains the best available treatment for long-term survival provided
      the
      cancer is still localized and radiation and chemotherapy offer more limited
      benefits for those whose disease is more widespread at the time of diagnosis,
      nonetheless, a considerable number of unmet needs remain in the treatment of
      cancer.





·
            *Long-term
                control of advanced tumors*:
                For advanced cancer (particularly stage IV disease in which the cancer
                has
                spread through the body), surgery cannot eliminate the tumor and
                the
                patient becomes reliant on chemotherapy or radiation. However, current
                chemotherapy, in the majority of cases, fails to eliminate the tumor,
                tending to, at best, shrink the tumor. These limitations translate
                into a
                need for better, advanced cancer therapies offering a significant
                improvement in survival time or long-term chronic disease control.





·
            *Decreased
                relapse for early-stage patients*:
                Early-stage disease can often be effectively treated with surgery
                and
                radiotherapy. While many early-stage patients will enter remission,
                the
                rate of relapse is high, as small numbers of tumor cells remain despite
                standard surgical and radiation therapies. Upon recurrence, the tumor
                is
                often more aggressive than the initial occurrence, and unresponsive
                to
                standard first-line therapies. The development of therapies that
                can
                maintain a patient in remission following treatment for the initial
                tumor,
                rather than permitting relapse, is a significant unmet
                need.





·
            *Less
                toxic therapies*:
                Current cytotoxic drugs are associated with a high level of toxicity,
                due
                to their nonspecific mechanism of targeting all rapidly dividing
                cells,
                rather than cancer tumor cells in particular. For patients with terminal
                disease, the maintenance of quality of life, in addition to extending
                survival, is of prime importance, and such drug toxicities can often
                reduce quality of life more than the tumor itself.





***Current
      CNS Treatments***





The
      anxiety and depression markets are dominated by a few classes of products.
      Selective serotonin reuptake inhibitors (SSRIs) and serotonin norepinephrine
      reuptake inhibitors (SNRIs) are the two major classes of anti-depressants.
      SSRIs
      and benzodiazepines are the most frequently used products to treat anxiety.
      While many of these products help to control anxiety and depression for some
      patients, they have significant drawbacks that limit patient use, such as being
      potentially habit-forming, causing drowsiness, limitations on use with certain
      pre-existing medical conditions, slow onset of action, causing sexual
      dysfunction, insomnia and interacting with certain food or drugs. The marketing
      exclusivity period of many currently marketed drugs for the treatment of anxiety
      and depression are close to ending, resulting in fierce competition from generic
      drug makers. While major pharmaceutical companies are trying to extend the
      protection of their blockbuster drugs, they also want to develop new classes
      of
      drugs that will give another decade of exclusivity with better efficacy.
      RX-10100, as a dual action drug, has a potential to address the new
      market.





3
 *Index*





RX-10100
      has also shown potential in the functional therapy for male sexual dysfunction
      ( *i.e.* ,
      erectile dysfunction and premature ejaculation). There are currently only three
      oral drugs approved on the market to treat erectile dysfunction. All three
      products are selective inhibitors of phosphodiesterase type 5 (PDE5). These
      drugs may result in numerous adverse reactions, including cardiovascular effects
      and death. RX-10100 is not a PDE inhibitor, but works through a brain mediated
      mechanism that produces release of serotonin and dopamine. There are currently
      no products on the market to treat premature ejaculation, although a few
      products are in development.





***Unmet
      Needs in CNS Therapies***





The
      current treatments for anxiety and depression that are offered by the SSRIs
      have
      offered significant improvement over the tricylic antidepressants and monamine
      oxidase inhibitors, both of which have serious side effects profiles.
      Nonetheless, there remain opportunities to improve treatment in regards to
      onset
      and side effects.





·
            *Decreased
                side-effect profile*:**Side
                effects associated with current SSRI anxiolytics and antidepressants
                include nausea, sexual dysfunction, insomnia and weight gain. The
                occurrence of one or more of these side effects in patients is the
                primary
                reason that patients discontinue use of these
                treatments.





·
            *Early
                therapeutic onset with immediate results*:****Onset
                of therapeutic action within the first week of use has been one of
                the key
                goals for all drug discovery programs in anxiety and depression.
                All
                current medications require a few weeks for therapeutic onset.





·
            *Broad
                spectrum of activity*:The
                vast majority of patients who suffer from anxiety also display symptoms
                of
                depression and vice versa. In the past, each disorder was treated
                with
                separate medications. Recent clinical studies have demonstrated the
                ability of SSRIs to address both disorders. Newer drugs should be
                able to
                address both symptoms of anxiety and depression without the unwanted
                side
                effects.





·
            *Treatment
                of sexual dysfunction*:
                There are few options available for treatment of sexual dysfunction.
                While
                current drugs for the treatment of erectile dysfunction improve the
                quality of lives of many people, they also exhibit side effects.
                Also as
                of March 2006, we believe that there are no drugs approved for treatment
                of premature ejaculation, which is more prevalent and under-reported
                than
                erectile dysfunction.





**Market
      Opportunity**





We
      believe that several factors make drug development for cancer and diseases
      of
      the central nervous system attractive to large pharmaceutical companies,
      including:





·
            *Favorable
                Environment for Formulary Access and Reimbursement*.
                Given the alarming death rate, the relatively poor performance of
                existing
                drugs, and the life threatening nature of cancer, decisions by medical
                providers and health insurance companies are more heavily focused
                on
                outcomes than product cost for cancer drugs compared to drugs from
                other
                therapeutic classes. As a result cancer drugs with proven efficacy
                are
                expected to gain rapid formulary listing and patient reimbursement,
                and in
                addition, drugs that have orphan designations are generally reimbursed
                by
                insurance companies given that there are few, if any, alternatives.
                Since
                mental disorders affect an estimated 57.7 million people in the United
                States, the burden of illness is significant for insurance companies
                as
                well as for employers. Given the significant cost of treating behavioral
                health problems, there is a favorable environment for formulary access
                and
                reimbursement for effective products that treat multiple
                disorders.





4
 *Index*





·
            *Focus
                on Specialty Markets*.
                Cancer patients are treated by oncologists, a group of physician
                specialists who are early adopters of new therapies. Marketing products
                to
                this physician group can be accomplished with a specialty sales force
                that
                requires less investment than a typical product sales force that
                markets
                to primary care physicians and general practitioners.





·
            *Lower
                Development Expenses/Shorter Development Time*.
                Drugs for life-threatening diseases such as cancer are often treated
                by
                the Food and Drug Administration (FDA) as candidates for fast track,
                priority and accelerated reviews. Clinical studies for cancer require
                fewer patients than those for non-life threatening diseases. This
                results
                in reduced cost and shorter clinical trials. Our lead CNS product,
                RX-10100, is also expected to have lower development expenses as
                well as
                shorter development time given the drug has been on the market for
                20
                years; thus safety of the product is already
                established.





Our
      therapeutic areas focus on large markets with significant unmet needs. Business
      Insights' CNS Market Outlook to 2010 valued the anti-depressant market at close
      to $18 billion in 2004 with an annual growth rate of 3.4%. The high rate of
      cancer prevalence and the inadequacy of available treatments justify continued
      investment in new therapies. Datamonitor estimates that in 2004, drugs for
      the
      treatment of cancer represented a $40 billion market. In the United States
      alone, over $25 billion in cancer therapeutics are sold annually. Sales of
      cancer drugs are predicted to grow annually reaching $55 billion globally in
      2009. Datamonitor attributes the sales growth will be driven mainly by
      innovative drugs, increasing the market share of innovative cancer therapy
      from
      18% presently to 33% of total cancer sales by 2009.





**Our
      Strategy**





Our
      goal
      is to build value through a strong drug pipeline and marketed products; however,
      to date, we have no marketed products. To achieve these goals, our strategy
      has
      several key components:





***Target
      Signal Transducer Molecules With Multiple Drug
      Candidates***





We
      plan
      to expand drug candidate pipeline and introduce several new signal inhibitor
      drugs into clinical trials over the next five years. By identifying and
      characterizing the genes and proteins that control the signaling pathways and
      gene expression of cancer cells, we seek to develop DNA/RNA-based and
      small-molecule drugs to treat a broad range of diseases caused by abnormal
      expression or functions of those genes and proteins. In addition to developing
      our own signal transduction inhibitors, we will use our technology platforms
      to
      screen and identify compounds developed by other companies, either on their
      own
      or in collaboration with us, which could be effective signal transduction
      inhibitors for anti-cancer applications.





***Establish
      Partnerships With Large Pharmaceutical Companies***





We
      will
      seek to establish partnerships with large pharmaceutical companies in order
      to
      reduce drug development costs and to expand the disease treatment indications
      of
      the drug candidates and access to markets. We plan to market products for which
      we obtain regulatory approval either directly or through co-marketing
      arrangements or other licensing arrangements with large pharmaceutical
      companies. To market those drug candidates with disease treatment indications
      that are larger or geographically diverse, we expect to enter into licensing,
      distribution or partnering agreements with pharmaceutical companies that have
      large established sales organizations; however, to date, we have not entered
      into such agreements with any large pharmaceutical companies.





5
 *Index*





***Clinically
      Develop Drug Candidates as Orphan Drugs to Reduce
      Time-to-Market***





Under
      the
      Orphan Drug Act, the FDA may expedite approval of new drugs that treat diseases
      affecting less than 200,000 patients each year. This category of diseases is
      called an "orphan indication." Incentives in the Orphan Drug Act include a
      faster time-to-market of the drug (with FDA approval possible after
      Phase II trials instead of Phase III trials) and seven years of drug
      marketing exclusivity for the sponsor. In addition, the FDA sometimes provides
      orphan research grants to aid in the costs of developing an orphan drug. Once
      the drug candidate has received orphan drug approval, the sponsor may conduct
      larger, more extensive clinical trials seeking approval for other, more
      widespread diseases. We plan to develop drug candidates initially for orphan
      category cancers in order to reduce the time-to-market for these potential
      products. Our drug candidates may also be effective against non-orphan category
      cancers, providing additional market opportunities for off-label use. This
      would
      enable us to either license these drugs for further development by major
      pharmaceutical companies or conduct the necessary studies to seek FDA approval
      for additional disease treatment indications. In the future, we may develop
      drug
      candidates for other orphan category diseases to take advantage of our expertise
      with the orphan drug development process.





***In-License
      Unique Technology***





We
      seek
      to keep abreast of emerging technologies and development stage drugs. We seek
      to
      proactively review opportunities to in-license 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. For example, in February 2005,
      we
      licensed the intellectual property of Revaax Pharmaceuticals LLC ("Revaax")
      for
      development as potential drug candidates for the treatment of neurological
      diseases. Through licensing arrangements, we seek to strengthen our pipeline
      of
      drug candidates.





***Capitalize
      on Our Management Team's Expertise for Drug Development and Product
      Commercialization***





Commercializing
      drugs requires regulatory, clinical development, and marketing skill sets that
      our management team possesses. Our regulatory knowledge comes from team members
      who have either been regulatory reviewers at the FDA or regulatory consultants
      who have prepared and filed regulatory documents in the U.S. and worldwide.
      Our
      management team also possesses clinical development experience in oncology
      and
      several other therapeutic areas. We believe that this knowledge and experience
      with the FDA drug approval process permits us to develop strategies that take
      advantage of the FDA's fast track policies. Where possible, our management
      will
      seek to use their experience to design and implement drug development programs
      that minimize the time for clinical trials, while maximizing success rates
      for
      approval of our drug candidates. Members of our management team also have prior
      experience in pharmaceutical product launch and marketing.





**Our
      Pipeline Drug Candidates**





Our
      anti-cancer therapeutic technology consists of both proprietary RNA/DNA-based
      signal transduction inhibitors and small molecule candidate compounds believed
      to be effective for treating a large number of human cancers. The following
      description of our pipeline drug candidates is based on pre-clinical trials
      and
      studies.





6
 *Index*





*RX-0201:
      Akt Inhibitor*





Akt
      is a
      protein kinase that plays a key role in cancer progression by stimulating cell
      proliferation, promoting angiogenesis and inhibiting apoptosis. Akt is
      over-activated in a significant number of human cancers ( *e.g.* ,
      breast,
      colorectal, gastric, head and neck, ovarian, pancreatic, prostate and thyroid
      cancers and melanoma). Over-expression of Akt mutants in many cell types also
      promotes cellular transformation by promoting proliferation and enhancing
      survival. We believe that Akt's transformation ability, as well as its ability
      to promote cancer cell survival, make it an attractive signal protein for our
      drug candidates to target in the treatment of cancer.





We
      have
      targeted regulation of Akt-1 activity as an effective way to control
      proliferation and survival of cancer cells. One approach to regulating Akt-1
      is
      to use antisense oligonucleotides, or ASOs, to modify and regulate the gene
      that
      controls the expression and production of Akt-1. ASOs are chemically modified,
      single-strand DNA molecules designed to bind unique sequences within targeted
      messenger RNA, or mRNA, a specialized information-packed RNA molecule which
      translates the cell DNA's genetic message into production of a specific protein.
      By binding with the mRNA, ASOs block delivery of the genetic message, preventing
      translation and thereby halting disease-associated protein
      production.





Our
      RX-0201 drug candidate is an ASO that is an inhibitor of Akt-1 mRNA. RX-0201
      is
      able to induce marked reduction in Akt-1 mRNA and protein expressions in cells
      from human carcinomas. RX-0201 strongly inhibits proliferation of various types
      of human cancer cells and growth of human tumors in mice. We believe that
      RX-0201 is an excellent candidate for orphan cancers, while at the same time
      covering a broad spectrum of human cancers. RX-0201 currently holds orphan
      designations by the FDA for five orphan cancers ( *i* . *e.* ,
      renal
      cell carcinoma, pancreatic cancer, stomach cancer, brain cancer and ovarian
      cancer).





Phase I
      clinical trials of RX-0201 have been ongoing at the Lombardi Comprehensive
      Cancer Center of Georgetown Medical Center in Washington, D.C. since September
      2004 and at the University of Alabama at Birmingham since August 2005. The
      Phase I clinical trial of RX-0201 will characterize the safety and
      pharmacokinetics profile, determine dose levels and describe any anti-tumor
      activity observed. We currently estimate that the Phase I clinical trial
      will be completed in the second quarter of 2006; however, completion of the
      Phase I clinical trial will depend on the number of subject test doses
      required to determine the maximum tolerated dose. If more doses are needed
      than
      we originally estimated, then the completion of the Phase I clinical trial
      may be delayed. The clinical trial will involve up to 40 participants.





*RX-0047:
      HIF Transcription Factor Inhibitor*





Tumors
      cannot grow without blood vessels that supply cancer cells with oxygen and
      nutrients. HIF-1 transcription factor is a major regulating mechanism of cancer
      cell growth, invasion and angiogenesis. HIF is over-activated in a broad range
      of human cancers, such as brain, breast, cervix, colon, kidney, liver, lung,
      ovarian, pancreatic, prostate, skin and stomach cancers. HIF-1 alpha
      over-expression is associated with cell proliferation and disease progression,
      as well as resistance to radiation therapy. As a result, we believe that HIF-1
      alpha is a potentially important signal transduction mechanism for our drug
      candidates to target in the treatment of cancer.





Our
      RX-0047 drug candidate is an ASO that is an extremely potent inhibitor of HIF-1
      alpha. RX-0047 directly inhibits HIF-1 alpha by reducing expressions of its
      mRNA
      and protein, resulting in the arrest of tumor growth and tumor metastasis,
      while
      reversing radiation resistance and inducing apoptosis. RX-0047 also inhibits
      proliferation of various types of human cancer cells. While it will be developed
      initially as an orphan drug, RX-0047 may also be developed to target a broad
      spectrum of human cancers, which will significantly expand its potential
      market.





7
 *Index*





RX-0047
      is in the pre-clinical development stage and a pre-clinical toxicology study
      is
      planned in the third quarter of 2006. Phase I clinical trials of RX-0047
      are expected to begin in 2007.





*RX-5902:
      G* *2* */M-Specific
      Cell Cycle Inhibitor*





RX-5902,
      a piperazine analogue, is a G 2 /M-specific
      cell cycle inhibitor. In preclinical studies, it strongly induced apoptosis
      (cell death) and inhibited proliferation of various human cancer cells at
      nanomolar concentrations. We expect RX-5902 to enter pre-clinical toxicology
      studies in the third quarter of 2006 and enter into Phase I clinical trials
      in
      late 2006 or early 2007. RX-5902 may be developed both in intravenous and oral
      forms.





*RX-10100:
      Dual Action Anti-anxiety and Antidepression Agent.*





RX-10100
      acts on the paths of serotonin and dopamine, which are major neurotransmitters
      controlling anxiety and depression. RX-10100 is expected to be superior to
      current SSRIs in efficacy and adverse reactions. As a repositioned product
      originally used in an adjunct of antibiotics, RX-10100 has established its
      safety in more than two decades of use. The proven safety of RX-10100 is key
      to
      our strategy for the development of this drug compound as a potential drug
      candidate for the treatment of anxiety and depression. It is also expected
      to
      treat male sexual dysfunction such as erectile dysfunction and premature
      ejaculation. We are preparing to initiate a Phase I clinical trial of RX-10100
      during 2006.





*Nucleic
      Acid Analogs as Antimetabolites and Quinazoline Analogs as AP-1/Akt
      Inhibitors*





Nucleic
      acid analogs, such as RX-3117, and quinazoline analogs, such as RX-0183 and
      RX-1792, are still in pre-clinical development, but development of these
      candidates has been delayed due to our focus on development of our other drug
      candidates that address unmet medical needs within the oncology and CNS markets.





**Competition**





Our
      principal drug candidates under development are expected to address unmet
      medical needs within the oncology and CNS markets. For many of these disease
      treatment indications, our drug candidates will be competing with products
      and
      therapies either currently existing or expected to be developed. Competition
      among these products will be based, among other things, on product efficacy,
      safety, and reliability, price and patent position. An important factor will
      be
      the timing of market introduction of our or competitive products. Accordingly,
      the relative speed with which we can bring drug candidates to the market is
      expected to be an important competitive factor. Our competitive position will
      also depend upon our ability to attract and retain qualified personnel, to
      obtain patent protection or otherwise develop proprietary products or processes,
      and to secure sufficient capital resources for the often substantial period
      between technological conception and commercial sales.





There
      are
      a number of pharmaceutical and biotechnology companies both privately and
      publicly held that are conducting research and development activities on
      technologies and products for treatment of cancers and diseases of the central
      nervous system. We cannot assure you that our competitors will not succeed
      in
      developing products based on technology which is similar to ours, or other
      novel
      technologies that are more effective than any which are being developed by
      us or
      which would render our technology and products obsolete and noncompetitive
      prior
      to recovery by us of the research, development and commercialization expenses
      incurred with respect to those products.





