UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,D.C.20549


Form 10-K


R
              
              ANNUAL REPORT PURSUANT TO
      SECTION13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For the fiscal year endedDecember 31,
      2008OR£
              
              TRANSITION REPORT PURSUANT TO
      SECTION13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For the transition period
      fromto


Commission
file number: 000-50590


Rexahn
Pharmaceuticals, Inc.


(Exact name of registrant as
specified in its charter)


Delaware
              
              11-3516358(State
      or other jurisdiction of
                incorporation or
      organization)
              
              (I.R.S.
      Employer
                Identification
      No.)9620
      Medical Center Drive
                Rockville,
      Maryland
              
              20850(Address of principal
      executive offices)
              
              (Zip
      Code)


(240)
268-5300


(Registrant’s telephone number,
including area code)


Securities registered pursuant to
Section12(b) of the Exchange
Act:


Title of Each
      Class
              
              Name of Each Exchange on Which
      RegisteredCommon Stock,
      $.0001par value per
      share
              
              NYSE Alternext US


Securities registered pursuant to
Section12(g) of the Exchange
Act:


None


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes £No R





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ No o





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





Large
      accelerated filer £
              Accelerated
      filer R
              Non-accelerated
      filer £
              Smaller
      reporting company R(Do
      not check if a smaller reporting
company)


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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter: As ofJune 30, 2008, the aggregate market value of the
registrant’s common stock held by non-affiliates of the registrant was
$116,568,697 based on the closing price reported on NYSE Alternext
US.













Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:


Class
              
              Outstanding atMarch 16,
      2009Common
      Stock, $.0001 par value per share
              
              56,025,649 shares


DOCUMENTS INCORPORATED BY
REFERENCE


Document
            
            Parts Into Which
      IncorporatedPortions
      of the registrant’s Proxy Statement for the Annual Meeting of Stockholders
      to be held on June 1, 2009
            
            Part III





ii





Cautionary StatementRegarding Forward-Looking
Statements.  This Annual
Report on Form 10-K 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.





iii





REXAHN PHARMACEUTICALS,
INC.





INDEX


PAGEPART I
                                                                                      
                                                                                      
                                                                                      
                                                                                      5Item 1.
                                                                                      
                                                                                      Description of
      Business
                                                                                      
                                                                                      5Item 1A.
                                                                                      
                                                                                      Risk
    Factors
                                                                                      
                                                                                      19Item 1B.
                                                                                      
                                                                                      Unresolved Staff
      Comments
                                                                                      
                                                                                      30Item 2.
                                                                                      
                                                                                      Description of
      Property
                                                                                      
                                                                                      30Item 3.
                                                                                      
                                                                                      Legal
      Proceedings
                                                                                      
                                                                                      31Item 4.
                                                                                      
                                                                                      Submission of Matters to a Vote of
      Security Holders
                                                                                      
                                                                                      31PART II
                                                                                      
                                                                                      
                                                                                      
                                                                                      32Item 5.
                                                                                      
                                                                                      Market for Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                                                                                      
                                                                                      32Item 6.
                                                                                      
                                                                                      Selected Financial
      Data
                                                                                      
                                                                                      33Item 7.
                                                                                      
                                                                                      Management's Discussion and Analysis
      of Financial Condition and Results of Operation
                                                                                      
                                                                                      33Item 7A.
                                                                                      
                                                                                      Quantitative and Qualitative
      Disclosures About Market Risk
                                                                                      
                                                                                      44Item 8.
                                                                                      
                                                                                      Financial Statements and
      Supplementary Data
                                                                                      
                                                                                      44Item 9.
                                                                                      
                                                                                      Changes In and Disagreements With
      Accountants on Accounting and Financial
    Disclosure
                                                                                      
                                                                                      44Item 9A.
                                                                                      
                                                                                      Controls and
      Procedures
                                                                                      
                                                                                      44Item 9B.
                                                                                      
                                                                                      Other
      Information
                                                                                      
                                                                                      46PART III
                                                                                      
                                                                                      
                                                                                      
                                                                                      49Item 10.
                                                                                      
                                                                                      Directors, Executive Officers and
      Corporate Governance
                                                                                      
                                                                                      49Item 11.
                                                                                      
                                                                                      Executive
      Compensation
                                                                                      
                                                                                      49Item 12.
                                                                                      
                                                                                      Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
                                                                                      
                                                                                      49Item 13.
                                                                                      
                                                                                      Certain Relationships and Related
      Transactions; and Director Independence
                                                                                      
                                                                                      49Item 14.
                                                                                      
                                                                                      Principal Accounting Fees and
      Services
                                                                                      
                                                                                      50Item 15.
                                                                                      
                                                                                      Exhibits, Financial Statement
      Schedules
                                                                                      
                                                                                      51SIGNATURES
                                                                                      
                                                                                      54





iv
 Index





PART
I





Item1.  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 dedicated to the discovery,
development, and commercialization of innovative treatments for cancer, central
nervous system (CNS) disorders, sexual dysfunction and other unmet medical
needs.  We develop therapies that make it possible to regain normalcy
for patients suffering from disease.  We have three drug candidates in
Phase II clinical trials this year and six or more 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 targeted cancer drugs with greater clinical benefits for patients
and new drugs for the treatment of diseases of the central nervous system and
sexual dysfunction.  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.