8
 *Index*





Our
      competitors engaged in developing treatments for cancer and CNS include major
      pharmaceutical, specialized biotechnology firms, and academic and other research
      institutions. Many of our competitors have substantially greater financial,
      technical and human resources than we do. In addition, many of our competitors
      have significantly greater experience than we do in undertaking pre-clinical
      testing and human clinical trials of new pharmaceutical products and obtaining
      FDA and other regulatory approvals of products for use in health care.
      Accordingly, our competitors may succeed in obtaining FDA approval for products
      more rapidly than we can.





As
      we
      expand our drug development programs to include diseases other than cancer
      and
      CNS, we will also face competition from pharmaceutical and biotechnology
      companies conducting research and development activities on technologies and
      products for treatment of those other diseases, increasing both the number
      and
      the types of competitors we face. For many of the same reasons described above
      with respect to our competitors in the oncology market, we cannot assure you
      that we will compete successfully against these additional
      competitors.





**Government
      Regulation**





Regulation
      by governmental authorities in the United States and in other countries
      constitutes a significant consideration in our product development,
      manufacturing and marketing strategies. We expect that all of our 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. U.S. federal
      regulations control the ongoing safety, manufacture, storage, labeling, record
      keeping, and marketing of all biopharmaceutical products intended for
      therapeutic purposes. We believe that we are in compliance in all material
      respects with currently applicable rules and regulations.





Obtaining
      governmental approvals and maintaining ongoing compliance with federal
      regulations is expected to require the expenditure of significant financial
      and
      human resources not currently at our disposal. We plan to fulfill our short-term
      needs through consulting agreements and joint ventures with academic or
      corporate partners while building our own internal infrastructure for long-term
      corporate growth.





The
      process by which biopharmaceutical compounds for therapeutic use are approved
      for commercialization in the United States is lengthy. Many other countries
      have
      instituted equally difficult approval processes. In the United States,
      regulations published by the FDA require that the person or entity sponsoring
      and/or conducting a clinical study for the purpose of investigating a potential
      biological drug product's safety and effectiveness submit an IND application
      to
      the FDA. These investigative studies are required for any drug product for
      which
      the product manufacturer intends to pursue licensing for marketing the product
      in interstate commerce. If the FDA does not object to the IND application,
      clinical testing of the compound may begin in humans after a 30-day review
      period. Clinical evaluations typically are performed in three
      phases.





In
      Phase I, the drug is administered to a small number of healthy human
      subjects or patients to confirm its safety and to develop detailed profiles
      of
      its pharmacological and pharmacokinetic actions ( *i.e.* ,
      absorption, metabolism, excretion, duration of therapeutic concentration and
      effects, if any).





In
      Phase II, the drug is administered to groups of patients (up to a total of
      500) to determine its efficacy against the targeted disease and the requisite
      dose and dose intervals. In a typical development program, additional animal
      toxicology studies precede this phase. Some Phase I clinical studies may
      also proceed in parallel with some Phase II studies.





9
 *Index*





In
      Phase III, the drug is administered to a larger group of patients (usually
      1000 to 3000) by practicing expert physicians in a network of participating
      clinics and hospitals. The extensive clinical testing is intended to confirm
      Phase II results and to document the nature and incidence of adverse
      reactions. Studies also are performed in patients with concomitant diseases
      and
      medications. Phase III is intended to model more closely the real world in
      which the drug will be used. Two multiclinical trials typically constitute
      Phase III evaluations. Although larger numbers of patients are evaluated in
      Phase III at more clinical study sites, many of these are done in parallel
      and therefore Phase III may not require a longer time than
      Phase II.





After
      completing the IND clinical studies, the product developer submits the safety
      and effectiveness data generated by the studies to the FDA in the form of a
      New
      Drug Application (NDA) to market the product. It is the legal responsibility
      of
      the FDA to review the proposed product labeling, the pre-clinical (animal and
      laboratory) data, the clinical data, as well as the facilities utilized and
      the
      methodologies employed in the manufacture of the product which have been
      submitted to the agency to determine whether the product is safe and effective
      for its intended use.





Even
      after initial FDA approval has been obtained, further studies may be required
      to
      provide additional data on safety or to gain approval for the use of a product
      as a treatment in clinical disease treatment indications other than those for
      which the product was initially tested. Also, the FDA may require post-marketing
      testing and surveillance programs to monitor the drug's effects. Side effects
      resulting from the use of drug products may prevent or limit the further
      marketing of the products.





For
      marketing outside the United States, we will be subject to foreign regulatory
      requirements governing human clinical trials and marketing approval for drugs.
      The requirements relating to the conduct of clinical trials, product licensing,
      pricing and reimbursement vary widely from country to country.





Certain
      drugs are eligible in the United States for designation by the FDA as "orphan"
      drugs if their use is intended to treat a disease that affect less than 200,000
      persons in the U.S. or the disease affects more than 200,000 persons in the
      United States but there is no reasonable expectation that the cost of developing
      and marketing a drug will be recovered from the U.S. sales of such drug. In
      order for a sponsor to obtain orphan designation for a drug product, an
      application must be submitted for approval to the FDA's Office of Orphan
      Products Development. The approval of an application for orphan designation
      is
      based upon the information submitted by the sponsor. A drug that has obtained
      orphan designation is said to have "orphan status". Each designation request
      must stand on its own merit. Sponsors requesting designation of the same drug
      for the same disease treatment indication as a previously designated product
      must submit their own data in support of their designation request. The approval
      of an orphan designation request does not alter the standard regulatory
      requirements and process for obtaining marketing approval. Safety and efficacy
      of a compound must be established through adequate and well-controlled studies.





If
      a
      sponsor obtains orphan drug designation for a particular compound and is the
      first to obtain FDA regulatory approval of that compound, then that sponsor
      is
      granted marketing exclusivity for a period of seven years. As a result, orphan
      drug designation blocks all other competitors from marketing the same drug
      for
      the approved use for seven years.





10
 *Index*





**Research
      and Development**





Our
      research and development has focused on signal transduction inhibitors, which
      are drugs that target the communication system of cancer cells, and products
      affecting the central nervous system that act on the paths of serotonin and
      dopamine, major neurotransmitters controlling anxiety and depression as well
      as
      potentially affecting sexual dysfunction. Our drug discovery program in the
      cancer area focuses on key cellular signaling proteins involved in receiving
      and
      promoting growth and survival information, enhancing gene activity, controlling
      cell division, and inducing angiogenesis. Our integrated technology platforms
      serve to maximize efficiency in discovering and validating signaling targets
      while simultaneously screening and identifying lead tumor-targeted compounds.
      For a discussion of collaboration arrangements pursuant to which we obtain
      research and development services from universities, research institutions
      and
      other organizations, see "Collaboration Agreements" and "Certain Relationships
      and Related Transactions" in Item 12 of this Annual Report.





**Manufacturing**





We
      do not
      currently have the resources required for commercial manufacturing of our drug
      candidates. We currently outsource the manufacturing of drug substances and
      drug
      products for our drug candidates. We have no current plans to build internal
      manufacturing capacity for any product. Manufacturing will be accomplished
      through outsourcing or through partnerships with large pharmaceutical
      companies.





**Intellectual
      Property**





Proprietary
      protection for our drug candidates, processes and know-how is important to
      our
      business. We plan to aggressively prosecute and defend our patents and
      proprietary technology. Our policy is to file patent applications to protect
      technology, inventions, and improvements that are considered important to the
      development of our business. We also rely upon trade secrets, know-how,
      continuing technological innovation and licensing opportunities to develop
      and
      maintain our competitive position. See "Collaboration Arrangements" and "Certain
      Relationships and Related Transactions" in Item 12 of this Annual Report for
      a
      description of the intellectual property rights we have or share in connection
      with our collaborative research and development relationships with universities,
      research institutions and other organizations.





**Collaboration
      and License Arrangements**





We
      have
      numerous collaborative research and development relationships with universities,
      research institutions and other organizations. Also see the discussion in
      "Certain Relationships and Related Transactions" in Item 12 of this Annual
      Report. A brief description of some of these relationships is
      below:





**The
      University of Maryland("UMD").** On
      March 15, 2005, we entered into a Maryland Industrial Partnership agreement
      with the Biotechnology Institute of UMD to collaborate with and sponsor UMD's
      research in the area of ligand screening for novel anticancer therapeutics.
      Intellectual property made or developed under this agreement is jointly owned
      by
      us and UMD.





**Ewha
      Womans University ("Ewha").** On
      March 1, 2004, we entered into an agreement with Ewha to collaborate with
      and sponsor Ewha's research in the area of carbocyclic nucleoside, which relates
      to our anticancer drug discovery efforts. Intellectual property made or
      developed in the course of this agreement is or will be owned by
      us.





**Georgetown
      University.** We
      entered into a clinical development agreement with Georgetown University with
      an
      effective period from April 5, 2004 through April 5, 2006. Under the terms
      of
      this agreement, Georgetown University must provide us with case reports no
      later
      than 30 days after the termination date of this agreement or the date upon
      which
      we reasonably request delivery of such case reports.





11
 *Index*





**Korea
      Research Institute of Chemical Technology ("KRICT").** On
      June 1, 2005, we entered into a joint research agreement with KRICT with
      respect to research regarding protein kinases in human cancer diseases.
      Intellectual property made or developed under this agreement is jointly owned
      by
      us and KRICT.





**The
      University of Alabama at Birmingham.** On
      August 30, 2005, we entered into an agreement for the University of Alabama
      at
      Birmingham to carry out Phase I clinical trials of RX-0201. The agreement term
      expires on February 15, 2007.





**University
      of Massachusetts.** On
      August 1, 2005, we entered into an agreement with the University of
      Massachusetts Medical School ("UMass") to test proprietary drugs in pre-clinical
      behavioral assays of anxiety and cognition. The agreement term expires on August
      1, 2006.





**Revaax
      Pharmaceuticals LLC ("Revaax").** On
      February 10, 2005, we licensed on an exclusive basis, with the right to
      sublicense, all of the intellectual property of Revaax, which includes five
      patents and 14 patent applications, with respect to certain chemical structures
      that have demonstrated in pre-clinical research the potential to treat certain
      behavioral disorders, such as anxiety, depression and cognitive disorders.
      This
      agreement expires upon the expiration of the royalty term for all licensed
      products in all countries, which is no earlier than August 2020 and could extend
      to August 2024. This agreement provides for an initial license fee and milestone
      payments based on the initiation of pivotal trials for disease treatment
      indication for licensed products. Furthermore, we will pay Revaax a specified
      fee for each licensed product under the agreement upon receipt of marketing
      approval for the licensed product. Notwithstanding the milestone payment
      arrangement described above, we are not obligated to make any milestone payment
      with respect to milestone events for which we receive sublicense revenues and
      are obligated to pay Revaax a percentage of such sublicense revenues, as well
      royalties for sales of licensed products based on net sales of the licensed
      products. For a more detailed description, please refer to the agreement, which
      is filed as an Exhibit to this Annual Report.





**Formatech,
      Inc. ("Formatech").** On
      August
      17, 2004 we entered into an agreement with Formatech to monitor and perform
      stability studies on our drug candidate, RX-0201.





**Employees**





We
      currently have 18 employees, all of whom are based at our Rockville, Maryland
      office. Our employees are not covered by any collective bargaining agreement
      and
      we have never experienced a work stoppage. We believe our relationships with
      our
      employees are satisfactory.





12
 *Index*





**RISK
      FACTORS**





*You
      should carefully consider the risks described below together with the other
      information included in this Annual Report on Form 10-KSB. Our business,
      financial condition or results of operations could be adversely affected by
      any
      of these risks. If any of these risks occur, the value of our common stock
      could
      decline.*





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





To
      date,
      we have generated no product revenues. Until we receive approval from the FDA
      and other regulatory authorities for our drug candidates, we cannot sell our
      drugs and will not have product revenues. Therefore, for the foreseeable future,
      we will have to fund all of our operations and capital expenditures from the
      net
      proceeds of equity or debt offerings we may make, cash on hand, licensing fees
      and grants. Over the next year we expect to spend approximately $3 million
      on
      clinical development for Phase II clinical trials of RX-0201 and Phase I
      clinical trials for RX-5902 and RX-10100. Based on our current plans and our
      capital resources, we believe that our cash and cash equivalents will be
      sufficient to enable us to meet our planned operating needs for at least the
      next year, including the clinical trials of RX-0201, RX-10100 and RX-5902.





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 RX-0047
      and 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 $20 million through the second quarter of 2007.





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, which will 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
      December 31, 2005 and 2004 was $14,204,323 and $7,854,783, respectively.
      For the years ended December 31, 2005 and 2004, we had net losses of
      $6,349,540 and $3,273,442, 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:





13
 *Index*





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





·
            efforts
                to seek regulatory approvals for our drug
                candidates;





·
            implementing
                additional internal systems and
                infrastructure;





·
            licensing
                in additional technologies to develop;
                and





·
            hiring
                additional personnel.





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





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





We
      are a
      development-stage company with four 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 four drug candidates,
      RX-0201 and RX-0047, are ASO compounds. To date, the FDA has not approved any
      NDAs for any ASO compounds. In addition, both RX-0201 and RX-0047 are of a
      drug
      class (Akt inhibitor, in the case of RX-0201, 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.





14
 *Index*





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





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





Our
      drug
      candidates are in an early stage of development and require extensive clinical
      testing, which are very expensive, time-consuming and difficult to design.
      In
      2006, we expect to have one oncology drug candidate entering Phase II clinical
      trials, one neuroscience drug candidate entering Phase I clinical trials and
      one
      oncology drug candidate in Phase I clinical trials.





***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.





15
 *Index*





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





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





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





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





·
            awareness
                of the drug's availability and
                benefits;





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





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





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





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





·
            the
                price at which we sell our
                products.





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





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





We
      depend
      upon independent investigators and collaborators, such as universities and
      medical institutions, to conduct our pre-clinical and clinical trials. For
      example, the Phase I clinical trials of RX-0201 are being conducted at the
      Lombardi Comprehensive Cancer Center of Georgetown Medical Center with the
      assistance of Amarex, LLC, a pharmaceutical clinical research service provider
      who will be responsible for creating the reports that will be submitted to
      the
      FDA. We also relied on TherImmune Research Corporation (currently Gene Logic
      Laboratories, Inc.), a discovery and pre-clinical service provider, to summarize
      RX-0201'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. 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.





16
 *Index*





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





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





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





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





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





·
            Drug
                manufacturers are subject to ongoing periodic unannounced inspection
                by
                the FDA, the Drug Enforcement Agency, or 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.





17
 *Index*





***We
      have no experience selling, marketing or distributing products and 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 Antigenics Inc., Genta Incorporated, Imclone Systems
      Incorporated, Human Genome Sciences, Inc., Kosan Biosciences Incorporated and
      Medimmune, Inc. In addition, many of these competitors, either alone or together
      with their collaborative partners, operate larger research and development
      programs or have substantially greater financial resources than we do, as well
      as more experience in:





·
            developing
                drugs;





·
            undertaking
                pre-clinical testing and human clinical trials;





·
            obtaining
                FDA and other regulatory approvals of
                drugs;





·
            formulating
                and manufacturing drugs; and





·
            launching,
                marketing and selling drugs.





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





18
 *Index*





***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 RX-0201, anti-HIF compounds, including RX-0047. 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 issue;





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





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





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





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





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





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





·
            redesign
                our products or processes to avoid infringement;





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





·
            pay
                damages; or





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





19
 *Index*





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 those agreements, 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, 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.





20
 *Index*





***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 December
      31,
      2005 and 2004 was $14,204,323 and $7,854,783, respectively. For the years ended
      December 31, 2005 and 2004, we had net losses of $6,349,540 and $3,273,442,
      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. 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 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 464,156 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.





21
 *Index*





***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, or "OTC-BB." The liquidity
      of our securities has been limited, not only in terms of the number of
      securities that can be bought and sold at a given price, but also through delays
      in the timing of transactions and reduction in security analysts' and the
      media's coverage of us.





These
      factors may result in lower prices for our common stock than might otherwise
      be
      obtained and could also result in a larger spread between the bid and asked
      prices for our common stock. Currently, there are approximately 110 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
      2.  Description of Property.**





We
      lease
      approximately 8,030 square feet of laboratory and office space in Rockville,
      Maryland. The facility is equipped with the requisite laboratory services
      required to conduct our business and we believe that our existing facilities
      are
      adequate to meet our needs for the foreseeable future. Our lease expires on
      June
      30, 2009. We do not own any real property.





**Item
      3.  Legal Proceedings** .





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




**Item
      4.  Submission of Matters to a Vote of Security
      Holders.**





None.





22
 *Index*





**PART
      II**





**Item
      5.  Market for Common Equity and Related Stockholder
      Matters.**





As
      of
      March 27, 2006, we are authorized to issue two classes of capital stock,
      which are common stock and preferred stock. Our total authorized shares of
      common stock and preferred stock are 500,000,000 shares, par value $0.0001
      per
      share, and 100,000,000 shares, par value $0.0001, respectively. As of
      March 27, 2006, we have 46,415,632 shares of common stock outstanding and
      approximately 110 stockholders of record of common stock. As of
      March 27, 2006, no shares of preferred stock are outstanding.





Our
      common stock is traded on the Over the Counter Bulletin Board (the "OTC-BB")
      under the ticker symbol "RXHN." Prior to May 13, 2005, the Company common stock
      was traded on the OTC-BB under the ticker symbol "CPRD" since November 2004.
      The
      reported high and low bid and asked prices for the Company common stock are
      shown below for the periods from November 30, 2004 through
      December 31, 2005. The prices presented are bid and ask prices, which
      represent prices between broker-dealers and do not include retail mark-ups
      and
      mark-downs or any commission to the broker-dealer. The prices may not
      necessarily reflect actual transactions.





**Period**
            
            **High**1
            
            **Low**1Fourth
                Quarter Fiscal 20042
            
            $
            0.38
            
            $
            0.04First
                Quarter Fiscal 2005
            
            $
            0.15
            
            $
            0.02Second
                Quarter Fiscal 20053
            
            $
            4.00
            
            $
            0.30Third
                Quarter Fiscal 2005
            
            $
            4.60
            
            $
            2.50Fourth
                Quarter Fiscal 2005
            
            $
            3.25
            
            $
            1.50


________________________


1  Reflects
      adjustments made in accordance with a 1-for-100 reverse stock split in May
      2005.


2  From
      November 30, 2004.


3  The
      merger of Corporate Road Show.Com Inc. and Rexahn, Corp occurred on May 13,
      2005.





***Dividends***





We
      have
      not paid any cash dividends on common stock and do not expect to do so in the
      foreseeable future. We anticipate that any earnings generated from future
      operations will be used to finance our operations. No restrictions exist upon
      our ability to pay dividends .





***Securities
      Authorized for Issuance Under Equity Compensation
      Plans*** ****





The
      following table provides information, as of December 31, 2005, about shares
      of
      our common stock that may be issued upon the exercise of options, warrants
      and
      rights granted to employees, consultants or directors under all of our existing
      equity compensation plans.