Rexahn
currently has three clinical stage drug candidates: ArchexinTM,
SerdaxinTM, and
ZoraxelTM. Our
lead anticancer drug candidate, ArchexinTM is in Phase II clinical trials
for renal cell carcinoma (RCC) and pancreatic cancer, and is a first-in-class
inhibitor of the protein kinase Akt. Akt plays critical roles in cancer cell
proliferation, survival, angiogenesis, metastasis, and drug
resistance.  ArchexinTM received "orphan drug" designation from the
U.S. Food and Drug Administration (FDA) for five cancer indications (RCC,
glioblastoma, ovarian cancer, stomach cancer and pancreatic
cancer).  The FDA orphan drug program enables expedited FDA review or
approval process, seven years of marketing exclusivity after approval and tax
incentives for clinical research.





We are
currently developing SerdaxinTM for
treatment of depression and neurodegenerative disorders.  The Phase II
clinical trials for SerdaxinTM are
ongoing in 2009 for major depressive disorder (MDD).  SerdaxinTMincreases
availability of neurotransmitters, serotonin and dopamine, with mechanisms
different from the current market leaders of reuptake inhibitors such as SSRIs
and SNRIs. SerdaxinTM
possesses excellent neuroprotective ability as demonstrated against
neurotoxin-induced neurodegeneration models  and in a Parkinson’s
model.Considering
over 60% of Parkinson’s, Alzheimer’s, and Multiple
Sclerosis patients are suffering from depression as a co-morbidity,
SerdaxinTM’s
effectiveness in both depression and neuroprotection may make it a potential
market leader for treatment of the neurological diseases.





We are
also developing ZoraxelTM for
treatment of sexual dysfunction. ZoraxelTM is in
Phase II clinical trials for male erectile dysfunction and preliminary results
are expected in early 2009.  It is the first centrally acting dual
enhancer of serotonin and dopamine, key neurotransmitters affecting all phases
of male sexual function, such as sexual arousal, erection and
ejaculation.





Further,
Rexahn leverages its proprietary nanomedicine research and platforms of
TIMES (The Inhibitors of Multi-Expression Signals) and 3D-GOLD (3-D Gateway Of
Ligand Discovery) technology, to strengthen and expand its innovative pipelines,
which offer greater therapeutic benefits and quality of life for
patients.





5
 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, 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 U.S. Food and Drug Administration (FDA) reviewer, and National Cancer
Institute (NCI) research scientist, helped guide initial research and
commercialization efforts in targeted cancer drugs.  Our mission is to
discover, develop and market innovative therapeutics that address unmet medical
needs.





Industry
and Disease Markets





Overview





Our research and development focuses on
several therapeutic areas that affect the lives of many people—cancer, CNS
neurodegenerative disorders (such as Parkinson’s disease), depression and
related mood disorders, and sexual dysfunction.  These disorders can
have a debilitating effect on the quality of life for patients who suffer from
them.  Our strategy is to develop drugs that satisfy unmet needs in
the market and help patients regain quality of life by providing innovative
therapeutics.





According
to the Center for Disease Control and Prevention, cancer claims the lives of
more than half a million Americans each year and is the second leading cause of
death among Americans.  In 2008, the National Institute of Cancer
estimated that $228 billion was spent in medical costs in the United
States.  Worldwide, it is predicted that the number of new cancer
cases diagnosed will rise to 16 million annually in 2020, with cancer-related
deaths reaching 10 million in 2020.1 Global sales of
cancer drugs are predicted to grow to $60 billion by 2010, driven mainly by
commercialization of molecular targeted therapies.2





Among the
$95 billion in worldwide CNS drug sales for 2007, the Parkinson’s disease (PD)
and depression markets have high unmet needs. PD is a progressive
neurodegenerative disorder where loss of body control stems from death of CNS
dopaminergic neurons in the substantia nigra, resulting in patients being unable
to direct or control movements in a normal manner. There are 300,000 estimated
U.S. incident cases of PD, and over 1.5 million PD cases worldwide. Worldwide PD
therapeutic sales are forecast to exceed $2.4 billion in 2013. Growth drivers
include drug combinations, reformulations, and indication
expansions.