23
 *Index*




**Number
                of securities to be issued upon exercise of outstanding options,
                warrants******
              **and
                rights**
            
            **Weighted
                average exercise price of outstanding options,****warrants
                and rights**
            
            **Number
                of securities remaining available for future issuance under equity****compensation
                plans****Equity
                compensation plans approved by stockholders**Rexahn
                stock option plan
            
            
            5,770,000
            
            $
            0.84
            
            
            1,182,500CPRD
                stock option plan
            
            
            ──
            
            
            ──
            
            
            10,000**Equity
                compensation plans not approved by stockholders**
            
            
            ──
            
            
            ──
            
            
            ──**Total**
            
            
            5,770,000
            
            $
            0.84
            
            
            1,192,500





***Recent
      Sales of Unregistered Securities***





In
      connection with the Merger described under Item 1 of this Annual Report, we
      issued an aggregate of 38,140,830 shares of common stock to the former
      shareholders of Rexahn, Corp. The common stock issued in the Merger was exempt
      from the registration requirements of the Securities Act of 1933, as amended
      (the "Securities Act"), pursuant to Section 4(2) of the Securities Act,
      Regulation D under the Securities Act and/or Regulation S under the
      Securities Act. These shares of common stock are deemed "restricted securities"
      and bear an appropriate restrictive legend indicating that the resale of such
      shares may be made only pursuant to registration under the Securities Act or
      pursuant to an available exemption from such registration. We did not receive
      any cash proceeds from the issuance of these securities.





Following
      the Merger, we issued 500,000 "restricted" shares of common stock to Frank
      Ferraro, the CPRD's sole director and officer, pursuant to a Settlement
      Agreement. The issuance of shares of common stock to Mr. Ferraro did not
      involve any public offering and was exempt from the registration requirements
      under the Securities Act pursuant to Section 4(2) thereof. We did not
      receive any cash proceeds from the issuance of these securities.





On
      August
      8, 2005, we completed a private placement of 4,175,000 shares of common stock,
      $.0001 par value per share, at $2.00 per share for aggregate gross proceeds
      of
      $8.35 million pursuant to the Subscription Agreements dated August 8, 2005.
      The
      offers and sales occurred outside the United States to persons other than U.S.
      persons in offshore transactions meeting the requirements of Regulation S under
      the Securities Act. After payment of certain expenses by us, we received
      approximately $8.31 million in net proceeds upon closing of the private
      placement of the common stock. The proceeds will be used to fund clinical trials
      of our drug candidates and other general corporate purposes. Shares of the
      common stock have not been registered under the Securities Act and may not
      be
      offered or sold in the Unites States absent registration under the Securities
      Act or an applicable exemption from registration requirements under the
      Securities Act.





24
 *Index*





On
      August
      8, 2005, we also completed a private placement of $1.3 million aggregate
      principal amount of our convertible notes (the "Convertible Notes") in offers
      and sales that occurred outside the United States to persons other than U.S.
      persons in offshore transactions meeting the requirements of Regulation S under
      the Securities Act. The holders of the Convertible Notes are entitled any time
      after September 19, 2005 until August 8, 2008 (the "Maturity Date"), or upon
      the
      occurrence and continuance of any of the events of default, to convert the
      principal amount of any Convertible Notes or portions thereof into common stock
      at a conversion price of $2.00 per share. The initial conversion price of $2.00
      per share of common stock is subject to adjustment upon the occurrence of
      certain events, including the issuance of any additional capital stock after
      August 8, 2005, without consideration or for a consideration per share less
      than
      the current market price per share of additional capital stock as of the time
      of
      such issuance. On December 2, 2005, the holders of convertible notes,
      representing $1,300,000 aggregate principal amount, exercised their option
      to
      convert the entire principal amount of the notes into the Company's common
      stock. Based on a $2.00 per share conversion price, the holders received an
      aggregate of 650,000 shares.





25
 *Index*





Item
      6.  Management's Discussion and Analysis or Plan of
      Operation





*You
      should read the following discussion and analysis of our results of operations,
      financial condition and liquidity in conjunction with our financial statements
      and the related notes, which are included in this Annual Report on Form 10-KSB.
      Some of the information contained in this discussion and analysis or set forth
      elsewhere in this Annual Report on Form 10-KSB, including information with
      respect to our plans and strategies for our business, statements regarding
      the
      industry outlook, our expectations regarding the future performance of our
      business, and the other non-historical statements contained herein are
      forward-looking statements. See "Cautionary Statement Regarding Forward-Looking
      Statements". You should also review the "Risk Factors" section under this Item
      1
      of this Annual Report for a discussion of important factors that could cause
      actual results to differ materially from the results described herein or implied
      by such forward-looking statements.*





**Overview**





Our
      company resulted from the merger of Corporate Road Show.Com Inc., a New York
      corporation incorporated in November 1999, and Rexahn, Corp, a Maryland
      corporation, immediately after giving effect to our reincorporation as a
      Delaware corporation under the name "Rexahn Pharmaceuticals, Inc." In connection
      with that transaction, a wholly owned subsidiary of ours merged with and into
      Rexahn, Corp, with Rexahn, Corp remaining as the surviving corporation and
      a
      wholly owned subsidiary of ours. In exchange for their shares of capital stock
      in Rexahn, Corp, the former stockholders of Rexahn, Corp received shares of
      common stock representing approximately 91.8% of the Company's outstanding
      equity after giving effect to the transaction. Further, upon the effective
      time
      of the Merger, our historic business was abandoned and the business plan of
      Rexahn, Corp was adopted. The transaction was therefore accounted for as a
      reverse acquisition with Rexahn, Corp as the accounting acquiring party and
      CPRD
      as the acquired party. In September 2005, Rexahn, Corp was merged with and
      into
      the Company.





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 receive 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.





**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 and their basis of application is consistent with that
      of
      the previous year.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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.





26
 *Index*





**Stock-Based
      Compensation**





The
      Company uses the intrinsic value method to account for stock-based compensation
      in accordance with Accounting Principles Board ("APB") Opinion No. 25,
      "Accounting for Stock Issued to Employees" and, as permitted by SFAS No. 123
      "Accounting for Stock-Based Compensation", provides pro forma disclosures of
      net
      income and earnings 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 the Company's
      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 Financial Accounting Standards
      Board ("FASB") Interpretation No. 28, "Accounting for Stock Appreciation Rights
      and Other Variable Stock Option or Award Plans."





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





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. In addition, option valuation
      models require the input of highly subjective assumptions, and changes in such
      subjective assumptions can materially affect the fair value estimate of employee
      stock options.





In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This
      pronouncement amends SFAS No. 123 and supersedes APB 25. 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 amounts in the
      statement of operations. The implementation of this statement will be effective
      beginning with the Company's first quarter of fiscal 2006, and will be adopted
      using the modified prospective method.





**Recently
      Issued Accounting Standards**





In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Non monetary Assets,
      an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception from
      fair value measurement in APB Opinion No. 29 for non-monetary exchanges of
      similar productive assets with a general exception from fair value measurement
      for exchanges of non-monetary assets that do not have commercial substance.
      A
      non-monetary exchange has commercial substance if the future cash flows of
      the
      entity are expected to change significantly as a result of the exchange. SFAS
      No. 153 is to be applied prospectively, and is effective for non-monetary asset
      exchanges occurring in fiscal periods after the December 2004 issuance of SFAS
      No. 153. The adoption of SFAS No. 153 in 2005 has not been significant to the
      Company's overall results of operations or financial position.





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based
      Payment" ("SFAS No. 123R"). SFAS No. 123R requires the Company to measure the
      cost of employee services received in exchange for an award of equity
      instruments based on the grant date fair value of the award. The cost of the
      employee services is recognized as compensation cost over the period that an
      employee provides service in exchange for the award. SFAS No. 123R will be
      effective January 1, 2006 for the Company and will be adopted using
      the **** modified
      prospective method. The Company expects that the adoption of SFAS 123R may
      have
      a material impact on its results of operations subsequent to adoption. The
      disclosures in Note 8 to the financial statements in Item 7 of this Annual
      Report provides detail as to the Company's financial performance as if the
      Company had applied the fair value based method and recognition provisions
      of
      SFAS No. 123R to stock based employee compensation to the current reporting
      periods.





27
 *Index*





In
      March
      2005, the FASB issued FASB Staff Position ("FSP") No. 46(R)-5, "Implicit
      Variable Interests under FASB Interpretation No. ("FIN") 46 (revised December
      2003), Consolidation of Variable Interest Entities" ("FSP FIN 46R-5"). FSP
      FIN
      46R-5 provides guidance for a reporting enterprise on whether it holds an
      implicit variable interest in Variable Interest Entities ("VIEs") or potential
      VIEs when specific conditions exist. This FSP is effective in the first period
      beginning after March 3, 2005 in accordance with the transition provisions
      of
      FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities
      -
      an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46R"). The
      adoption of FSP FIN 46R-5 in 2005 did not have an impact on the Company's
      results of operations and financial position.





In
      March
      2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset
      Retirement Obligations" ("FIN 47"), which will result in (1) more consistent
      recognition of liabilities relating to asset retirement obligations, (2) more
      information about expected future cash outflows associated with those
      obligations, and (3) more information about investments in long-lived assets
      because additional asset retirement costs will be recognized as part of the
      carrying amounts of the assets. FIN 47 clarifies that the term "conditional
      asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset
      Retirement Obligations", refers to a legal obligation to perform an asset
      retirement activity in which the timing and/or method of settlement are
      conditional on a future event that may or may not be within the control of
      the
      entity. The obligation to perform the asset retirement activity is unconditional
      even though uncertainty exists about the timing and/or method of settlement.
      Uncertainty about the timing and/or method of settlement of a conditional asset
      retirement obligation should be factored into the measurement of the liability
      when sufficient information exists. FIN 47 also clarifies when an entity would
      have sufficient information to reasonably estimate the fair value of an asset
      retirement obligation. FIN 47 is effective no later than the end of fiscal
      years
      ending after December 15, 2005. The adoption of FIN 47 in 2005 did not have
      a
      material impact on the financial position or results of operations of the
      Company.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections",
      which replaces APB Opinion No. 20, "Accounting Changes", and SFAS No. 3,
      "Reporting Accounting Changes in Interim Financial Statements - An Amendment
      of
      APB Opinion No. 28". SFAS No. 154 provides guidance on the accounting for and
      reporting of changes in accounting principles and error corrections. SFAS No.
      154 requires retrospective application to prior period financial statements
      of
      voluntary changes in accounting principle and changes required by new accounting
      standards when the standard does not include specific transition provisions,
      unless it is impracticable to do so. SFAS No. 154 also requires certain
      disclosures for restatements due to correction of an error. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005, and is required to be adopted by the Company
      as of January 1, 2006. The impact that the adoption of SFAS No. 154 will have
      on
      the Company's results of operations and financial condition will depend on
      the
      nature of future accounting changes adopted by the Company and the nature of
      transitional guidance provided in future accounting pronouncements.





28
 *Index*





**Results
      of Operations**





***Comparison
      of the Year Ended December 31, 2005 and the Year Ended December 31,
      2004***





***Total
      Revenues***





During
      2003 we 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 us
      with
      the research, development and clinical trials necessary for registration of
      our
      RX-0201 drug candidate 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 us in 2003 in accordance with the agreement. The
      amount of revenue from this contribution is being recognized as income over
      the
      term of this agreement which terminates at the later of 20 years or the term
      of
      the patent on the licensed product. We use 20 years as the basis for revenue
      recognition and accordingly $75,000 was included in revenues in each of fiscal
      2005, 2004 and 2003 and the remaining $1,275,000 is reflected as deferred
      revenue on the balance sheet as of December 31, 2005. We adopted Staff
      Accounting Bulletin No. 104, "Revenue Recognition - Nonrefundable Upfront Fees"
      with respect to the accounting for this transaction. These fees are to be used
      in the cooperative funding of the costs of development of RX-0201.





In
      fiscal
      2005, we recorded $190,610 of interest income from the investment of our cash
      and cash equivalents and other short-term investments, compared to $57,463
      recorded in fiscal 2004. The increase of $133,147, or 231.7%, was primarily
      due
      to interest income from the investment of the proceeds of financing activities
      in 2005, including private placements of long-term debt and common stock as
      described under "Recent Sales of Unregistered Securities" in Item 5 of this
      Annual Report.





***General
      and Administrative Expenses***





General
      and administrative expenses consist primarily of salaries and related 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 increased $1,237,273, or 93.7%, from $1,319,892
      in
      fiscal 2004 to $2,557,165 in fiscal 2005. The increase was due primarily to
      an
      increase in professional fees and expenses incurred in connection with our
      reverse merger transaction completed on May 13, 2005, including legal,
      accounting and public relations fees and expenses, and increased compliance
      costs associated with being a public company.





***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 $263,629, or 14.7%, from $1,788,025 in fiscal
      2004 to $1,524,396 in fiscal 2005. The decrease was due primarily to the fact
      that the clinical trials of RX-0201, one of our drug candidates, have been
      ongoing without additional payment during fiscal 2005. We expect that
      research and development expenses will increase as our drug candidates move
      into
      the clinical trials phases of development.





29
 *Index*





***Stock
      Option Compensation Expense***





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





On
      August
      5, 2003, the Company established a stock option plan. Under the plan, we issued
      options to employees and non-employees during fiscal 2004 and incurred a
      compensation expense of $230,770. During fiscal 2005, we incurred a compensation
      expense of $436,748 for options issued to employees and non-employees.





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 is 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.





See
      Note
      8 to the Financial Statements in Item 7 of this Annual Report for further
      information on our stock option compensation expense.





30
 *Index*





***Patent
      Fees***





Our
      patent fees increased $168,877, or 1,732.4%, from $9,748 in fiscal 2004 to
      $178,625 in fiscal 2005. The increase was due primarily to an increase in the
      number of patent filings made during the 2005 period compared to fiscal
      2004.





***Interest
      Expense***





Our
      interest expense increased $192,135, or 4104.5%, from $4,681 in fiscal 2004
      to
      $196,816 in fiscal 2005. The increase was due primarily to interest payable
      on
      the convertible notes issued in February 2005. We
      also
      reflected a charge of $1,625,000 which represents the beneficial conversion
      feature of the Company's convertible notes which were issued in August 2005
      and
      converted into Company common stock in December 2005.





***Depreciation***





Depreciation
      expense increased $43,611, or 82.6%, from $52,789 in fiscal 2004 to $96,400
      in
      fiscal 2005. The increase was due primarily to a move to a new facility in
      July
      2004 and the related purchase of new laboratory equipment.





***Research
      and Development Projects***





Research
      and development expenses 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 four lead
      drug candidates, RX-0201, RX-0047, RX-5902 and 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 candidate, RX-0201, is uncertain, and because RX-0047, RX-5902 and RX-10100
      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. If these projects are not completed
      as
      planned, our results of operations and financial condition could be negatively
      affected and if we are unable to obtain additional financing to fund these
      projects, we may not be able to continue as a going concern.





31
 *Index*





*RX-0201*





RX-0201
      is currently our leading drug candidate and has been in a Phase I clinical
      trial
      at Georgetown University's Lombardi Cancer Center since September 2004 and
      University of Alabama at Birmingham since August 2005. The costs incurred for
      the clinical trial to date have been approximately $750,000. As the main purpose
      of this clinical trial is to establish the safety of RX-0201, the parameters
      that determine the completion of this project are a direct function of the
      safety profile of this compound in humans. As this is the first time that
      RX-0201 has been administered to humans, the safety profile in humans is unknown
      and therefore, the number of doses required to determine the dosage at which
      the
      FDA safety endpoints are met is an estimate. If more doses are required than
      estimated, completion of the Phase I clinical trials may be delayed. Therefore,
      the costs, timing and efforts necessary to complete this program also are
      estimates. We currently estimate that the completion of the Phase I clinical
      trial will require approximately $300,000 and anticipate its completion in
      the
      second quarter of 2006.





*RX-0047
      and RX-5902*





RX-0047
      and RX-5902 are all 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.
      To date, the costs incurred for development of these compounds to date have
      been
      approximately $750,000 for RX-0047, and $250,000 for RX-5902. The estimated
      cost
      to complete pre-clinical toxicology and Phase I clinical trials is estimated
      to
      be approximately $1,500,000 per compound for a total of $3,000,000. These
      compounds may be entered into these Phase I clinical trials in late 2006 or
      early 2007.





The
      conduct of the clinical trial and toxicology studies described above are being
      accomplished in conjunction with third-party 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.





*RX-10100*





RX-10100
      is in early pre-IND stages of development and the next scheduled event is the
      synthesis and testing of novel formulations for pre-clinical and clinical
      evaluations. We currently estimate that these studies will require approximately
      $300,000 and $450,000, respectively. We are preparing to initiate a Phase I
      clinical trial of RX-10100 during 2006.





**Liquidity
      and Capital** ****** **Resources**





Cash
      used
      in operating activities was $4,131,450 in fiscal 2005 compared to $2,880,624
      in
      fiscal 2004. Fiscal 2005 operating cash flows reflect our loss from continuing
      operations of $6,349,540, offset by net non-cash charges of $2,105,025 and
      a net
      increase in cash components of working capital of $113,065. Non-cash charges
      include a charge of $1,625,000 representing the
      beneficial conversion feature of our convertible notes, compensatory stock
      expense of $21,877,depreciation of $96,400 and stock option compensation
      expense of $436,748. The increase in working capital primarily consists of
      the
      beneficial conversion feature charge of $1,625,000, a $205,978 increase in
      stock
      option compensation expenses and a $43,611 increase in depreciation, offset
      by a
      decrease in accounts payable of $37,843. Fiscal 2004 operating cash flows
      reflect Rexahn's loss from continuing operations of $3,273,442, offset by
      non-cash charges of $283,559 and a net increase in cash components of working
      capital of $184,259. Non-cash charges consisted of depreciation of $52,789
      and
      stock option compensation expense of $230,770. The increase in working capital
      primarily consisted of a $189,487 increase in accounts payable.





32
 *Index*





Cash
      used
      in investing activities of $7,915,750 in fiscal 2005 consist of purchases of
      short-term investments of $7,821,667, in addition to capital expenditures of
      $94,083 for the purchase of equipment. Cash provided by investing activities
      of
      $1,263,194 in fiscal 2004 reflect the sale of short-term investments of
      $1,384,482, offset by capital expenditures of $121,288 for the purchase of
      equipment.





Cash
      provided by financing activities of $1,800 in fiscal 2004 consisted of proceeds
      from the issuance of Rexahn common stock upon exercise of stock options. Cash
      provided by financing activities of $13,326,179 in fiscal 2005 consisted of
      proceeds of $8,359,582 from the issuance of common stock and $5,150,000 from
      proceeds of long-term debt, offset by principal payments on long-term debt
      of
      $183,403.





For
      the
      years ended December 31, 2005 and 2004, we experienced net losses of
      $6,349,540 and $3,273,442, respectively. Our accumulated deficit as of
      December 31, 2005 and 2004 were $14,204,323 and $7,854,783,
      respectively.





We
      have
      financed our operations since inception primarily through equity and convertible
      debt financings. During fiscal 2005, we had a net increase in cash and cash
      equivalents of $1,278,979. This increase primarily resulted from proceeds from
      the issuance of convertible debt and common stock in fiscal 2005. Total cash
      resources as of December 31, 2005 were $1,679,441 compared to $400,462 at
      December 31, 2004. In addition, we had $8,437,184 in short-term investments
      at
      December 31, 2005.





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





***Contractual
      Obligations***





In
      April
      2004, we entered into a clinical development agreement with Georgetown
      University with an effective period from April 5, 2004 through April 5, 2006.
      The total estimated cost of the program is $223,126, based on the fees,
      enrolment and completion of 20 patients and is payable based on the progress
      of
      the treatment over the effective period of the agreement. For the years ended
      December 31, 2005 and 2004, we paid $0 and $17,426, respectively towards the
      cost of this program. In addition, we extended a research agreement, initially
      entered into on January 1, 2004, until November 10, 2005 with Georgetown
      University. For the year ended December 31, 2005, we paid $60,000 in
      consideration of the extension.





On
      August
      17, 2004, we entered into an agreement with Formatech, Inc. to monitor and
      perform stability studies on our drug candidate, RX-0201. The total cost of
      these services is $46,700. For the years ended December 31, 2005 and 2004,
      we
      paid $10,400 and $22,900, respectively, towards the cost of these studies.
      The
      remainder consists of a $5,200 payment due during 2006 and $8,200 due during
      2007.





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





33
 *Index*





Minimum
      future rental payments under this lease are as follows:





For
                the years endedDecember
                312006
            
            $
            209,8742007
            
            
            216,1702008
            
            
            222,6552009
            
            
            112,972$
            761,671





On
      June
      1, 2005, we signed a one year research project agreement with the Korea Research
      Institute of Chemical Technology ("KRICT") relating to the development of a
      synthetic process for the lead compound of the quinozalines acting on human
      cancer cells. In accordance with the agreement, the cost of the project is
      $100,000, of which $50,000 was paid during the 2005 fiscal year. The remaining
      $50,000 is included in accounts payable at December 31, 2005.





On
      August
      1, 2005, we signed a one year contract with the University of Massachusetts
      Medical School ("UMASS") to test proprietary drugs in preclinical behavioral
      assays of anxiety and cognition. We agreed to provide UMASS with a grant of
      $76,666, which includes the full direct and indirect costs of the preclinical
      study, payable in four equal quarterly installments of $19,167. For the year
      ended December 31, 2005, we made two quarterly payments totaling $38,334. The
      remainder is due in 2006.





On
      August
      3, 2005, we engaged Montgomery Pacific Group ("MPG") to act as the Company's
      financial advisor for a one-year term in connection with our growth strategies,
      certain licensing activities and acquisition of certain assets. In consideration
      of the services, we agreed to pay MPG an advisory fee, consisting of an initial
      retainer fee and success fees subject to the successful closing of licensing
      transactions, acquisitions and private placements. An initial retainer fee
      of $50,000 was paid during the year ended December 31, 2005. Dr.
      John
      Holaday, one of our directors, is a partner of MPG.





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





***Current
      and Future Financing Needs***





We
      have
      incurred negative cash flow from operations since we started our business.
      We
      have spent, and expect to continue to spend, substantial amounts in connection
      with implementing our business strategy, including our planned product
      development efforts, our clinical trials, and our research and discovery
      efforts. Based on our current plans and out capital resources (including the
      proceeds of our 2005 financings), we believe that our cash and cash equivalents
      will be sufficient to enable us to meet our minimum planned operating needs
      for
      at least the next 12 months, which would entail focusing our resources on
      Phase II clinical trials of RX-0201 and the pre-clinical studies and Phase
      I clinical trials for RX-10100. Over the next 12 months we expect to spend
      a
      minimum of approximately $3 million on clinical development for
      Phase I and Phase II clinical trials of RX-0201 (including our
      commitments described under "Contractual Commitments" of this Item 6), $2.5
      million on general corporate expenses, and $250,000 on facilities rent. 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 pre-clinical studies and Phase I
      clinical trials for RX-0047 and in-vivo animal and pre-clinical studies and
      Phase I clinical trials for RX-5209, RX-10100 and other 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
      $10 million through the first quarter of 2007.





34
 *Index*





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





·
            the
                progress of our product development
                activities;





·
            the
                number and scope of our product development
                programs;





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





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





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





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





·
            the
                costs and timing of regulatory
                approvals.





35
 *Index*





**Item
      7.  Financial Statements**





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Balance
      Sheets





December
                31,**2005**
            
            2004**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            **$**
            **1,679,441**
            
            $
            400,462Short-term
                investments
            
            
            **8,437,184**
            
            
            615,517Prepaid
                expenses and other
            
            
            **54,774**
            
            
            16,195**Total
                Current Assets**
            
            
            **10,171,399**
            
            
            1,032,174**Equipment,
                Net******(note
                3)
            
            
            **203,632**
            
            
            189,623**Intangible
                Asset****s,
                Net**(note 4)
            
            
            **339,890**
            
            
            -**Total
                Assets**
            
            **$**
            **10,714,921**
            
            $
            1,221,797**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)****Current
                Liabilities:**Accounts
                payable and accrued expenses
            
            **$**
            **587,612**
            
            $
            435,968Licensing
                fee payable (note 4)
            
            
            **172,813**
            
            
            -**Total
                Current Liabilities**
            
            
            **760,425**
            
            
            435,968**Long-Term
                Convertible Debt**(note
                5)
            
            
            **3,850,000**
            
            
            -**Deferred
                Revenue**(note
                6)
            
            
            **1,275,000**
            
            
            1,350,000**Total
                Liabilities**
            
            
            **5,885,425**
            
            
            1,785,968**Commitments
                and Contingencies**(note
                11)
            
            
            **-**
            
            
            **-****Stockholders'
                Equity (Deficit)**(note
                7)**:**Common
                stock,****par
                value $0.0001, 500,000,000 authorized shares, 46,415,632 shares issued
                and
                outstanding (2004 - par value $0.01, 20,000,000 authorized shares,
                7,628,166 shares issued and outstanding)
            
            
            **4,641**
            
            
            76,281Additional
                paid-in capital
            
            
            **19,029,178**
            
            
            7,214,331Accumulated
                deficit during the development stage
            
            
            **(14,204,323**
            **)**
            
            (7,854,783
            )**Total
                Stockholders' Equity (Deficit)**
            
            
            **4,829,496**
            
            
            (564,171
            )**Total
                Liabilities and Stockholders' Equity (Deficit)**
            
            **$**
            **10,714,921**
            
            $
            1,221,797





**The
      accompanying notes are an integral part of these financial
      statements.**





36
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Statements
      of Operations





Cumulative
                fromMarch
                19,2001
            
            Years
                Ended(Inception)
                to
            
            December
                31,December
                31,2005
            
            **2005**
            
            2004**Revenue:**Interest
                and other income
            
            $
            391,449
            
            **$**
            **190,610**
            
            $
            57,463Research
            
            
            225,000
            
            
            **75,000**
            
            
            75,000616,449
            
            
            **265,610**
            
            
            132,463**Expenses:**General
                and administrative
            
            
            5,811,622
            
            
            **2,557,165**
            
            
            1,319,892Beneficial
                conversion feature
            
            
            1,625,000
            
            
            1,625,000
            
            
            —Research
                and development
            
            
            5,491,495
            
            
            **1,524,396**
            
            
            1,788,025Stock
                option compensation expense (note 8)
            
            
            1,205,592
            
            
            **436,748**
            
            
            230,770Patent
                fees
            
            
            227,686
            
            
            **178,625**
            
            
            9,748Interest
            
            
            201,496
            
            
            **196,816**
            
            
            4,681Depreciation
                and amortization
            
            
            257,881
            
            
            **96,400**
            
            
            52,78914,820,772
            
            
            **6,615,150**
            
            
            3,405,905**Net
                Loss**
            
            $
            (14,204,323
            )
            **$**
            **(6,349,540**
            **)**
            $
            (3,273,442
            )Loss
                per weighted average number ofshares outstanding, basic and diluted
            
            
            
            
            **$**
            **(0.15**
            **)**
            $
            (0.09
            )Weighted
                average number of shares outstanding, basic and diluted
            
            
            
            
            
            **41,976,959**
            
            
            38,133,689





**The
      accompanying notes are an integral part of these financial
      statements.**





37
 *Index*




**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Statements
      of Changes in Stockholders' Equity (Deficit)


Period
      from March 19, 2001 (Inception) to December 31, 2005




**Number
                of**
              **Shares**
            
            **Common**
              **Stock**
            
            **Additional**
              **Paid
                in**
              **Capital**
            
            **Accumulated**
              **Deficit
                During**
              **the
                Development Stage**
            
            **Total**
              **Stockholders'
                Equity**
              **(Deficit)**Opening
                balance, March 19, 2001
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Common
                shares issued
            
            
            7,126,666
            
            
            71,266
            
            
            4,448,702
            
            
            -
            
            
            4,519,968Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (625,109
            )
            
            (625,109
            )Balance,
                December 31, 2001
            
            
            7,126,666
            
            
            71,266
            
            
            4,448,702
            
            
            (625,109
            )
            
            3,894,859Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,181,157
            )
            
            (1,181,157
            )Balance,
                December 31, 2002
            
            
            7,126,666
            
            
            71,266
            
            
            4,448,702
            
            
            (1,806,266
            )
            
            2,713,702Common
                shares issued
            
            
            500,000
            
            
            5,000
            
            
            1,995,000
            
            
            -
            
            
            2,000,000Stock
                option compensation
            
            
            -
            
            
            -
            
            
            538,074
            
            
            -
            
            
            538,074Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,775,075
            )
            
            (2,775,075
            )Balance,December
                31, 2003
            
            
            7,626,666
            
            
            76,266
            
            
            6,981,776
            
            
            (4,581,341
            )
            
            2,476,701Common
                shares issued
            
            
            1,500
            
            
            15
            
            
            1,785
            
            
            -
            
            
            1,800Stock
                option compensation
            
            
            -
            
            
            -
            
            
            230,770
            
            
            -
            
            
            230,770Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,273,442
            )
            
            (3,273,442
            )Balance,****December
                31, 2004
            
            
            7,628,166
            
            
            76,281
            
            
            7,214,331
            
            
            (7,854,783
            )
            
            (564,171
            )Stock
                split (5 for 1)
            
            
            30,512,664
            
            
            (72,467
            )
            
            72,467
            
            
            **-**
            
            
            **-**Common
                shares issued in connection with the merger
            
            
            3,397,802
            
            
            340
            
            
            (340
            )
            
            -
            
            
            -Stock
                option compensation
            
            
            -
            
            
            -
            
            
            436,748
            
            
            -
            
            
            436,748Common
                stock issued for cash
            
            
            4,175,000
            
            
            417
            
            
            8,349,565
            
            
            -
            
            
            8,349,982Common
                shares issued on conversion of convertible debt
            
            
            650,000
            
            
            65
            
            
            1,299,935
            
            
            -
            
            
            1,300,000Common
                shares issued in exchange for services
            
            
            7,000
            
            
            1
            
            
            21,876
            
            
            -
            
            
            21,877Exercise
                of stock options
            
            
            40,000
            
            
            4
            
            
            9,596
            
            
            -
            
            
            9,600Beneficial
                conversion feature
            
            
            -
            
            
            -
            
            
            1,625,000
            
            
            -
            
            
            1,625,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,349,540
            )
            
            (6,349,540
            )**Balance,December
                31, 2005**
            
            
            **46,410,632**
            
            **$**
            **4,641**
            
            **$**
            **19,029,178**
            
            **$**
            **(14,204,323**
            **)**
            **$**
            **4,829,496**





**The
      accompanying notes are an integral part of these financial
      statements.**





38
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Statements
      of Cash Flows





Cumulative
                from
              March
                19,2001
              (Inception)
                to
            
            Years
                EndedDecember
                31,December
                31, 2005
            
            **2005**
            
            2004**Cash
                Flows from Operating Activities:**Net
                loss
            
            $
            (14,204,323
            )
            **$**
            **(6,349,540**
            **)**
            $
            (3,273,442
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Beneficial
                conversion feature
            
            
            1,625,000
            
            
            **1,625,000**
            
            
            -Compensatory
                stock
            
            
            21,877
            
            
            **21,877**
            
            
            -Depreciation
                and amortization
            
            
            257,881
            
            
            **96,400**
            
            
            52,789Stock
                option compensation expense
            
            
            1,205,592
            
            
            **436,748**
            
            
            230,770Deferred
                revenue
            
            
            1,275,000
            
            
            **(75,000**
            **)**
            
            (75,000
            )Changes
                in assets and liabilities:Prepaid
                expenses and other
            
            
            (54,774
            )
            
            **(38,579**
            **)**
            
            (5,228
            )Accounts
                payable and accrued expenses
            
            
            587,613
            
            
            **151,644**
            
            
            189,487**Net
                Cash Used in Operating Activities**
            
            
            (9,286,134
            )
            
            **(4,131,450**
            **)**
            
            (2,880,624
            )**Cash
                Flows from Investing Activities:**Short-term
                investments
            
            
            (8,437,184
            )
            
            **(7,821,667**
            **)**
            
            1,384,482Purchase
                of equipment
            
            
            (445,187
            )
            
            **(94,083**
            **)**
            
            (121,288
            )**Net
                Cash (Used in) Provided by Investing Activities**
            
            
            (8,882,371
            )
            
            **(7,915,750**
            **)**
            
            1,263,194**Cash
                Flows from Financing Activities:**Issuance
                of common stock
            
            
            14,881,349
            
            
            **8,359,582**
            
            
            1,800Proceeds
                from long-term debt
            
            
            5,150,000
            
            
            **5,150,000**
            
            
            -Principal
                payments on long-term debt
            
            
            (183,403
            )
            
            **(183,403**
            **)**
            
            -**Net
                Cash Provided by Financing Activities**
            
            
            19,847,946
            
            
            **13,326,179**
            
            
            1,800**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            1,679,441
            
            
            **1,278,979**
            
            
            (1,615,630
            )**Cash
                and Cash Equivalents, beginning of period**
            
            
            
            
            
            400,462
            
            
            2,016,092**Cash
                and Cash Equivalents, end of period**
            
            $
            1,679,441
            
            **$**
            **1,679,441**
            
            $
            400,462**Supplemental
                Cash Flow Information**Interest
                paid
            
            $
            9,675
            
            **$**
            **4,316**
            
            $
            5,000





Non-cash
      investing and financing activities:


In
      February 2005, the Company entered into a licensing agreement in exchange for
      debt of $356,215.


On
      December 2, 2005, $1,300,000 aggregate principal amount of the Company's
      convertible notes were converted into shares of Company common stock at a
      conversion price of $2.00 per share.





**The
      accompanying notes are an integral part of these financial
      statements.**





39
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





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





Operations





Rexahn
      Pharmaceuticals, Inc. (the "Company" or "Rexahn Pharmaceuticals"), a Delaware
      corporation, is a development stage biopharmaceutical company focused on the
      development of signal inhibitor drug therapies for the treatment of cancer
      and
      other diseases.





Reverse
      Merger Acquisition





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





Shares
      of
      Rexahn Pharmaceuticals common stock issued in the Acquisition Merger were exempt
      from the registration requirements of the Securities Act of 1933, as amended
      (the "Securities Act"), pursuant to Regulation D under the Securities Act and/or
      Regulation S under the Securities Act. These shares of Rexahn Pharmaceuticals
      common stock are deemed "restricted securities" and bear an appropriate
      restrictive legend indicating that the resale of such shares may be made only
      pursuant to registration under the Securities Act or pursuant to an available
      exemption from such registration.





As
      part
      of the Acquisition Merger, the Company assumed the convertible notes further
      described in Note 5 and the conversion price was adjusted to reflect the merger
      exchange ratio.





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





Merger
      of
      Subsidiary





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





40
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





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





The
      accounting policies of the Company are in accordance with United States
      generally accepted accounting principles and their basis of application is
      consistent with that of the previous year. Set forth below are the Company's
      significant accounting policies:





a)
            Cash
                and Cash Equivalents





Cash
      and
      cash equivalents include cash on hand and short-term investments with remaining
      maturities of three months or less at acquisition.





b)
            Short-Term
                Investments





Short-term
      investments include highly liquid investments with initial maturities of between
      three and twelve months.





c)
            Equipment





Equipment
      is stated at cost less accumulated depreciation. Depreciation, based on the
      estimated useful lives of the assets, is provided as follows:





Furniture
                and fixtures
            7
                years
            double
                declining balance


Office
                equipment
            5
                years
            double
                declining balance


Lab
                equipment
            7
                years
            double
                declining balance


Computer
                equipment
            5
                years
            straight
                line


Leasehold
                improvements
            3
                years
            straight
                line





d)
            Research
                and Development





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.





e)
            Government
                Grants





Income
      from government grants are recorded when received. Amounts received are applied
      to the expenses that they are intended to compensate.





41
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**2.**
            **Summary
                of Significant Accounting Policies**(cont'd)





f)
            Revenue
                Recognition





The
      Company recognizes revenues from research and license agreements as the
      contracted services are performed, in accordance with the terms of the
      agreement. Amounts received in advance of recognition are included in deferred
      revenues.





Interest
      and securities income is recognized on an accrual basis.





g)
            Use
                of Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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.





h)
            Fair
                Value of Financial Instruments





The
      carrying amounts reported in the accompanying financial statements for current
      assets and current liabilities approximates fair value because of the short-term
      maturity of these financial instruments. The fair value of long-term convertible
      debt is indeterminable due to terms of the instrument and the absence of a
      market for such instruments.





i)
            Income
                Taxes





The
      Company accounts for income taxes pursuant to Statement of Financial Accounting
      Standards ("SFAS") No. 109, "Accounting for Income Taxes". Deferred tax assets
      and liabilities are recorded for differences between the financial statement
      and
      tax basis of the assets and liabilities that will result in taxable or
      deductible amounts in the future based on enacted tax laws and rates. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amount expected to be realized. Income tax expense is recorded for the amount
      of
      income tax payable or refundable for the period, increased or decreased by
      the
      change in deferred tax assets and liabilities during the period.





42
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**2.**
            **Summary
                of Significant Accounting Policies**(cont'd)





j)
            Earnings
                or Loss Per Share




The
      Company accounts for earnings per share pursuant to SFAS No. 128, "Earnings
      per
      Share", which requires disclosure on the financial statements of "basic" and
      "diluted" earnings (loss) per share. Basic earnings (loss) per share is computed
      by dividing net income (loss) by the weighted average number of common shares
      outstanding for the year. Diluted earnings (loss) per share is computed by
      dividing net income (loss) by the weighted average number of common shares
      outstanding plus potentially dilutive securities outstanding for each year.
      Potentially dilutive securities include stock options and warrants and shares
      of
      common stock issuable upon conversion of the Company's convertible
      notes.