__________________________


1
                Cancer,
      2007 (Datamonitor).
 2
                Pipeline
      Insight: Cancer Overview Emerging Therapeutic and Market Opportunities,
      July 2006
(Datamonitor).




6
 Index





Depression
affects 45 million people in the U.S. and is a major co-morbidity of other CNS
neurodegenerative disorders.  Patients with these neurological
disorders have a host of symptoms beyond those directly related to their
neurological condition. These “associated” symptoms include psychiatric
disturbances such as depression, anxiety and cognitive impairment and
significantly impact quality of life for millions of patients suffering from the
neurological disorders.  Antidepressant sales worldwide were $19
billion in 2007.3 Current
antidepressants focus on reuptake inhibitors and serotonin-based
drugs as a first-line treatment. Many depression patients are
refractory to the various classes of antidepressants and suffer from severe side
effects. Unmet needs include faster time to onset of action (current
antidepressants taking up to six weeks for effect); fewer side effects; greater
medication compliance; and higher efficacy and lower relapse rates.4





Erectile
dysfunction (ED) is defined as the consistent inability to attain and maintain
an erection sufficient for satisfactory sexual intercourse.5 There are 150 million
estimated men with ED worldwide. In the year 2025, it is estimated that 322
million men worldwide will suffer from some degree of sexual dysfunction.6 Worldwide sales for
ED drugs were $3 billion in 2007.7  ED is
estimated to affect up to 30 million men in the United States8, with 52% of men between
the ages of 40 and 70 reporting difficulty with erectile function.9 While the
phosphodiesterase type-5 (PDE-5) inhibitors are the standard of care in ED
drugs, several unmet needs remain. About 30% of patients are refractory to PDE-5
inhibitors. Further, PDE-5 inhibitors are limited to working peripherally only,
and targeting end-organ effect with mechanical vasodilating action. PDE-5
inhibitors have significant drawbacks of cardiovascular risks, and
potential severe side effects such as priapism, severe hypotension,
myocardial infarction, and ventricular arrhythmias.




Current
Cancer Treatments





The
life-threatening nature of cancer, and the various ways of trying to cure cancer
to save lives, has led to treatment(s) with surgery, radiation therapy, and
chemotherapy. Surgery is widely used to treat, and in many cases cure cancer;
however, there may be related or significant complications and surgery may be
ineffective if metastasis has occurred.  Radiation therapy, or
radiotherapy, can be highly effective.  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.  Cytotoxic cancer drugs destroy cancer cells by interfering
with various stages of the cell division process.  However, many
current cytotoxic chemotherapy drugs have limited efficacy and debilitating
adverse side effects and may result in the development of multi-drug
resistance.





Unmet
Needs in Cancer




Despite
significant advances in cancer research and treatments, high unmet needs still
remain including:








__________________________





3
            IMS
      Report 2007; CNS Drug Discoveries, 2008 by
  ESPICOM


4
            Commercial
      Insight: Depression, June 2007; Stakeholder Insight: Major Depressive
      Disorder (MDD), March 2006 (Datamonitor). Delay in onset of relief is
      associated with SSRIs and SNRIs, MAOIs, and TCAs  (selective
      serotonin or serotonin-norepinephrine reuptake inhibitors, monoamine
      oxidase inhibitors, tricyclic antidepressants). The SSRIs are linked to
      side effects insomnia, weight gain, and sexual
      dysfunction.  Medication compliance rates range from 40% to 65%.
      The proportion of patients achieving remission after antidepressant
      treatment ranges from 35% to 55% depending on severity of depression.


5
            NIH
      Consensus Development Panel and Conference: Impotence. JAMA 1993;
      270:83-90.


6
            Ayta
      et al. The likely worldwide increase in erectile dysfunction between 1995
      and 2025. BJU Int. 1999; 84:50-56.


7
            Pharmaventures,
      PharmaDeals May 2005: 16-17.


8
            Benet
      and Melman. The epidemiology of erectile dysfunction. Urol Clin North Am
      1995; 22:699–709.


9
            Feldman,
      et al. Impotence and its medical and psychosocial correlates: Results of
      the Massachusetts Male Aging Study. J. Urol. 1994;
    151:54–61.




7
 Index





·
            Long-term management of
      cancers:  Surgery, chemotherapy or radiation therapy may
      not result in long-term remission, though surgery and radiation therapies
      are considered cure methods.  Therefore, there is a need for
      more effective drugs and adjuvant therapies to treat relapsed and
      refractory cancers.