The
      following potentially dilutive securities have been excluded from the diluted
      net earnings (loss) per share calculations for the years ended December 31,
      2005
      and 2004 because their effect would have been antidilutive:





December
                31,2005
            
            2004Shares
                subject to options
            
            
            **5,770,000**
            
            
            2,775,000Convertible
                notes
            
            
            **3,850,000**
            
            
            -Total
            
            
            **9,620,000**
            
            
            2,775,000





k)
            Stock-Based
                Compensation





The
      Company uses the intrinsic value method to account for stock-based compensation
      in accordance with Accounting Principles Board ("APB") Opinion No. 25,
      "Accounting for Stock Issued to Employees" and, as permitted by SFAS No. 123,
      "Accounting for Stock-Based Compensation" ("SFAS 123"), provides pro forma
      disclosures of net income and earnings 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
      the
      Company's 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 Financial Accounting
      Standards Board ("FASB") Interpretation No. 28, "Accounting for Stock
      Appreciation Rights and Other Variable Stock Option or Award
      Plans."





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





43
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**2.**
            **Summary
                of Significant Accounting Policies**(cont'd)





k)
            Stock-Based
                Compensation(cont'd)





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. In addition, option valuation
      models require the input of highly subjective assumptions, and changes in such
      subjective assumptions can materially affect the fair value estimate of employee
      stock options.





In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This
      pronouncement amends SFAS No. 123 and supersedes APB Opinion No. 25. 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 amounts
      in the statement of operations. The implementation of this statement will be
      effective beginning with the Company's first quarter of fiscal 2006, and will
      be
      adopted using the modified prospective method.





l)
            Impairment
                of Long-Lived Assets





In
      accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets", long-lived assets to be held and used are analyzed for
      impairment whenever events or changes in circumstances indicate that the related
      carrying amounts may not be recoverable. The Company evaluates at each balance
      sheet date whether events and circumstances have occurred that indicate possible
      impairment. If there are indications of impairment, the Company uses future
      undiscounted cash flows of the related asset or asset grouping over the
      remaining life in measuring whether the assets are recoverable. In the event
      such cash flows are not expected to be sufficient to recover the recorded asset
      values, the assets are written down to their estimated fair value. Long-lived
      assets to be disposed of are reported at the lower of the carrying amount or
      the
      fair value of the asset less cost to sell.





m)
            Concentration
                of Credit Risk





SFAS
      No.
      105, "Disclosure of Information About Financial Instruments with Off-Balance
      Sheet Risk and Financial Instruments with Concentration of Credit Risk",
      requires disclosure of any significant off-balance sheet risk and credit risk
      concentration. The Company does not have significant off-balance sheet risk
      or
      credit concentration. The Company maintains cash and short-term investments
      with
      major financial institutions. From time to time the Company has funds on deposit
      with commercial banks that exceed federally insured limits. Management does
      not
      consider this to be a significant credit risk as these banks and financial
      institutions are well-known.





44
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**2.**
            **Summary
                of Significant Accounting Policies**(cont'd)





n)
            Recent
                Accounting Pronouncements





In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Non monetary Assets,
      an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception from
      fair value measurement in APB Opinion No. 29 for non-monetary exchanges of
      similar productive assets with a general exception from fair value measurement
      for exchanges of non-monetary assets that do not have commercial substance.
      A
      non-monetary exchange has commercial substance if the future cash flows of
      the
      entity are expected to change significantly as a result of the exchange. SFAS
      No. 153 is to be applied prospectively, and is effective for non-monetary asset
      exchanges occurring in fiscal periods after the December 2004 issuance of SFAS
      No. 153. The adoption of SFAS No. 153 in 2005 has not been significant to the
      Company's overall results of operations or financial position.





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based
      Payment" ("SFAS No. 123R"). SFAS No. 123R requires the Company to measure the
      cost of employee services received in exchange for an award of equity
      instruments based on the grant date fair value of the award. The cost of the
      employee services is recognized as compensation cost over the period that an
      employee provides service in exchange for the award. SFAS No. 123R will be
      effective January 1, 2006 for the Company and will be adopted using
      the **** modified
      prospective method. The Company expects that the adoption of SFAS 123R may
      have
      a material impact on its results of operations subsequent to adoption. The
      disclosures in Note 8 provides detail as to the Company's financial performance
      as if the Company had applied the fair value based method and recognition
      provisions of SFAS No. 123R to stock based employee compensation to the current
      reporting periods.





In
      March
      2005, the FASB issued FASB Staff Position ("FSP") No. 46(R)-5, "Implicit
      Variable Interests under FASB Interpretation No. ("FIN") 46 (revised December
      2003), Consolidation of Variable Interest Entities" ("FSP FIN 46R-5"). FSP
      FIN
      46R-5 provides guidance for a reporting enterprise on whether it holds an
      implicit variable interest in Variable Interest Entities ("VIEs") or potential
      VIEs when specific conditions exist. This FSP is effective in the first period
      beginning after March 3, 2005 in accordance with the transition provisions
      of
      FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities
      -
      an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46R"). The
      adoption of FSP FIN 46R-5 in 2005 did not have an impact on the Company's
      results of operations and financial position.





In
      May
      2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
      Instruments With Characteristics of Both Liabilities and Equity". SFAS No.
      150
      requires that issuers classify as liabilities the following three types of
      freestanding financial instruments: (1) mandatory redeemable financial
      instruments, (2) obligations to repurchase the issuer's equity shares by
      transferring assets; and (3) certain obligations to issue a variable number
      of
      shares. The Company adopted SFAS No. 150 for the year ended December 31, 2003.
      The adoption of SFAS No. 150 did not have a material impact on the financial
      position or results of operations of the Company.





45
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**2.**
            **Summary
                of Significant Accounting Policies**(cont'd)





n)
            Recent
                Accounting Pronouncements (cont'd)





In
      March
      2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset
      Retirement Obligations" ("FIN 47"), which will result in (1) more consistent
      recognition of liabilities relating to asset retirement obligations, (2) more
      information about expected future cash outflows associated with those
      obligations, and (3) more information about investments in long-lived assets
      because additional asset retirement costs will be recognized as part of the
      carrying amounts of the assets. FIN 47 clarifies that the term "conditional
      asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset
      Retirement Obligations", refers to a legal obligation to perform an asset
      retirement activity in which the timing and/or method of settlement are
      conditional on a future event that may or may not be within the control of
      the
      entity. The obligation to perform the asset retirement activity is unconditional
      even though uncertainty exists about the timing and/or method of settlement.
      Uncertainty about the timing and/or method of settlement of a conditional asset
      retirement obligation should be factored into the measurement of the liability
      when sufficient information exists. FIN 47 also clarifies when an entity would
      have sufficient information to reasonably estimate the fair value of an asset
      retirement obligation. FIN 47 is effective no later than the end of fiscal
      years
      ending after December 15, 2005. The adoption of FIN 47 in 2005 did not have
      a
      material impact on the financial position or results of operations of the
      Company.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections",
      which replaces APB Opinion No. 20, "Accounting Changes", and SFAS No. 3,
      "Reporting Accounting Changes in Interim Financial Statements - An Amendment
      of
      APB Opinion No. 28". SFAS No. 154 provides guidance on the accounting for and
      reporting of changes in accounting principles and error corrections. SFAS No.
      154 requires retrospective application to prior period financial statements
      of
      voluntary changes in accounting principle and changes required by new accounting
      standards when the standard does not include specific transition provisions,
      unless it is impracticable to do so. SFAS No. 154 also requires certain
      disclosures for restatements due to correction of an error. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005, and is required to be adopted by the Company
      as of January 1, 2006. The impact that the adoption of SFAS No. 154 will have
      on
      the Company's results of operations and financial condition will depend on
      the
      nature of future accounting changes adopted by the Company and the nature of
      transitional guidance provided in future accounting pronouncements.





46
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





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





**2005**
            
            
            
            2004**Accumulated**
            
            
            
            Accumulated**Cost**
            
            **Depreciation**
            
            Cost
            
            DepreciationFurniture
                and fixtures
            
            **$**
            **31,713**
            
            **$**
            **15,060**
            
            $
            30,943
            
            $
            8,551Office
                equipment
            
            
            **43,648**
            
            
            **25,007**
            
            
            28,848
            
            
            18,336Lab
                equipment
            
            
            **363,140**
            
            
            **197,701**
            
            
            286,628
            
            
            131,492Computer
                equipment
            
            
            **5,066**
            
            
            **4,161**
            
            
            5,066
            
            
            3,483Leasehold
                improvements
            
            
            **2,000**
            
            
            **6**
            
            
            -
            
            
            -**$**
            **445,567**
            
            **$**
            **241,935**
            
            $
            351,485
            
            $
            161,862Net
                carrying amount
            
            
            
            
            **$**
            **203,632**
            
            
            
            
            $
            189,623





**4.**
            **Intangible
                Assets**





On
      February 10, 2005, the Company entered into a licensing agreement with Revaax
      Pharmaceuticals LLC ("Revaax"), whereby the Company received an exclusive,
      worldwide, royalty bearing license with the right to sub-license Revaax's
      licensed technology and products. The agreement calls for an initial licensing
      fee of $375,000 to be payable to Revaax in eight quarterly installments ending
      on November 10, 2006. Accordingly, the Revaax license has been measured at
      fair
      value at the date the licensing agreement was entered into. The fair value
      of
      the license component of $ 339,890 as at
      December 31, 2005 has been 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 liability component
      is
      being accreted over the term of the liability, calculated based on the Company's
      estimated effective market interest rate. The asset is amortized on a
      straightline basis over the estimated useful life of 20 years. Pursuant to
      the
      agreement, at December 31, 2005, four installments had been paid. As at December
      31, 2005, the outstanding balance was $ 172,813 .
      Amortization expenses for 2005 amounted to $16,326.





47
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**5.**
            **Long-Term
                Convertible Debt**





On
      February 28, 2005, the Company issued, in a transaction exempt from registration
      under the Securities Act, $3,850,000 aggregate principal amount of 6%
      convertible notes due on February 28, 2008. The notes are subject to conversion
      into shares of common stock of the Company, at the holder's option, at any
      time
      from and after the earlier of (i) the date of the first anniversary of the
      closing of the Acquisition Merger and (ii) May 26, 2006 to the maturity date,
      February 28, 2008. The notes will be automatically converted upon (i) the
      closing of the sale of all or substantially all of the assets of the Company
      or
      any merger, consolidation or other business combination and (ii) the maturity
      date. The conversion price is equal to the lesser of $1.00 per share (as
      adjusted in the Acquisition Merger) and a floating price determined by the
      average of three lowest current market prices of Company common stock during
      the
      40 calendar day period immediately preceding conversion.




On
      August
      8, 2005, the Company completed a private placement of $1.3 million aggregate
      principal amount of convertible notes. The holders of these notes are entitled
      any time after September 19, 2005 until August 8, 2008, or upon the occurrence
      and continuance of any of the events of default, to convert the principal amount
      of any convertible notes or portions thereof into common stock at a conversion
      price of $2.00 per share. The Company evaluated this transaction and determined
      that based on the market price of the Company's common stock on August 8,
      2005 of $4.50 per share, there was an associated deferred beneficial
      conversion feature of $2.50 per share, or a total of $1,625,000, and
      recorded such amount as interest to be recognized over the term of the note.
      On
      December 2, 2005, the note holders exercised their rights to convert the entire
      principal amount of the note into an aggregate of 650,000 shares of the
      Company's common stock. Upon
      conversion, the deferred beneficial conversion feature of $1,625,000 was
      recorded as an increase in net loss and an increase in the value of additional
      paid in capital.





**6.**
            **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 $ 75,000 was
      included in revenues for each of the years ended December 31, 2005 and 2004.
      The
      remaining $ 1,275,000 at
      December 31, 2005 (2004-$ 1,350,000 )
      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 2007.





48
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**7.**
            **Capital
                Stock**





Authorized


500,000,000
      shares of common stock, voting, par value $0.0001




December
                  31,**2005**
              
              2004Issued46,410,632shares (2004- 7,628,166 shares, par value $0.01*) of common stock
              
              **$**
              **4,641**
              
              $
              76,281





*
      Reflects the par value of Rexahn, Corp prior to the Merger.





The
      following transactions occurred during fiscal years 2001, 2002, 2003, 2004
      and
      2005:


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)(3) 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.





49
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**7.**
            **Capital
                Stock**(cont'd)





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 the Company issued 1,500 shares of common stock
                for cash
                of $1,800 on the exercise of 1,500 stock
                options.





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





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 holder's 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 holder's received
                an
                aggregate of 650,000 shares.





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





50
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**8.**
            **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% 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. Options authorized
      for issuance total 6,952,500 and as of December 31, 2005, 1,182,500 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.





The
      exercise price 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 in January 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 is
      January 1, 2005. The amendment was accounted for prospectively and resulted
      in
      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 non-employees accounted under fair value method were similarly
      repriced as of January 1, 2005. As a result, stock compensation expense of
      $158,531 for 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.





The
      value
      of options issued to non-employees is determined using Black-Scholes method
      using the following assumptions: volatility of 100%, risk free interest rate
      of
      4.46%, expected life of option 5 years and dividend yield of 0%. Pro forma
      information regarding net income is required to be disclosed in financial
      statements by SFAS No. 148, "Accounting for Stock-Based Compensation -
      Transition and Disclosure", and has been determined as if the Company had
      accounted for its employee stock options and employee stock purchase plan under
      the fair value method of SFAS No. 123. The fair value for these options was
      estimated at the dates of grant using the Black-Scholes pricing model. The
      weighted average fair value of the options granted to employees under this
      method is $0.63 per option for a total cost of $2,340,000 (2004-
      $714,400).





51
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**8.**
            **Stock-Based
                Compensation******(cont'd)





The
      assumptions are evaluated annually and revised as necessary to reflect market
      conditions and additional experience.





December
                31,**2005**
            
            2004Net
                loss, as reported
            
            **$**
            **(6,349,540**
            **)**
            $
            (3,273,442
            )Add: 
                Stock-based employee compensation expense rendered under APB No.
                25
                intrinsic value method
            
            
            **-**
            
            
            229,752Deduct: 
                Stock-based employee compensation expense determined under fair
                value-based method for all employee awards
            
            
            **638,918**
            
            
            249,445Pro
                forma net loss
            
            **$**
            **(6,988,458**
            **)**
            $
            (3,459,449
            )Net
                loss per share:Basic
                and diluted-as reported
            
            **$**
            **(0.15**
            **)**
            $
            (0.09
            )Basic
                and diluted-pro forma
            
            **$**
            **(0.17**
            **)**
            $
            (0.09
            )Black-Scholes
                Weighted Average Assumptions:Dividend
                yield
            
            
            **0**
            
            
            0Volatility
            
            
            **100**
            **%**
            
            1
            %Risk
                free interest rate
            
            
            **4.46**
            **%**
            
            4.54
            %Expected
                lives of options
            
            
            **5
                years**
            
            
            5
                years





Stock
      option compensation has been expensed in the statement of operations for the
      years ended December 31, 2005 and 2004 as follows:





Years
                Ended
              December
                31,**2005**
            
            2004Employees
            
            **$**
            **-**
            
            $
            63,438Non-employees
            
            
            **436,748**
            
            
            167,332Stock
                option compensation expense
            
            **$**
            **436,748**
            
            $
            230,770





52
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**8.**
            **Stock-Based
                Compensation**(cont'd)





Stock
      option activity related to employees and non-employees from December 31, 2002
      to
      December 31, 2005 are listed below.





**Weighted****Shares**
            
            **Avg.****Subject**
            
            **Option****to
                Options**
            
            **Prices**Outstanding
                at December 31, 2002
            
            
            -
            
            $
            -Granted
            
            
            1,850,000
            
            
            0.24Exercised
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -Cancelled
            
            
            **-**
            
            
            **-**Outstanding
                at December 31, 2003
            
            
            1,850,000
            
            
            0.24Granted
            
            
            1,300,000
            
            
            0.24Exercised
            
            
            (7,500
            )
            
            0.24Cancelled
            
            
            (367,500
            )
            
            0.24Outstanding
                at December 31, 2004
            
            
            2,775,000
            
            
            0.24Cancelled
                due to repricing
            
            
            (927,500
            )
            
            0.24Granted
                due to repricing
            
            
            927,500
            
            
            0.80Granted
            
            
            3,810,000
            
            
            1.01Exercised
            
            
            (40,000
            )
            
            0.24Cancelled
            
            
            (775,000
            )
            
            0.24Outstanding
                at December 31, 2005
            
            
            5,770,000
            
            $
            0.84





**Weighted****Shares**
            
            **Avg.****Subject**
            
            **Option****to
                Options**
            
            **Prices**Options
                exercisable at the end of each fiscal year:December
                31, 2003
            
            
            525,000
            
            $
            0.24December
                31, 2004
            
            
            507,500
            
            
            0.24December
                31, 2005
            
            
            420,000
            
            
            0.80





The
      weighted-average remaining contractual life of the stock options is
      approximately 9 years.





53
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**9.**
            **Income
                Taxes**





The
      components of deferred income taxes are as follows:





**2005**
            
            2004Deferred
                income tax assets:Net
                operating loss carryforwards****
            
            **$**
            **4,113,844**
            
            $
            2,404,970Stock
                option compensation expense
            
            
            **148,494**
            
            
            78,462Valuation
                allowance
            
            
            **(4,262,338**
            **)**
            
            (2,483,432
            )Deferred
                income taxes
            
            **$**
            **-**
            
            $
            -





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





As
      of
      December 31, 2005 and 2004, the Company had approximately $10,465,390 and
      $7,073,442, respectively, of federal and state net operating loss carryforwards
      available to offset future taxable income; such carryforwards expire in various
      years through 2024.





**10.**
            **Government
                Assistance**





On
      December 13, 2003, the Company accepted an offer of a conditional grant from
      the
      Montgomery County Department of Economic Development for $100,000 to assist
      in
      the growth and expansion of the Company, which amount was received in February
      2004. The terms of the offer state that $50,000 of the grant is convertible
      to a
      loan repayable over three years bearing interest at 20% per annum if, at any
      time within five years from receipt of the grant, the Company's annual net
      revenues exceed $1,000,000 or the Company obtains aggregate equity financing
      of
      over $2,000,000. This portion of the grant was recorded in accounts payable
      at
      December 31, 2004. The terms of the grant also state that the remaining $50,000
      balance of the grant would be permanently forgiven when performance criteria
      relating to lease of premises and employment commitments are met, provided
      that
      the forgiven amounts may only be applied to reducing business-related expenses.
      In 2004 upon satisfaction of the performance criteria, the $50,000 amount was
      forgiven and applied to lease payments and was recorded as a reduction of
      business-related expenses. Following the Company's February 2005 convertible
      debt financing, the remaining $50,000 was converted into a loan pursuant to
      the
      terms of the grant and was paid off by the Company in March 2005.