·
            Multi-drug resistance:
      Multi-drug resistance is a major obstacle in successful clinical
      outcomes.





·
            Debilitatingtoxicity by chemotherapy:Chemotherapy as a mainstay of cancer treatment induces severe
      adverse reactions and toxicities, affecting quality of life or life
      itself.





ArchexinTM:  First-in-classAnticancer Akt
Inhibitor





ArchexinTM is
a first-in-class, potent inhibitor of the Akt-1 protein kinase in cancer cells.
ArchexinTM has
FDA orphan drug designations for five cancers (RCC, glioblastoma, and cancers of
the ovary, stomach and pancreas). Multiple indications for other solid tumors
can also be pursued. ArchexinTM is
differentiated by its ability to inhibit both activated and inactivated forms of
Akt, and to potentially reverse the drug resistance observed with the protein
kinase inhibitors. Other targeted drugs may only inhibit inactivated Akt and be
vulnerable to development of drug resistance.  Akt activation plays a
key role in cancer cell proliferation, survival, angiogenesis and drug
resistance. Akt is over-activated in many human cancers (e.g., breast,
colorectal, gastric, pancreatic, prostate, and melanoma cancers). A method to
control the Akt activity involves inhibition of signaling molecules upstream of
Akt in cancer cells (e.g., EGFR or VEGFR inhibitors). In this case, only the
activity of native Akt is indirectly affected. However, signal transmission for
cancer progression and resistance occurs when Akt is activated, thus inhibition
of the activated Akt becomes more important. ArchexinTM
inhibits both activated and native Akt.





ArchexinTM
is an antisense oligonucleotide (ASO) compound that is complementary to Akt
mRNA, and highly selective for inhibiting mRNA expression and production of Akt
protein.  ArchexinTM has
demonstrated excellent safety, tolerability and minimal side effects in a Phase
I study in patients with advanced cancers, where Grade 3 (G3) fatigue was the
only dose-limiting toxicity and no significant hematological abnormalities were
observed. The main objectives of the Phase I study were to determine
maximum tolerated dose (MTD), dose limiting toxicity, and PK parameters for
ArchexinTM monotherapy. The ArchexinTM Phase I study design was an open label,
single arm ascending dose, safety and tolerability study.





ArchexinTM
Phase II trials for RCC have been extended. There are over 200,000 RCC cases
worldwide and 40,000 U.S. cases annually. Expected peak sales of the RCC drugs
Nexavar and Sutent are $750 million and $1.5 billion, respectively. Only 20% of
metastatic RCC tumors respond to standard therapy, leaving 80% of advanced RCC
patients with no effective treatment. Further, up to 30 to 50% of RCC stage I to
stage III patients relapse following treatment. Once metastatic disease
develops, five-year survival is low and ranges from 0% to 20%.10





ArchexinTM
has been issued a U.S. patent that covers composition of matter and broad claims
for the nucleotide sequences of the antisense compounds that target and inhibit
the expression of Akt in human tissues or cells, and the method of using the
compounds to induce cytotoxicity in cancer cells.








__________________________





10
            Mekhail
      et al, 2005.




8
 Index





Current
CNS Treatments





The U.S. National Institute of Mental
Health (NIMH) estimates that 26 percent of adults, or more than 55 million
Americans, suffer from a diagnosable mental disorder in a given year. The
depression market is one of the more mature and established markets in CNS
therapeutics. Current treatments for depression focus on serotonin-based drugs
(e.g., selective serotonin reuptake inhibitors, SSRIs) as a first-line
treatment. Many depression patients are refractory to the various classes of
antidepressants and suffer from severe side effects.




Unmet
Needs in CNS Disorders: Major Depressive Disorder (MDD)




Unmet
needs for treating Major Depressive Disorder (MDD) include11 the
following:





·
            Faster onset of action.
      Current antidepressants take four to six weeks to relieve depression
      symptoms. The delay in onset of antidepressant activity is associated with
      the most common antidepressant drug classes including: selective serotonin
      reuptake inhibitors (SSRIs), serotonin-norepinephrine reuptake inhibitors
      (SNRIs), monoamine oxidase inhibitors (MAOIs), and tricyclic
      antidepressants (TCAs).





·
            Fewer side effects. The
      most widely used antidepressants, SSRIs, are linked with side effects of
      insomnia, weight gain and sexual dysfunction. The safety of SSRIs has also
      been called into question over concerns about inducing suicidal ideations.
      Use of benzodiazepines is linked with side effects of cognitive deficit
      and motor impairment.





·
            Improved compliance. High rate of serious
      side effects among patients taking anti-depressant drugs leads many to
      stop taking the prescribed medicines, resulting in high non-compliance
      rates of 40% to 65%.