54
 *Index*


**REXAHN
        PHARMACEUTICALS, INC.**
 (A
        Development Stage Company)
 Notes
        to
        Financial Statements
 December
        31, 2005 and 2004


**11.**
            **Commitments**





a)
            On
                February 6, 2003, the Company entered into a research collaboration
                agreement with Rexgene Biotech Co., Ltd. ("Rexgene"), the holder
                of
                approximately 10.32% of outstanding common stock. We contributed
                a license
                to technology relating to RX-0201, and Rexgene contributed $1,500,000
                as
                initial contributions under the agreement. Rexgene also agreed to
                pay the
                Company 3% of the profits derived from the sale of RX-0201 in Asian
                countries. The agreement, if not earlier terminated by either us
                or
                Rexgene, will terminate on the expiration of the patents resulting
                from
                the agreement, or if no such patents are granted, 20 years from February
                6, 2003.





b)
            On
                September 3, 2003, the Company entered into a joint research and
                development agreement with Chong Kun Dang Pharmaceutical Corp. ("CKD"),
                the holder of approximately 6.46% of outstanding common stock. Under
                the
                agreement, we and CKD agreed to cooperate in the research and development
                of a variety of new pharmaceutical compounds for human use in their
                own
                capacities. All profits derived from or in connection with the agreement
                will be allocated to CKD and the Company in proportion to relative
                contributions based on certain ratios, which vary depending upon
                a
                particular research and development phase during which the profits
                are
                earned. The agreement, if not earlier terminated by either the Company
                or
                CKD, will last until the expiration of any intellectual property
                rights
                pertaining to information, data, discoveries and all other results
                made or
                developed in connection with or arising out of the
                agreement.





c)
            In
                April 2004, the Company entered into a clinical development agreement
                with
                Georgetown University with an effective period from April 5, 2004
                through
                April 5, 2006. The total estimated cost of the program is $223,126,
                based
                on the fees, enrolment and completion of 20 patients and is payable
                based
                on the progress of the treatment over the effective period of the
                agreement. For the years ended December 31, 2005 and 2004, the Company
                paid $0 and $17,426, respectively, towards the cost of this program.
                In
                addition, the Company extended a research agreement, initially entered
                into on January 1, 2004, until November 10, 2005 with Georgetown
                University. For the year ended December 31, 2005, the Company paid
                $60,000
                in consideration of the extension.





d)
            On
                August 17, 2004 the Company entered into an agreement with Formatech,
                Inc.
                to monitor and perform stability studies on our drug candidate, RX-0201.
                The total cost of these services is $46,700. For the years ended
                December
                31, 2005 and 2004, the Company paid $10,400 and $22,900, respectively,
                towards the cost of these studies. The remainder is included in accounts
                payable and consists of a $5,200 payment due during 2006 and $8,200
                due
                during 2007.





e)
            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.





55
 *Index*





**REXAHN
      PHARMACEUTICALS, INC.**


(A
      Development Stage Company)


Notes
      to
      Financial Statements


December
      31, 2005 and 2004





**11.**
            **Commitments**(cont'd)





Minimum
      future rental payments under this lease are as follows:





For
                the years endedDecember
                312006
            
            $
            209,8742007
            
            
            216,1702008
            
            
            222,6552009
            
            
            112,972$
            761,671





f)
            On
                June 1, 2005, the Company signed a one year research project agreement
                with the Korea Research Institute of Chemical Technology ("KRICT")
                relating to the development of a synthetic process for the lead compound
                of the quinoxalines acting on human cancer cells. In accordance with
                the
                agreement, the cost of the project is $100,000, of which $50,000
                was paid
                during the 2005 fiscal year. The remaining $50,000 is included in
                accounts
                payable at December 31, 2005.





g)
            On
                August 30, 2005, the Company entered into an agreement for the University
                of Alabama at Birmingham to carry out Phase I clinical trials of
                RX-0201.
                The agreement term expires on February 15, 2007.





h)
            On
                August 1, 2005, the Company signed a one year contract with the University
                of Massachusetts Medical School ("UMASS") to test proprietary drugs
                in
                preclinical behavioral assays of anxiety and cognition. The Company
                agreed
                to provide UMASS with a grant of $76,666, which includes the full
                direct
                and indirect costs of the preclinical study, payable in four equal
                quarterly installments of $19,167. For the year ended December 31,
                2005,
                the Company made two quarterly payments totaling $38,334. The remainder
                is
                due in 2006.





i)
            On
                August 3, 2005, the Company engaged Montgomery Pacific Group ("MPG")
                to
                act as the Company's financial advisor for a one-year term in connection
                with its growth strategies, certain licensing activities and acquisition
                of certain assets. In consideration of the services, the Company
                agreed to
                pay MPG an advisory fee, consisting of an initial retainer fee and
                success
                fees, subject to the successful closing of licensing transactions,
                acquisitions and private placements. An initial retainer fee of $50,000
                was paid during the year ended December 31, 2005. Dr. Holaday, one
                of the
                Company's directors, is a partner of
                MPG.  j)
              On
                  September 12, 2005, the Company and three of its key executives
                  entered
                  into employment agreements. Two of the three agreements expire
                  on
                  September 12, 2007 and result in an annual commitment of $360,000.
                  One
                  agreement expires on September 12, 2010 and results in an annual
                  commitment of $350,000.


k)
            On
                October 6, 2005, the Company entered into an agreement with Avecia
                Biotechnology Inc. ("Avecia"). Avecia will manufacture and supply
                the
                Company with RX-0201 and related drug services. The total cost of
                the
                project is estimated to be $1,738,000. The Company paid $521,400
                (included
                in research and development expenses) during the year ended December
                31,
                2005. The remainder is due upon release and delivery of the product,
                expected in early 2006.





56
 *Index*





**12.**
            **Comparative
                Information**





Certain
      amounts for fiscal 2004 have been reclassified to conform with the current
      year's financial statement presentation.





57
 *Index*




**Report
      of Independent Registered Public Accounting Firm**





Board
      of
      Directors and Stockholders of


Rexahn
      Pharmaceuticals, Inc.


Rockville,
      Maryland





We
      have
      audited the accompanying balance sheet of Rexahn Pharmaceuticals, Inc. (a
      development stage company) as of December 31, 2005 and the related statements
      of
      operations, shareholders' deficit and cash flows for the year ended December
      31,
      2005 and the cumulative period from inception (March 19, 2001) to December
      31,
      2005. These financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. An audit includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements, assessing the accounting principles used and significant
      estimates made by management, as well as evaluating the overall financial
      statement presentation. We believe that our audit provides a reasonable basis
      for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Rexahn Pharmaceuticals, Inc. at
      December 31, 2005 and the results of its operations and its cash flows for
      the
      year ended December 31, 2005 and the cumulative period from inception (March
      19,
      2001) to December 31, 2005, in conformity with accounting principles generally
      accepted in the United States of America.





/s/
      Lazar Levine & Felix LLP


New
      York,
      New York


March
      9,
      2006





58
 *Index*





**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders of


Rexahn
      Pharmaceuticals, Inc. (formerly Rexahn, Corp)





We
      have
      audited the accompanying balance sheet of Rexahn Pharmaceuticals, Inc. (formerly
      Rexahn, Corp) (a development stage company) as at December 31, 2004 and the
      related statements of operations, changes in stockholders' equity and cash
      flows
      for the year then ended. These financial statements are the responsibility
      of
      the Company's management. Our responsibility is to express an opinion on these
      financial statements based on our audit.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe our audits provide a reasonable
      basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Rexahn Pharmaceuticals, Inc.
      (formerly Rexahn, Corp), as at December 31, 2004 and the results of its
      operations, changes in stockholders' equity and cash flows for the year then
      ended in conformity with U.S. generally accepted accounting principles.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The
      Company has suffered recurring losses from operations since inception that
      raise
      substantial doubt about its ability to continue as a going concern. The
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.





/s/
      SF
      Partnership, LLP


**Toronto,
      Canada**


**Chartered
      Accountants**


February
      25, 2005





59
 *Index*





**Item
      8.  Changes In and Disagreements With Accountants on
      Accounting and Financial Disclosure**





Not
      applicable.





**Item
      8A.  Controls and Procedures**





Based
      on
      their most recent evaluation, which was completed as of the end of the period,
      December, 2005, covered by this Annual Report on Form 10-KSB, the Company's
      Chief Executive Officer and Chief Financial Officer believe the Company's
      disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
      and
      15d-14) are effective to ensure that information required to be disclosed by
      the
      Company in this report is accumulated and communicated to the Company's
      management, including its principal executive officer and principal financial
      officer, as appropriate, to allow timely decisions regarding required
      disclosure. During the last fiscal quarter to which this report relates, there
      were no changes in the Company's internal controls or other factors that could
      significantly affect these controls subsequent to the date of their evaluation
      and there were no corrective actions with regard to significant deficiencies
      and
      material weaknesses.




**Item8B.  Other
      Information**





None.





60
 *Index*





**PARTII** **I**





**Item
      9.  Directors, Executive Officers, Promoters and
      Control Persons; Compliance With Section 16(a) of the Exchange
      Act**





In
      accordance with the Merger Agreement, our board of directors was reconstituted
      in connection with the Merger. Specifically, prior to the Merger, the CPRD's
      board of directors consisted of Mr. Frank Ferraro. In connection with the
      Merger, (i) CPRD's board of directors was increased to seven members,
      (ii) Chang H. Ahn, Young-Soon Park, Suk Hyung Kwon, Jang Han Rhee, John
      Holaday, David McIntosh and Inok Ahn were appointed as directors, effective
      as
      of the closing of the Merger, and (iii) the following individuals were
      appointed as officers of the Company: Dr. Chang H. Ahn, Chairman of the Board
      and Chief Executive Officer; Tae Heum Jeong, Chief Financial Officer and
      Secretary; Dr. George F. Steinfels, Chief Business Officer and Senior Vice
      President, Clinical Development; and Inok Ahn, Treasurer, each of whom was
      an
      existing officer of Rexahn, effective as of the closing of the Merger. Mr.
      Ferraro resigned as a director and an officer of the Company, effective as
      of
      the closing of the Merger. On June 14, 2005, Suk Hyung Kwon and Jang Han Rhee
      both resigned, effective immediately, as members of the Board of Directors
      of
      the Company. On June 14, 2005, the Board of Directors of the Company elected
      Tae
      Heum Jeong, the Company's Chief Financial Officer and Secretary, as a Director
      of the Company to fill one of the vacancies created by the
      resignations.





We
      believe that during fiscal 2005, our executive officers and directors and more
      than 10% beneficial owners timely filed all forms required to be filed under
      Section 16(a) of the Exchange Act.





The
      following table sets forth the names, ages and positions of our directors and
      executive officers:





**Name**
            
            **Age**
            
            **Position**Dr.
                Chang H. Ahn
            
            54
            
            Chairman
                of the Board and Chief Executive OfficerDr.
                Young-Soon Park
            
            59
            
            DirectorDr.
                John Holaday
            
            60
            
            DirectorDavid
                McIntosh
            
            47
            
            DirectorInok
                Ahn
            
            53
            
            Treasurer
                and DirectorTae
                Heum Jeong
            
            35
            
            Chief
                Financial Officer, Secretary and DirectorDr.
                George F. Steinfels
            
            51
            
            Chief
                Business Officer and Senior Vice President, Clinical
                Development





***Chang
      H. Ahn*** **.** Dr. Ahn
      has served as Chairman of the Board and Chief Executive Officer since May 2005.
      Dr. Ahn served as Chairman and Chief Executive Officer of Rexahn from its
      incorporation in March 2001 to May 2005. From 1988 to 2001, Dr. Ahn
      held dual positions as both Expert Regulatory Pharmacologist and Lab Head at
      the
      FDA's Center for Drug Evaluation and Research. Prior to joining the FDA in
      1988,
      Dr. Ahn carried out cancer research at the National Cancer Institute, as
      well as at Emory University's School of Medicine. In 2003 and 2004, Dr. Ahn
      organized and chaired the U.S.-Korea Bio Business and Partnership Forum, for
      which Maryland State and Montgomery County are partners. He also served as
      president of the Society of Biomedical Research from 2000 to 2003. Dr. Ahn
      holds a Ph.D. in pharmacology from Ohio State University. He also holds two
      B.S.
      degrees in pharmacy from Creighton University and Seoul National University.
      Dr.
      Ahn and Inok Ahn are husband and wife.





***Young-Soon
      Park*** **.** Dr. Park
      has served as a director since May 2005. Dr. Park served as a director of Rexahn
      from March 2001 to May 2005. She is the founder of Onnuri Health Group and
      has served as its Chief Executive Officer and Chairman of the Board of Directors
      since 1992. She is also the Chairman of the Board of Directors of Onnuri
      Pharmacy Welfare Association since 1997. She had served as the Chief Executive
      Officer and Chairman of Rexgene Biotech from 2000 until 2002. Dr. Park
      received a B.A. in pharmacy from Pusan University and a Ph.D. in pharmacy from
      Wonkwang University.





61
 *Index*





***John
      Holaday.*** Dr. Holaday
      has served as a director since May 2005. Dr. Holaday served as a director of
      Rexahn from March 2004 to May 2005. He is the Chairman and co-founder of HarVest
      Bank of Maryland, a local commercial bank serving the technology community
      in
      Montgomery County, Maryland formed in 2004 and a partner of Montgomery Pacific
      Group. From August 2003 to March 2004, Dr. Holaday was a consultant to
      Rexahn. He was the founder of EntreMed, Inc. and the Chairman of the Board
      of
      Directors of EntreMed, Inc. from 1995 until his retirement in January 2003
      and
      the Chief Executive Officer of EntreMed Inc. from 1992 to 2003. From 1989 to
      1992, he was a co-founder of Medicis Pharmaceutical Corp., where he served
      as
      Vice President for Research and Development and Member of the Board of
      Directors. Dr. Holaday also served as Chairman of MaxCyte, Inc., a
      subsidiary of EntreMed, Inc. until 2003. In addition, he is on the Board of
      Directors of CytImmune Sciences, Xceleron, BSI Proteomics, Accelovance, Health
      Pathways and LabBook, which are privately held biotechnology companies.
      Dr. Holaday was elected as the Chairman of the Maryland Bioscience Alliance
      in April 2000, and is a member of the American Society for Pharmacology and
      Experimental Therapeutics, the Society for Critical Care Medicine (Fellow,
      1989)
      and Sigma Xi. Dr. Holaday serves on the Queensland (Australia) North America
      Advisory Board, the Leadership Board for the College of Arts and Sciences,
      University of Alabama, the Board of the University of Maryland Biotechnology
      Institute, the Board of the BioIT Coalition and the Advisory Board of Harbert
      Investments.





***David
      McIntosh.*** Mr. McIntosh
      has served as a director since May 2005. Mr. McIntosh served as a director
      of
      Rexahn from March 2004 to May 2005. He has been a partner at Mayer, Brown,
      Rowe
& Maw LLP (law firm) since 2001. Mr. McIntosh was a member of the
      United States House of Representatives, representing the 2nd District of Indiana
      from 1995 to 2001. From 1993 to 1994, he was a director of the Hudson Institute
      Competitiveness Center. He served on President Bush's Council on Competitiveness
      as Executive Director from 1989 to 1993. He also served as the Special Assistant
      to President Reagan for Domestic Affairs from 1987 to 1989 and was the Special
      Assistant to the Attorney General of the United States from 1986 to 1987.
      Mr. McIntosh received a B.A. from Yale College and a J.D. from the
      University of Chicago Law School.





***Inok
      Ahn*** **.** Mrs. Ahn
      has served as a director and Treasurer since May 2005. Mrs. Ahn served as
      Treasurer and a director of Rexahn from March 2001 to May 2005. From 1986
      to 2001 she was on the Clinical Research Nursing staff of the National
      Institutes of Health. Mrs. Ahn served as a clinical nurse in Emory University
      Medical Center and Ohio State University Hospital from 1981 to 1986. Mrs. Ahn
      received a B.S.N. from Seoul National University. Dr. Ahn and Mrs. Ahn are
      husband and wife.





***Tae
      Heum Jeong*** **.** Mr.
      Jeong has served as Chief Financial Officer and Secretary since May 2005. Mr.
      Jeong served as Chief Financial Officer of Rexahn from December 2002 to May
      2005
      and as a director since June 2005. From 1997 to November 2002, Mr. Jeong
      served as a senior investment manager at Hyundai Venture Investment Corporation,
      a venture capital firm where he managed the biotech investment team. He was
      also
      a committee member of the Industrial Development Fund of Korea's Ministry of
      Commerce, Industry and Energy from 2000 to 2002. Mr. Jeong holds a B.S. in
      chemistry and an M.S. specializing in bio-medicinal chemistry, from Pohang
      University of Science and Technology (POSTECH).





***George
      F. Steinfels*** **.** Dr.
      Steinfels has served as Chief Business Officer and Senior Vice President,
      Clinical Development, since May 2005. Dr. Steinfels served as Chief
      Business Officer and Senior Vice President, Clinical Development of Rexahn,
      from
      June 2004 to May 2005. From 2000 to June 2004, Dr. Steinfels served as
      President of Genomic Strategies, a medical technology consulting firm that
      provided client solutions in the areas of regulatory, clinical development,
      and
      product launch and marketing. From 2001 to 2002, Dr. Steinfels was Chief
      Science Officer and General Manager of QNOME at QED Solutions. From 1996 to
      1999, he was Chief Operating Officer for the Pharmacogenomic Business Unit
      of
      Quintiles, Inc. From 1994 to 1996, Dr. Steinfels was Vice President at The
      Lewin Group (which was acquired by Quintiles) where he started Lewin's Strategic
      Marketing Practice. Dr. Steinfels began his career in pharmaceuticals at
      E.I. DuPont and later Dupont/Merck where he was Research Manager in Central
      Nervous System Research. Dr. Steinfels received a B.A. in Biology from The
      Johns Hopkins University, an M.S. and a Ph.D. in pharmacology from the
      University of Maryland, and an M.B.A. from The Wharton School of the University
      of Pennsylvania.





62
 *Index*





**Board
      Composition**





Our
      board
      of directors is currently composed of seven members, of whom two have been
      determined by the board to be "independent directors", as defined by the rules
      of the Nasdaq Stock Market, Inc.





**Board
      Committees**





Our
      board
      of directors has the authority to appoint committees to perform certain
      management and administration functions. Currently, we do not have an
      independent audit committee, compensation committee or nominating committee
      and
      do not have an audit committee financial expert.





**Code
      of Ethics**





We
      have
      not adopted a code of ethics that applies to our principal executive officer,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions. We are in the process of reviewing a
      code
      of ethics with our attorneys and the independent board members and will adopt
      one upon completion of discussions.





**Item
      10.  Executive Compensation**





Our
      non-employee director compensation policy which pays no cash compensation,
      but
      which provides for the grant of options to purchase 75,000 shares of our common
      stock for each calendar year of service on the board of directors.





At
      a
      meeting on September 12, 2005, the Company's Board of Directors approved the
      following changes to the compensation of non-employee directors:





(a)
      each
      of the non-employee directors of the Company will receive 20,000 options to
      purchase shares of the common stock of the Company for each year he or she
      serves on the Board; and





(b)
      each
      of the non-employee directors of the Company will receive an additional board
      meeting fee of $1,000 for each meeting he or she participates in.





The
      following table sets forth the annual and long-term compensation, from all
      sources, of the Chief Executive Officer of the Company and the other executive
      officers of the Company for services rendered in all capacities to Rexahn for
      the fiscal years ended December 31, 2005, 2004 and 2003, except as noted below.
      The compensation described in this table does not include medical, group life
      insurance or other benefits which are available generally to all of our salaried
      employees.





63
 *Index*








**Summary
      Compensation Table**





**Name
                and Principal Position(s)**
            
            **Year**
            
            **Salary
                ($)**
            
            **Bonus
                ($)**
            
            **Other
                Annual Compensation ($)**
            
            **Securities
                Underlying Options (Shares)**
            
            **All
                Other Compensation ($)**Chang
                H. Ahn
            
            
            2005
            
            $
            350,000
            
            $
            70,000
            
            
            —
            
            
            1,000,000
            
            
            —Chairman
                of the
            
            
            2004
            
            $
            350,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —Board
                and Chief
            
            
            2003
            
            $
            338,461
            
            
            —
            
            
            —
            
            
            —
            
            
            —Executive
                OfficerTae
                Heum Jeong
            
            
            2005
            
            $
            111,470
            
            $
            20,000
            
            
            —
            
            
            500,000
            
            
            —Chief
                Financial
            
            
            2004
            
            $
            97,432
            
            
            —
            
            
            —
            
            
            —Officer
            
            
            2003
            
            $
            61,538
            
            
            —
            
            
            —
            
            
            250,000
            
            
            —George
                F. Steinfels2
            
            
            2005
            
            $
            165,385
            
            $
            20,000
            
            
            —
            
            
            500,000
            
            
            —Chief
                Business Officer and Senior Vice President, Clinical
                Development
            
            
            2004
            
            $
            80,182
            
            
            —
            
            
            —
            
            
            250,000
            
            
            —Frank
                Ferraro3
            
            
            2005
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            120,0005Chief
                Executive
            
            
            2004
            
            $
            90,0004
            
            
            —
            
            
            —
            
            
            —
            
            
            —Officer
                and President
            
            
            2003
            
            $
            90,0004
            
            
            —
            
            
            —
            
            
            —
            
            
            —







2 Mr.
      Steinfels joined in June 2004; therefore, compensation information for Mr.
      Steinfels is provided only for fiscal 2004 and 2005.





3 Mr.
      Ferraro resigned from all his positions with the Company in May
      2005.





4 During
      fiscal 2003 and 2004, payments of Mr. Ferraro's salary under his employment
      agreement were deferred in the amount of $42,026 and $76,020, respectively.





5 Mr.
      Ferraro received 500,000 shares of common stock issued after the Merger pursuant
      to the Settlement Agreement dated May 12, 2005 in consideration of the
      cancellation of $122,500 of deferred salary and certain other reimbursements
      owed to Mr. Ferraro in exchange for such shares of common stock and certain
      assets. The value of the 500,000 shares issued to Mr. Ferraro is based on the
      value of Rexahn, Corp common stock on January 20, 2005.





**Option
      Grants in Last Fiscal Year** ****





Shown
      below is further information on grants to the named executive officers of
      options to purchase our common stock pursuant to our stock option plan during
      the fiscal year ended December 31, 2005, which are reflected in the Summary
      Compensation Table above, and give effect to the Merger exchange ratio of five
      shares of Rexahn Pharmaceuticals common stock for each share of Rexahn common
      stock.





64
 *Index*




**Number
                of Securities Underlying Options Granted (Shares)****1**
            
            **Percentage
                of Total Options Granted to Rexahn Employees in Fiscal
                2005**
            
            **Exercise
                Price**
              **(per
                share)****1**
            
            **Expiration
                Date**Chang
                H. Ahn
            
            
            1,000,000
            
            
            35.7
            %
            $
            0.80
            
            
            1/20/2015Tae
                Heum Jeong
            
            
            500,000
            
            
            17.9
            %
            $
            0.80
            
            
            1/20/2015George
                F. Steinfels
            
            
            500,000
            
            
            17.9
            %
            $
            0.80
            
            
            1/20/2015Frank
                Ferraro2
            
            
            —
            
            
            —
            %
            $
            —
            
            
            —







1 On
      January 20, 2005, Dr. Ahn, Mr. Jeong and Dr. Steinfels received grants of
      options to purchase 200,000, 100,000 and 100,000 shares of Rexahn common stock,
      respectively, at an exercise price of $4.00 per share, which after giving effect
      to the adjustments in the Merger became options to purchase 1,000,000, 500,000
      and 500,000 shares of Rexahn Pharmaceuticals common stock, respectively, at
      an
      exercise price of $0.80. These options will vest 30%, 30% and 40% on the first,
      second and third anniversaries, respectively, of the date of grant.





2 Mr.
      Ferraro resigned from all his positions with the Company in May
      2005.





**Aggregated
      Option Exercises in Last Fiscal Year and Fiscal Year-End Option
      Values**





Shown
      below is information with respect to (i) exercises by the named executive
      officers during fiscal year 2005 of options to purchase Rexahn common stock
      granted under the Rexahn stock option plan and (ii) the unexercised options
      to
      purchase Rexahn Pharmaceuticals common stock derived from options to purchase
      Rexahn common stock granted to the named executive officers in fiscal year
      2005
      and prior years and held by them at December 31, 2005, after giving effect
      to
      the Merger exchange ratio of five shares of Rexahn Pharmaceuticals common stock
      for each share of Rexahn common stock.


**Number
                  of Unexercised Options Held at******
                **December
                  31, 2005****1**
              
              **Value
                  of Unexercised In-the-Money Options at**
                **December
                  31, 2005****2****Name**
              
              **Shares
                  Acquired on****Exercise**
              
              **Value****Realized**
              
              **Exercisable**
              
              **Unexercisable**
              
              **Exercisable**
              
              **Unexercisable**Chang
                  H. Ahn
              
              
              —
              
              
              —
              
              
              —
              
              
              1,000,000
              
              $
              —
              
              $
              1,200,000Tae
                  Heum Jeong
              
              
              —
              
              
              —
              
              
              250,000
              
              
              500,000
              
              $
              300,000
              
              $
              600,000George
                  F. Steinfels
              
              
              —
              
              
              —
              
              
              75,000
              
              
              675,000
              
              $
              90,000
              
              $
              810,000Frank
                  Ferraro3
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              —
              
              $
              —


1 Option
      information reflects options to purchase shares of Rexahn common stock
      outstanding as of December 31, 2005 which were adjusted in the Merger to become
      options to purchase Rexahn Pharmaceuticals common stock, and gives effect to
      the
      Merger exchange ratio of five shares of Rexahn Pharmaceuticals common stock
      for
      each share of Rexahn common stock.





65
 *Index*




2 Based
      on
      closing price of our common stock of $2.00 on December 14, 2005, the last day
      any trades of common stock were reported in the year 2005.





3 Mr.
      Ferraro resigned from all his positions with the Company in May
      2005.





**Stock
      Option Plan** ****





In
      July
      2003 the board of directors adopted, and in August 2003 our stockholders
      approved, the Rexahn stock option plan. In connection with the Merger, we
      assumed the plan and converted all outstanding options to purchase Rexahn common
      stock into options to purchase Rexahn Pharmaceuticals common stock. The number
      of shares subject to the converted options was multiplied by five and the
      exercise price per share was divided by five.





The
      plan
      permits grants to be made from time to time as non-qualified stock options
      or
      incentive stock options.





*Administration.* The
      stock
      option plan is administered by the board of directors. In the alternative,
      the
      board may appoint a stock option committee to administer the plan on behalf
      of
      the board. The plan is currently administered by our board of directors. In
      order to meet the requirements of the rules under Section 16 of the
      Securities Exchange Act of 1934, as amended (the "Exchange Act"), all future
      grants under the plan will be made by a committee whose members are
      "non-employee directors" as defined for purposes of Section 16 of the
      Exchange Act and outside directors within the meaning of Section 162(m) of
      the
      Internal Revenue Code of 1986, as amended.





*Participation.* The
      persons to whom grants are made under the plan will be selected from time to
      time by the stock option committee in its sole discretion from among our
      employees, officers, directors and consultants.





*Shares
      Subject to Stock Option Plan.* The
      plan
      authorizes the issuance or delivery of an aggregate of 6,992,500 shares of
      common stock. Shares of common stock subject to the unexercised, undistributed
      or unearned portion of any terminated or forfeited grant under the plan will
      be
      available for further awards.





*Stock
      Options.* The
      plan
      authorizes grants of stock options, which may be either incentive stock options
      eligible for special tax treatment or non-qualified stock options. Incentive
      stock options may be granted only to our employees.





Under
      the
      provisions of the plan authorizing the grant of stock options:





·
            the
                option price will be determined by the stock option committee; provided,
                however, that the option price for an incentive stock option may
                not be
                less than 100% of the fair market value of the shares of our common
                stock
                on the date of grant (110% for grants to an optionee owning more
                than 10%
                of our total combined voting power);





·
            the
                term during which each stock option may be exercised will be determined
                by
                the stock option committee; provided, however, that incentive stock
                options generally may not be exercised more than ten years from the
                date
                of grant (five years for grants to an optionee owning more than 10%
                of our
                total combined voting power); and





66
 *Index*





·
            at
                the time of exercise of a stock option the option price must be paid
                in
                full in cash or in shares of our common stock or in a combination
                of cash
                and shares of our common stock or by such other means as the stock
                option
                committee may determine.





All
      grants made under the plan will be evidenced by a letter to the optionee,
      together with the terms and conditions applicable to the grants, as determined
      by the stock option committee consistent with the terms of the plan. These
      terms
      and conditions will include, among other things, a provision describing the
      treatment of grants in the event of certain triggering events, such as a sale
      of
      a majority of the outstanding shares of our common stock, a merger or
      consolidation in which we are not the surviving company, and termination of
      an
      optionee's employment, including terms relating to the vesting, time for
      exercise, forfeiture or cancellation of a grant under such circumstances.





Under
      the
      plan, stock options may not be granted after August 5, 2013.





*Tax
      Matters.* The
      following is a brief summary of the material federal income tax consequences
      of
      benefits under the plan under present law and regulations:





(a) *Incentive
      Stock Options.* The
      grant
      of an incentive stock option will not result in any immediate tax consequences
      to us or the optionee. An optionee will not realize taxable income, and we
      will
      not be entitled to any deduction, upon the timely exercise of an incentive
      stock
      option, but the excess of the fair market value of the shares of our common
      stock acquired over the option exercise price will be includable in the
      optionee's "alternative minimum taxable income" for purposes of the alternative
      minimum tax. If the optionee does not dispose of the shares of our common stock
      acquired within one year after their receipt, and within two years after the
      option was granted, gain or loss realized on the subsequent disposition of
      the
      shares of our common stock will be treated as long-term capital gain or loss.
      Capital losses of individuals are deductible only against capital gains and
      a
      limited amount of ordinary income. In the event of an earlier disposition,
      the
      optionee will realize ordinary income in an amount equal to the lesser of
      (i) the excess of the fair market value of the shares of our common stock
      on the date of exercise over the option exercise price or (ii) if the
      disposition is a taxable sale or exchange, the amount of any gain realized.
      Upon
      such a disqualifying disposition, we will be entitled to a deduction in the
      same
      amount as the optionee realizes such ordinary income.





(b) *Non-qualified
      Stock Options.* In
      general, the grant of a non-qualified stock option will not result in any
      immediate tax consequences to us or the optionee. Upon the exercise of a
      non-qualified stock option, generally the optionee will realize ordinary income
      and we will be entitled to a deduction, in each case, in an amount equal to
      the
      excess of the fair market value of the shares of our common stock acquired
      at
      the time of exercise over the option exercise price.




*Amendment,
      Suspension or Termination of Stock Option Plan* .
      Our
      board of directors may at any time amend, suspend or discontinue the plan and
      the stock option committee may at any time alter or amend awards and award
      agreements made thereunder to the extent permitted by law, provided that no
      such
      alteration or amendment will be effective without the approval of our
      stockholders to the extent that such approval is necessary to comply with any
      tax or regulatory requirement applicable to the plan and no such alteration
      and
      amendment will impair the rights of any recipient of grants without such
      recipient's consent. In the event of any change in or affecting the outstanding
      shares of our common stock by reason of a stock dividend, stock split,
      combination of shares or other similar event, our board of directors will make
      such amendments to the plan and outstanding grants and award agreements, and
      make such adjustments and take such actions as it deems appropriate and
      equitable. In the event of any proposed change in control (as defined by the
      plan), the stock option committee will take such action as it deems appropriate
      and equitable to effectuate the purposes of the plan and to protect the
      optionees, including, but not limited to, accelerating or changing the exercise
      dates of stock options, payment of appropriate consideration for the
      cancellation and surrender of stock options or if equity securities of any
      other
      corporation will be exchanged for outstanding shares of our common stock,
      providing for stock options to become options with respect to such other equity
      securities. For purposes of the plan, a change in control means the sale,
      exchange or disposition of substantially all of our assets or any merger, share
      exchange, consolidation or other reorganization or business combination in
      which
      we are not the surviving corporation or in which our stockholders become
      entitled to receive cash, securities of our company other than voting common
      stock or securities of another issuer.





67
 *Index*





**Employment
      Agreements**





*Chang
      H. Ahn.* Dr.
      Ahn's
      employment agreement dated September 12, 2005 provides that Dr. Ahn will
      serve as Chief Executive Officer ("CEO") of the Company until September 12,
      2010, unless Dr. Ahn's employment is sooner terminated as further described
      below. If Dr. Ahn's employment continues beyond September 12, 2010, such
      employment will become "at-will," unless his employment agreement is expressly
      extended.





Dr. Ahn
      will be paid an annual base salary of $350,000, subject to periodic review
      and
      potential increase at the Board's sole discretion. During his employment, Dr.
      Ahn will be eligible to receive an annual cash  bonus,
      as
      determined by the Board in its sole discretion, not exceeding 75% of his annual
      base salary. In order to receive such cash bonus, Dr. Ahn must be actively
      employed by the Company on the date on which such cash bonus is scheduled to
      be
      paid to him. Dr. Ahn will also be eligible to receive options to purchase shares
      of the Company's stock, to be awarded in the Board's sole discretion under
      the
      Company's Stock Option Plan (the "Stock Option Plan"). In addition, Dr. Ahn
      will
      be eligible for additional bonus in the form of cash and/or stock that may
      be
      awarded in the Board's sole discretion.





If
      Dr.
      Ahn suffers a "Disability" (as defined in his employment agreement), the Board,
      in its sole discretion, may terminate the employment agreement immediately
      upon
      written notice to Dr. Ahn. The Board may terminate Dr. Ahn's employment with
      or
      without "Cause" (as defined in his employment agreement) or Dr. Ahn may
      voluntarily terminate his employment, in each case, upon 30 days' written
      notice.





If
      the
      Company terminates Dr. Ahn's employment without Cause (other than following
      a
      "Change of Control" (as defined in his employment agreement)), the Company
      will
      pay to Dr. Ahn (1) his then current base salary through the termination date,
      (2) any accrued but unused vacation days as of the termination date, (3) a
      pro-rata portion of Dr. Ahn's bonus for fiscal year in which the termination
      occurs, assuming a bonus of 75% of his then current base salary, (4) an amount
      equaling 6 months of his then current base salary, and (5) continued coverage
      under the Company's health insurance plan for 18 months. If Dr. Ahn's employment
      is terminated by the Board without Cause within the one-year period immediately
      following a Change of Control, the Company will pay to Dr. Ahn the termination
      compensation and benefits subject to the conditions as described in clauses
      (1),
      (2), (3) and (5) of the first sentence of this paragraph. In addition, the
      Company will pay to Dr. Ahn an amount equaling his then current base salary
      for
      the greater of the remainder of the term of his employment under the employment
      agreement or a period of one year. The payments and benefits to Dr. Ahn
      described in this paragraph are subject to reimbursement by Dr. Ahn and
      reduction by any compensation or benefits actually earned or received by Dr.
      Ahn
      as an employee of or consultant to any other entity during the period for which
      Dr. Ahn continues to receive salary payments post-termination, the requirement
      that Dr. Ahn, in good faith, seek other employment in a comparable position
      and
      otherwise mitigate the Company's obligations and Dr. Ahn's execution of a
      customary release in a form satisfactory to the Company.





*Tae
      Heum Jeong* .
      Mr.
      Jeong's employment agreement dated September 12, 2005 provides that Mr. Jeong
      will serve as Chief Financial Officer of the Company until September 12,
      2007, unless Mr. Jeong's employment is sooner terminated as further described
      below. If Mr. Jeong's employment continues beyond September 12, 2007, such
      employment will become "at-will," unless his employment agreement is expressly
      extended.





68
 *Index*





Mr.
      Jeong
      will be paid an annual base salary of $160,000, subject to periodic review
      and
      potential increase at the Board's sole discretion. During his employment, Mr.
      Jeong will be eligible to receive an annual cash  bonus,
      as
      determined by the CEO in his sole discretion, in an amount not exceeding 50%
      of
      his annual base salary. In order to receive such cash bonus, Mr. Jeong must
      be
      actively employed by the Company on the date on which such cash bonus is
      scheduled to be paid to him. Mr. Jeong will also be eligible to receive options
      to purchase shares of the Company's stock, to be awarded in the Board's sole
      discretion under the Stock Option Plan. In addition, Mr. Jeong will be eligible
      for additional bonus in the form of cash and/or stock that may be awarded in
      the
      Board's sole discretion.





The
      circumstances under which Mr. Jeong's employment agreement may terminate and
      the
      related terms and conditions of any payments and benefits payable to Mr. Jeong
      as a result of the termination are substantially similar to Dr. Ahn's employment
      agreement, except that if the Company terminates Mr. Jeong's employment without
      Cause (other than following a Change of Control), the Company will pay to Mr.
      Jeong a pro-rata portion of Mr. Jeong's bonus for fiscal year in which the
      termination occurs, assuming a bonus of 50% of his then current salary.





Mr.
      Jeong
      is restricted from soliciting employees or customers of the Company during
      and
      for 12 months after the employment period.





*George
      Steinfels* .
      Dr.
      Steinfels' employment agreement dated September 12, 2005 provides that Dr.
      Steinfels will serve as Chief Business Officer of the Company until
      September 12, 2007, unless Dr. Steinfels' employment is sooner terminated
      as further described below. If Dr. Steinfels' employment continues beyond
      September 12, 2007, such employment will become "at-will," unless his
      employment agreement is expressly extended.