·
            Need for greater
      efficacy.  Remission is one key objective of depression
      treatment.  The proportion of patients achieving remission after
      antidepressant treatment ranges from 35% to 55% depending on the severity
      of depression.12  New
      drugs with much higher efficacy as well as wider coverage of the
      depression patients are needed.





·
            Reduced MDD
      relapse.  High relapse rate of about 35% and lingering
      symptoms are serious problems in antidepressant
  treatment.





SerdaxinTM:
CNS Drug to Treat Neurodegenerative Disorders, Depression, and Mood
Disorders





SerdaxinTM is a
potential market leading CNS neuroprotective agent and antidepressant. Based on
its novel actions as a dual serotonin and dopamine enhancer, it is a potential
treatment for multiple CNS disorders where these neurotransmitters are depleted
or implicated in CNS-based illnesses such as Parkinson’s disease and depression.
It has shown neuroprotective effects in the substantia nigra, hippocampus, and
nucleus accumbens- areas of the brain involved in neurodegenerative diseases.
Among lead indications, Rexahn is conducting a Phase IIa clinical trial of
SerdaxinTM to treat depression. The study goals include assessment of preliminary
efficacy, and will recruit up to 100 patients with major depressive disorder
(MDD) in a multi-center, randomized, double blind, dose ranging and
placebo-controlled trial. Main endpoints include the HAM-D and MADRS depression
rating scales.  SerdaxinTM will be administered as an oral, extended
release tablet. Clinical programs are also planned in Parkinson’s and biodefense
uses.








__________________________





11
            Depression,
      June 2007; Stakeholder Insight: Major Depressive Disorder (MDD), March
      2006 (Datamonitor).




12
            Remission
      rates tend to vary based on factors such as: treatment algorithm and drugs
      prescribed, patient geographic population or country, prescribing doctor
      (primary care, psychiatrist), and time at which remission rates are
      measured (3, 6, 8, or 10 weeks of treatment). Depression, June 2007; MDD,
      March 2006 (Datamonitor).




9
 Index





SerdaxinTM has
well-established and extensive safety in humans, and appears to have excellent
tolerability and few side effects. It may realize its greatest potential as a
neuroprotective agent that further addresses the morbidity of depression and
mood disorders that are linked to CNS illnesses of the neurodegenerative
category, such as PD and Alzheimer’s disease. In regards to PD, SerdaxinTM has
shown in animal models that it has the potential to address both non-motor and
motor events of PD in humans, by treating depleted dopamine levels that lead to
loss of control of movements; and further, enhancing serotonin and dopamine
levels that are involved in depression and mood disorders. SerdaxinTM may achieve
greater and broader therapeutic coverage, and appears to have no cognition
deficit and side effects such as nausea, vomiting, insomnia, weight gain, and
sexual dysfunction that are linked to existing drugs.





Current
Sexual Dysfunction Treatment





The
launch of Viagra® in 1998 as the first orally available phosphodiesterase PDE-5
inhibitor established a new standard of care for ED. The majority of ED drugs in
the R&D pipeline work by a ‘me-too’ PDE-5 inhibitor mechanism of
action.13 Dopamine
agonists are also in clinical trials for ED.14




Unmet
Needs in Sexual Dysfunction





There are potential severe side effects
associated with PDE-5 drugs, such as priapism, severe hypotension, myocardial
infarction, sudden death, increased intraocular pressure and sudden hearing
loss. PDE-5 inhibitors only target end organ erectile function, and work in
peripheral blood vessels. Beyond the PDE-5 inhibitors, there is currently no
single class of ED drugs to dominate the market.22





·
            Need for Greater
      Efficacy- An estimated 30% of US men are refractory to the leading
      PDE-5 inhibitor drugs (Viagra®, Cialis®, and Levitra®), which work
      peripherally and mechanically.




·
            Reduced Side Effects-
      Certain segments of the ED patient population that respond less to PDE-5
      inhibitors include diabetics, obese or post-surgical prostatectomy or
      coronary risk patients.15 PDE-5 inhibitors
      have significant drawbacks of cardiovascular risks and other side effects
      (e.g., priapism, severe hypotension, myocardial infarction, ventricular
      arrhythmias, sudden death and increased intraocular
    pressure).




ZoraxelTM:
Drug Candidate to Treat Erectile Dysfunction (ED) Sexual
Dysfunction





ZoraxelTM is
centrally acting in the CNS and may be a more effective ED treatment for
patients who are responsive or unresponsive to PDE-5 inhibitors. ZoraxelTM is
being developed as an orally administered, on-demand tablet to treat sexual
dysfunction, and has extensive and well-established safety in humans.
ZoraxelTM is a dual enhancer of neurotransmitters in the brain that play a key
role in sexual activity phases of motivation and arousal, erection and release,
and may be the first ED drug to affect all three of these phases of sexual
activity. In preclinical animal studies, ZoraxelTM
significantly improved sexual performance and suggested positive behavioral
effects.Enrollment
in the ZoraxelTM Phase IIa clinical trial for treatment of Erectile Dysfunction
(ED) has been completed. The trial was a double blind, placebo-controlled, dose
ranging study conducted at three U.S. study sites in up to 50 male subjects ages
18 to 65 with ED for six months. Main study endpoints for the 8-week treatment
period were the Sexual Encounter Profile (SEP) and the International Index of
Erectile Function (IIEF), both of which are validated surveys for assessing
erectile function.








__________________________





13
            Erectile
      Dysfunction, 2006 (Datamonitor).


14
            Gresser U
      and Gleiter CH. Erectile Dysfunction: Comparison of efficacy and side
      effects of the PDE-5 inhibitors sildenafil, vardenafil and tadalafil
      (Review of Literature). Eur J Med Res (2002)
  7:435-46.




10
 Index





Market
Opportunity





There are
several favorable environmental factors for commercializing new cancer, CNS and
sexual dysfunction drugs that may be first-in-class or market leaders,
including:





·
            Favorable Environment for
      Formulary Access and Reimbursement.  Cancer drugs with
      proven efficacy or survival benefit, and cost-effective clinical outcomes
      would be expected to gain rapid market uptake, formulary listing and payer
      reimbursement. In addition, drugs that have orphan designations are
      generally reimbursed by insurance companies given that there are few,
      if any, alternatives.  Because mental disorders affect more than
      55 million estimated Americans, 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.





·
            Focus on Specialty
      Markets.  The marketing of new drugs to specialty
      physicians can be accomplished with a specialty sales force that requires
      fewer personnel and lower related costs than a typical sales force that
      markets to primary care physicians and general
    practitioners.





·
            Expedited Regulatory or
      Commercialization Pathways.  Drugs for life-threatening
      diseases such as cancer are often treated by the FDA as candidates for
      fast track, priority and accelerated reviews.  Expedited
      regulatory review may lead to clinical studies that require fewer
      patients, or expedited clinical trials. Our lead products, SerdaxinTM and
      ZoraxelTM, are also expected to have expedited or shortened clinical
      development timelines because their active pharmaceutical ingredient, or
      API, have extensive and well established safety in
  humans.





Our
Strategy





Our
strategy has several key components:





Develop
innovative therapeutics with the potential to be first-in-class or market
leaders





We plan
to expand our R&D pipeline and introduce more new drugs into clinical trials
over the next five years, and develop an industry-leading oncology therapeutics
franchise.  Our pipeline spans the major classes of cancer drugs –
molecular targeted therapies, signal transduction and multi-kinase inhibitors,
nano-medicines, and small molecule cytotoxics (microtubule inhibitors,
quinazoline and nucleoside analogues). Differentiated target product profiles,
and proprietary discovery and research technology platforms further support
these strategic efforts. Further, we plan to commercialize neurology and
psychiatry drugs for growing CNS markets. Rexahn has exclusive patent and
development rights to a portfolio of CNS compounds that are repurposed and
adaptable for development in multiple indications, including Parkinson’s
disease, depression, and neurodegenerative disorders.





11
 Index





Target
Signal Transduction Molecules with Multiple Drug Candidates





We plan
to expand our oncology 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.





Establish
Partnerships with Large Pharmaceutical Companies





We seek
to establish strategic alliances and partnerships with large pharmaceutical
companies. To date, we have not entered into such agreements with any large
pharmaceutical companies.





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. We plan to develop drug candidates
initially for orphan category cancers in order to reduce the
time-to-market.





In-License
Unique Technology





We
continually review opportunities to in-license and advance compounds in oncology
and other strategic therapeutic areas that have value creating potential and
will strengthen our R&D pipeline.  For example, in
February 2005, we licensed the intellectual property of Revaax
Pharmaceuticals LLC ("Revaax") to develop new drugs for treatment of CNS and
mood disorders.  As a result of this licensing agreement, we have now
advanced SerdaxinTM and ZoraxelTM into Phase II clinical trials for depression and
sexual dysfunction patients.





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





Our
management team possesses clinical development experience in oncology and
several other therapeutic areas, that facilitates strategic approaches to, and
competitive advantages in, the design, risk assessment, and implementation of
drug development programs. We also have prior experience in pharmaceutical
alliances, product launches and marketing.