Dr.
      Steinfels will be paid an annual base salary of $200,000, which will be subject
      to periodic review and potential increase at the Board's sole discretion. During
      his employment, Dr. Steinfels will be eligible to receive an annual
      cash  bonus,
      as
      determined by the CEO in his sole discretion, in an amount not exceeding 50%
      of
      his annual base salary. In order to receive such cash bonus, Dr. Steinfels
      must
      be actively employed by the Company on the date on which such cash bonus is
      scheduled to be paid to him. Dr. Steinfels, during his employment, will also
      be
      eligible to receive options to purchase shares of the Company's stock, to be
      awarded in the Board's sole discretion under the Stock Option Plan. In addition,
      Dr. Steinfels will be eligible for additional bonus in the form of cash and/or
      stock that may be awarded in the Board's sole discretion.





The
      circumstances under which Dr. Steinfels' employment agreement may terminate
      and
      the related terms and conditions of any payments and benefits payable to Dr.
      Steinfels as a result of the termination are substantially similar to Mr.
      Jeong's employment agreement.





Dr.
      Steinfels is restricted from soliciting employees or customers of the Company
      during and for 12 months after the employment period.





To
      the
      extent that any amounts payable to Dr. Ahn, Mr. Jeong or Dr. Steinfels described
      above constitute an amount payable under a "nonqualified deferred compensation
      plan," as defined in Section 409A, following a "separation from service," as
      defined in Section 409A, such payment will not be made until the date that
      is
      six months following the executive's "separation from service," but only if
      the
      executive is then deemed to be a "specified employee" under Section
      409A.





**Item
      11.  Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters**





The
      table
      below sets forth the beneficial ownership of common stock as of
      December 31, 2005 by the following individuals or entities:





69
 *Index*





·
            each
                person, or group of affiliated persons, known to us to own beneficially
                own 5% or more of the outstanding common
                stock;





·
            each
                director;





·
            each
                executive officer; and





·
            all
                of the directors and executive officers as a
                group.





Beneficial
      ownership is determined in accordance with the rules of the Commission. Except
      as indicated by footnote and subject to community property laws where
      applicable, each person or entity named in the table has sole voting and
      investment power with respect to all shares of common stock shown as
      beneficially owned by him, her or it. In computing the number of shares
      beneficially owned by a person and the percentage ownership of that person,
      shares of common stock that will be subject to options held by that person
      that
      are exercisable as of March 27, 2006, or will become exercisable within 60
      days
      thereafter are deemed outstanding, while such shares are not deemed outstanding
      for purposes of computing percentage ownership of any other person.





**Shares
                of Rexahn Pharmaceuticals**
              **Common
                Stock**
              **Beneficially
                Owned****Name
                of Beneficial Owner**
            
            **Number
                of Shares**
            
            **Percentage****Directors
                and Executive Officers:**Chang
                H. Ahn*
            
            
            20,141,660
            (1)(2)
            
            43.1%Young-Soon
                Park*
            
            
            9,416,660
            (1)(3)
            
            19.9%John
                Holaday*
            
            
            135,000
            (4)
            
            Less
                than 1%David
                McIntosh*
            
            
            75,000
            (5)
            
            Less
                than 1%Inok
                Ahn*
            
            
            650,000
            (6)
            
            1.4%Tae
                Heum Jeong*
            
            
            900,000
            (7)
            
            1.9%George
                F. Steinfels*
            
            
            225,000
            (8)
            
            Less
                than 1%All
                executive officers and directors as a group (7 persons)
            
            
            25,201,660
            
            
            52.5%**Holders
                of more than 5% of shares:**Korean
                Rexahn Investors Voting Trust*
            
            
            6,341,660
            
            
            13.7%Rexgene
                Biotech Co., Ltd.**
            
            
            4,791,670
            (9)
            
            10.3%Chong
                Kun Dang Pharmaceutical Corp.***
            
            
            3,000,000
            (9)
            
            6.5%KT&G
                Corporation****
            
            
            2,500,000
            (9)
            
            5.4%


_______________________________________________


*
            c/o
                Rexahn, Corp, 9620 Medical Center Drive, Rockville, MD
                20850.





**
            4F
                Wooyoung Venture Bldg. 1330-13, Seocho-dong Seocho-gu, Seoul 137-070,
                Korea.





***
            368,
                3-ga, Chungjeong-ro, Seodaemun-gu, Seoul 120-756,
                Korea.





****
            100
                Pyongchon-dong, Daedeog-gu, Daejeon 306-130,
                Korea.





(1)
            Includes
                6,341,660 shares of common stock that are subject to the Korean Rexahn
                Investors Voting Trust, of which Dr. Ahn and Dr. Park are
                co-trustees. The voting trust agreement will terminate in July 2008,
                subject to earlier termination in accordance with its terms. As
                co-trustees, Dr. Ahn and Dr. Park have the exclusive unqualified
                right and power to exercise all of the voting rights and powers with
                respect to the shares that are subject to the voting trust. The voting
                trust holds shares on behalf of approximately sixty individual and
                institutional owners resident in Korea, none of whom (other than
                Dr. Park) has investment power with respect to more than 5% of the
                outstanding shares of common stock.





70
 *Index*





(2)
            Includes
                Dr. Ahn's options to purchase 300,000 shares of common stock that
                are
                currently exercisable and excludes 650,000 shares held by Dr. Ahn's
                wife,
                Inok Ahn, as to which shares he disclaims beneficial
                ownership.





(3)
            Includes
                166,000 shares of common stock as to which Dr. Park holds sole
                investment power subject to the Korean Rexahn Investors Voting
                Trust.





(4)
            Includes
                Dr. Holaday's options to purchase 135,000 shares of common stock that
                are currently exercisable.





(5)
            Includes
                Mr. McIntosh's options to purchase 75,000 shares common stock that
                are currently exercisable.





(6)
            Excludes
                20,141,660 shares held by Mrs. Ahn's husband, Dr. Chang H. Ahn, as
                to
                which shares she disclaims beneficial ownership, and includes Mrs.
                Ahn's
                options to purchase 150,000 shares of common stock that are currently
                exercisable.





(7)
            Includes
                Mr. Jeong's options to purchase 400,000 shares of common stock that
                are
                currently exercisable.





(8)
            Includes
                Dr. Steinfels' options to purchase 225,000 shares of common stock
                that are
                currently exercisable.





(9)
            The
                boards of directors of each of Rexgene, Chong Kun Dang and KT&G, each
                a Korean corporation, have sole voting and sole investment power
                as to the
                shares owned by their respective
                corporations.





**Item
      12.  Certain Relationships and Related
      Transactions**





On
      August
      3, 2005, we engaged Montgomery Pacific Group ("MPG") to act as our financial
      advisor for a one-year term in connection with our growth strategies, certain
      in
      licensing activities and acquisition of certain assets. In consideration of
      the
      services, we agreed to pay MPG an advisory fee, consisting of an initial
      retainer fee and success fees subject to the successful closing of licensing
      transactions, acquisitions and private placements. We paid an initial retainer
      fee of $50,000 in 2005. Dr. John Holaday, one of our directors, is currently
      a
      partner at MPG.





On
      February 6, 2003, Rexahn entered into a research collaboration agreement with
      Rexgene Biotech Co., Ltd. ("Rexgene"), the holder of approximately 10.32% of
      outstanding common stock. Dr. Young-Soon Park, holder of approximately
      19.93% of outstanding common stock and a director, served as the Chairman of
      Rexgene Biotech until 2003.





Under
      the
      agreement we and Rexgene agreed to jointly develop and implement a research
      and
      development plan (including conducting clinical and animal trials in various
      countries and exchanging data derived from such trials) in order to register
      RX-0201, one of our drug candidates, for sale and use in Asian countries. We
      contributed a license to technology relating to RX-0201, and Rexgene contributed
      $1,500,000 as initial contributions under the agreement. In addition, Rexgene
      agreed to conduct clinical trials in Asian countries at its own expense, and
      we
      agreed to conduct clinical and animal trials in the United States and in
      non-Asian countries at our own expense. We and Rexgene also agreed to share
      data, improvements, developments, discoveries and inventions resulting from
      the
      agreement. Under the agreement, Rexgene also received an exclusive license
      from
      us to exploit any results from the research development in Asian countries,
      and
      we received an exclusive license to exploit any results from the research and
      development everywhere in non-Asian countries. Pursuant to the terms of the
      agreement, Rexgene also agreed to pay us 3% of the profits derived from the
      sale
      of RX-0201 in Asian countries. The agreement, if not earlier terminated by
      either us or Rexgene, will terminate on the expiration of the patents resulting
      from the agreement, or if no such patents are granted, 20 years from February
      6,
      2003.





On
      September 3, 2003, we entered into a joint research and development agreement
      with Chong Kun Dang Pharmaceutical Corp. ("CKD"), the holder of approximately
      6.46% of outstanding common stock.





71
 *Index*





Under
      the
      agreement, we and CKD agreed to cooperate in the research and development of
      a
      variety of new pharmaceutical compounds for human use in their own capacities.
      Each of CKD and us has performed and will continue to perform research,
      development and other obligations under the agreement at its own expense. CKD
      and Rexahn equally own all information, data, discoveries and all other results,
      either patentable or non-patentable, made or developed in connection with or
      arising out of the agreement. All profits derived from or in connection with
      the
      agreement will be allocated to CKD and us in proportion to relative
      contributions based on certain ratios, which vary depending upon a particular
      research and development phase during which the profits are earned. The
      agreement, if not earlier terminated by either us or CKD, will last until the
      expiration of any intellectual property rights pertaining to information, data,
      discoveries and all other results made or developed in connection with or
      arising out of the agreement.





**Item
      13.  Exhibits**





Exhibit
              Number
            
            Exhibit
                Description2.1.
            
            Agreement
                and Plan of Merger dated as of January 20, 2005 by and among CPRD,
                CRS
                Merger Sub, Inc., CRS Delaware, Inc. and Rexahn, Corp, filed as Exhibit
                2.1 to the Company's Current Report on Form 8-K filed on January 21,
                2005, is incorporated herein by reference.2.2.
            
            Agreement
                and Plan of Merger by and between CPRD and CRS Delaware, Inc. dated
                as of
                January 20, 2005, filed as Exhibit 2.2 to the Company's Current Report
                on
                Form 8-K filed on January 21, 2005, is incorporated herein by
                reference.3.1.
            
            Amended
                and Restated Certificate of Incorporation, filed as Appendix G to
                the
                Company's Definitive Proxy Statement on Schedule 14A (File No. 000-50590)
                dated April 29, 2004, is incorporated herein by
                reference.3.2.
            
            Amended
                and Restated Bylaws, filed as Appendix H to the Company's Definitive
                Proxy
                Statement on Schedule 14A (File No. 000-50590) dated April 29, 2004,
                is
                incorporated herein by reference.4.1.
            
            Specimen
                Certificate for the Company's Common Stock, par value $.0001 per
                share,
                filed as Exhibit 4.3 to the Company's Registration Statement on Form
                S-8
                (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.9.
            
            Korean
                Rexahn Investors Voting Trust Agreement dated as of July
                2003.*10.1.1.
            
            Rexahn
                Pharmaceuticals, Inc. Stock Option Plan, as amended, filed as Exhibit
                4.4
                to the Company's Registration Statement on Form S-8 (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.*10.1.2.
            
            Form
                of Stock Option Grant Agreement for Employees, filed as Exhibit 4.5.1
                to
                the Company's Registration Statement on Form S-8 (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.*10.1.3.
            
            Form
                of Stock Option Grant Agreement for Non-Employee Directors and
                Consultants, filed as Exhibit 4.5.2 to the Company's Registration
                Statement on Form S-8 (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.*10.2.
            
            Employment
                Agreement, dated September 12, 2005, by and between Rexahn
                Pharmaceuticals, Inc. and C. H. Ahn, filed as Exhibit 10.1 to the
                Company's Current Report on Form 8-K filed on September 12, 2005,
                is
                incorporated herein by reference.*10.3.
            
            Employment
                Agreement, dated September 12, 2005, by and between Rexahn
                Pharmaceuticals, Inc. and T. H. Jeong, filed as Exhibit 10.2 to the
                Company's Current Report on Form 8-K filed on September 12, 2005,
                is
                incorporated herein by reference.*10.4.
            
            Employment
                Agreement, dated September 12, 2005, by and between Rexahn
                Pharmaceuticals, Inc. and G. Steinfels, filed as Exhibit 10.1 to
                the
                Company's Current Report on Form 8-K filed on September 12, 2005,
                is
                incorporated herein by reference.





72
 *Index*




10.5.
            
            Research
                Collaboration Agreement dated February 6, 2003 by and between Rexahn
                Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd.10.6.
            
            Revaax
                License Agreement, dated February 8, 2005, by and between Rexahn
                Pharmaceuticals, Inc. andRevaax
                Pharmaceuticals LLC.23.1.
            
            Consent
                of Lazar, Levine & Felix, LLP, independent registered public
                accounting firm.23.2.
            
            Consent
                of SF Partnership, LLP, independent registered public accounting
                firm.24.
            
            Power
                of Attorney.31.1.
            
            Certification
                of Chief Executive Officer of Periodic Report Pursuant to Pursuant
                to
                Rule 13a-15(e) or Rule 15d-15(e).31.2.
            
            Certification
                of Chief Financial Officer of Periodic Report Pursuant to 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.


_______________________


*
      Management contract or compensation plan or arrangement.





**Item
      14.  Principal Accountant Fees and
      Services**





The
      following table presents fees for professional audit services rendered by Lazar
      Levine & Felix LLP and SF Partnership, LLP for the audits of the Company's
      annual financial statements for the years ended December 31, 2005 and 2004,
      respectively.





**2005**
            
            **2004**Audit
                Fees
            
            $
            61,000
            
            $
            26,000Audit
                Related Fees
            
            
            —
            
            
            —Tax
                Fees
            
            
            —
            
            
            —All
                Other Fees
            
            
            —
            
            
            —








73
 *Index*





**SIGNATURES**





In
      accordance with the requirements of Section 13 or 15(d) of the Securities
      Exchange Act of 1934, the issuer has duly caused this report to be signed on
      its
      behalf by the undersigned, thereunto duly authorized on this 31st day of
      March, 2006.





REXAHN
                PHARMACEUTICALS, INC.By:
            /s/
                Chang H. AhnChang
                H. AhnChairman
                and Chief Executive Officer





In
      accordance with the requirement of the Securities Exchange Act of 1934, this
      report has been signed on the 31st day of March, 2006 by the following
      persons on behalf of the issuer and in the capacities indicated:





Name
            
            TitleChang
              H. Ahn*
            
            
            Chairman
                and Chief Executive OfficerChang
                H. AhnTae
              Heum Jeong*
            
            
            Chief
                Financial Officer, Secretary and DirectorTae
                Heum JeongYoung-Soon
              Park*
            
            
            DirectorYoung-Soon
                ParkJohn
              Holaday*
            
            
            DirectorJohn
                HoladayDavid
              McIntosh*
            
            
            DirectorDavid
                McIntoshInok
              Ahn*
            
            
            DirectorInok
                Ahn





* By:
            /s/Tae
                Heum JeongTae
                Heum Jeong, Attorney-in-Fact****
              By authority of the power of attorney filed as Exhibit 24 hereto.




74
 *Index*





**EXHIBIT INDEX**





Exhibit
              Number
            
            Exhibit
                Description
            
            Page2.1.
            
            Agreement
                and Plan of Merger dated as of January 20, 2005 by and among CPRD,
                CRS
                Merger Sub, Inc., CRS Delaware, Inc. and Rexahn, Corp, filed as Exhibit
                2.1 to the Company's Current Report on Form 8-K filed on January 21,
                2005, is incorporated herein by reference.2.2.
            
            Agreement
                and Plan of Merger by and between CPRD and CRS Delaware, Inc. dated
                as of
                January 20, 2005, filed as Exhibit 2.2 to the Company's Current Report
                on
                Form 8-K filed on January 21, 2005, is incorporated herein by
                reference.3.1.
            
            Amended
                and Restated Certificate of Incorporation, filed as Appendix G to
                the
                Company's Definitive Proxy Statement on Schedule 14A (File No. 000-50590)
                dated April 29, 2004, is incorporated herein by reference.3.2.
            
            Amended
                and Restated Bylaws, filed as Appendix H to the Company's Definitive
                Proxy
                Statement on Schedule 14A (File No. 000-50590) dated April 29, 2004,
                is
                incorporated herein by reference.4.1.
            
            Specimen
                Certificate for the Company's Common Stock, par value $.0001 per
                share,
                filed as Exhibit 4.3 to the Company's Registration Statement on Form
                S-8
                (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.9.
            
            Korean
                Rexahn Investors Voting Trust Agreement dated as of July
                2003.*10.1.1.
            
            Rexahn
                Pharmaceuticals, Inc. Stock Option Plan, as amended, filed as Exhibit
                4.4
                to the Company's Registration Statement on Form S-8 (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.*10.1.2.
            
            Form
                of Stock Option Grant Agreement for Employees, filed as Exhibit 4.5.1
                to
                the Company's Registration Statement on Form S-8 (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.*10.1.3.
            
            Form
                of Stock Option Grant Agreement for Non-Employee Directors and
                Consultants, filed as Exhibit 4.5.2 to the Company's Registration
                Statement on Form S-8 (File No.333-129294)
                dated October 28, 2005, is incorporated herein by
                reference.*10.2.
            
            Employment
                Agreement, dated September 12, 2005, by and between Rexahn
                Pharmaceuticals, Inc. and C. H. Ahn, filed as Exhibit 10.1 to the
                Company's Current Report on Form 8-K filed on September 12, 2005,
                is
                incorporated herein by reference.*10.3.
            
            Employment
                Agreement, dated September 12, 2005, by and between Rexahn
                Pharmaceuticals, Inc. and T. H. Jeong, filed as Exhibit 10.2 to the
                Company's Current Report on Form 8-K filed on September 12, 2005,
                is
                incorporated herein by reference.*10.4.
            
            Employment
                Agreement, dated September 12, 2005, by and between Rexahn
                Pharmaceuticals, Inc. and G. Steinfels, filed as Exhibit 10.1 to
                the
                Company's Current Report on Form 8-K filed on September 12, 2005,
                is
                incorporated herein by reference.10.5.
            
            Research
                Collaboration Agreement dated February 6, 2003 by and between Rexahn
                Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd.




*Index*




10.6.
            
            Revaax
                License Agreement, dated February 8, 2005, by and between Rexahn
                Pharmaceuticals, Inc. andRevaax
                Pharmaceuticals LLC.23.1.
            
            Consent
                of Lazar, Levine & Felix, LLP, independent registered public
                accounting firm.23.2.
            
            Consent
                of SF Partnership, LLP, independent registered public accounting
                firm.24.
            
            Power
                of Attorney.31.1.
            
            Certification
                of Chief Executive Officer of Periodic Report Pursuant to Pursuant
                to
                Rule 13a-15(e) or Rule 15d-15(e).31.2.
            
            Certification
                of Chief Financial Officer of Periodic Report Pursuant to 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.




_______________________


*
      Management contract or compensation plan or arrangement.