Our
Pipeline Drug Candidates





We have
three clinical stage drug candidates, and several more pre-clinical drugs,
including the following:





Clinical
Stage Pipeline





12
 Index




(1)
              ArchexinTM:
      First-in-class anticancer Akt
inhibitor
 
 (2)
              SerdaxinTM:
      Antidepressant and CNS Disorders
drug
 
 (3)
              ZoraxelTM:
      Erectile Dysfunction (ED) and sexual dysfunction
  drug
 
 Pre-clinical
Pipeline
 
 (1)
              RX-0201-Nano:
      Nanoliposomal anticancer Akt-1
inhibitor
 
 (2)
              RX-0047-Nano:
      Nanoliposomal anticancer HIF-1 alpha
inhibitor
 
 (3)
              Nano-polymer
      Anticancer Drugs: HPMA-docetaxel and
  HPMA-gemcitabine
 
 (4)
              RX-0183:
      Small molecule targeted anticancer drug
  candidate
 
 (5)
              RX-5902:
      Small molecule microtubule inhibitor anticancer drug
      candidate
 
 (6)
              RX-3117:
      Small molecule anti-metabolite nucleoside anticancer drug
      candidate


We have
discussed our clinical stage pipeline in detail above.





Pre-clinical
Pipeline





Our
pre-clinical pipeline includes:





(1)
RX-0201-Nano: Nanoliposomal anticancer Akt-1 inhibitor





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





(2) RX-0047-Nano:Nanoliposomal anticancer HIF-1αinhibitor





RX-0047-Nano is a
nanoliposomal cancer drug candidate that selectively inhibits expression of the
HIF-1αtranscription factor. HIF-1αis a key signaling
molecule in angiogenesis, cancer cell survival and invasion, and
radiation resistance.  RX-0047 is a first-in-class
anticancer candidate that directly inhibits HIF-1α, whichis
over-expressed in a broad range of human cancers, and associated with increased
cancer mortality and resistance. In pre-clinical studies, RX-0047 significantly
downregulated expression of HIF-1α mRNA and
protein. At nanomolar concentrations, RX-0047 inhibited proliferation of cancer
cells from human solid tumors and growth of implanted tumors in lung and
prostate cancer xenograft animal models, and reversed resistance in
radiation-resistant cancer cells. RX-0047-Nano is expected to provide
significant clinical benefits including targeted higher cellular uptake,
extended circulation time, reduced drug-related toxicity, and improved
efficacy.





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





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





13
 Index





(4)
RX-0183: Small molecule targeted anticancer drug candidate





RX-0183
possesses distinct molecular pharmacology properties and mechanisms to affect
specific signaling proteins involved in cancer cell proliferation, survival, and
angiogenesis, and radiation resistance as well.Study results of
RX-0183 indicate its potential as a novel small molecule drug that downregulates
Akt and c-Fos, and inhibits tumor growth in colon cancer xenograft animal
models.





(5)
RX-5902: Small molecule microtubule inhibitor anticancer drug
candidate





RX-5902
is a novel small molecule anticancer compound that demonstrates significant
anti-proliferative activity and belongs to the microtubule-cell cycle inhibitor
class. RX-5902 has demonstrated in vivo the inhibition of
tumor growth in animal xenograft models; potent anti-growth activity in drug-resistant cancer cells
and animal studies; and delayed tumor growth in paclitaxel-resistant colon
cancer cells. RX-5902 has potential use in combination therapy with known
cancer drugs to improve efficacy and decrease toxicity to cancer patients, and
good PK parameters and bioavailability when given by oral route of
administration in animal model studies.





(6)
RX-3117: Small molecule anti-metabolite nucleoside anticancer drug
candidate





RX-3117
is an anti-metabolite nucleoside compound that has the potential to treat
gemcitabine-resistant solid tumors of lung (NSCLC), stomach, and colon cancers.
In vitro RX-3117
inhibited proliferation of human cancer cells derived from several different
solid tumors. Further, RX-3117 treated mice xenografted with human colon cancer
cells demonstrated significantly reduced tumor mass compared to control
animals.




Competition





We are
developing new drugs to address unmet medical needs in oncology, CNS disorders,
and sexual dysfunction markets.  Our drug candidates will be competing
with products and therapies that either currently exist or are expected to be
developed.  Competition among these products will be based on factors
such as product efficacy, safety, price, launch timing and
execution.  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 that are conducting
research and development on technologies and products for treatment of cancers,
CNS diseases and sexual dysfunction.  Our competitors may succeed in
developing products based on novel technologies that are more effective than
ours, which could render our technology and products noncompetitive prior to
recovery by us of expenses incurred with respect to those products.





Our
competitors may 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.





14
 Index





As we
expand our drug development programs to include diseases other than cancer, CNS
and sexual dysfunction, we will also face competition from pharmaceutical and
biotechnology companies conducting research and development on products for
treatment of those other diseases, increasing our competition.  For
many of the same reasons described above, we cannot assure you that we will
compete successfully.





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 are 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 preliminary 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.





In Phase
III, the drug is administered to a larger group of patients (usually 1,000 to
3,000 or more) by physicians (study site investigators) 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.  While larger patient
populations are evaluated in Phase III at multiple study sites, many clinical
trial programs or registration studies could be conducted concurrently for the
sake of time and efficiency.





15
 Index





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 expanded labeling or
treatment indications.   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 affects 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".  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.





Orphan
drugs may obtain FDA approval after successful Phase II trials, rather than
after completion of Phase III trials, resulting in faster time-to-market for
those drugs.  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.





Sales
and Marketing





Rexahn
plans to commercialize unique and differentiated drugs that are first-in-class
or potential market leaders. We may develop cancer drugs for orphan indications
initially, and then expand into more highly prevalent cancers. Currently,
ArchexinTM has
Orphan drug designation for five cancer indications. For drugs that require
larger pivotal trials and/or large sales force, Rexahn seeks alliances and
corporate partnerships with larger pharmaceutical firms. We also seek
acquisition or in-licensing candidates to strengthen our product
pipeline.





Research
Technologies





Our
research technologies are focused on our proprietary multi-target aimed ligands
platform and nano-based drug delivery. For a discussion of collaboration
arrangements pursuant to which we obtain research and development services from
universities, research institutions and other organizations, see "Collaboration
and License Agreements" in this item.




16
 Index


TIMES
(The Inhibitors of Multi-Expression Signals)


Rexahn
has developed a unique ligand discovery platform targeting multi-expression
signals. Since cancer is a complex disease caused by multiple factors as well as
genetic modifications, cancer treatment involves a combination of drugs with
different mechanisms of action, which compound degree and extent of
toxicities.  The Rexahn approach is to control multiple targets
important for cancer proliferation with a single agent. In doing so, Rexahn
utilizes a proprietary, genomics-based integrated, gene expression system to
identify potentially important targets that control multiple genes or signaling
events in cancer cells.




3-D
GOLD (3-D Gateway of Ligand Discovery)




3D-GOLD
is a drug discovery platform that integrates 3-D natures of molecular modeling,
databases of chemicals and proteins, and ligand filtering and generation.
Chemical database contains 3D structures of about 5 million compounds. Rexahn’s
proprietary QSID (Quantitative structure-activity relationship tool for
Innovative Discovery) and docking tools are parts of the platform. Filtering
module is a powerful component to determine similarity in pharmacophore and 3D
fingerprinting, while ligand generation helps optimize the leads.




Nano-medicine
Drug Delivery




Rexahn
has developed unique proprietary drug delivery nano-systems that may increase
the availability of a drug at the disease site, minimize adverse reactions,
and/or provide longer duration of action.  Rexahn is currently testing
multiple nanoliposomal- and nanopolymer-based anticancer
drugs.  Rexahn was awarded grants from MIPS (Maryland Industrial
Partnerships) and is collaborating with the Center for Nanomedicine of
University of Maryland to accelerate the development of its proprietary nano
technologies and nano products.




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 (IP)





Proprietary
patent and IP protection for our drug candidates, processes and know-how is
important to our business.  We aggressively prosecute and defend our
patents and proprietary technology.  Rexahn has several U.S. and
international patents issued for broad IP coverage of our drug candidates in
cancer, CNS, behavioral and mood disorders, neuroprotection and sexual
dysfunction.  Additional U.S., Europe, and foreign patents are
pending. We also rely upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain our competitive
position.





In
March 2005, we licensed-in CNS-related intellectual property from Revaax
Pharmaceuticals, LLC.  The intellectual property rights acquired cover
use of certain compounds for anxiety, depression, aggression, cognition,
Attention Deficit Hyperactivity Disorder, neuroprotection and sexual
dysfunction.  See "Collaboration and License Arrangements" in this
Item for additional information.





17
 Index





Collaboration
and License Arrangements





We have
numerous collaborative research and development relationships with universities,
research institutions and other organizations.  A description of these
material relationships is below





UPMPharmaceuticals, Inc. ("UPM").  On April 3,
2006, we entered into an agreement with UPM to develop product formulations for
SerdaxinTM and ZoraxelTM, respectively.  In addition, we also entered
into 10 additional attachments to the original agreement as of December 31,
2008.





Korean ResearchInstitute of Bioscience and
Biotechnology ("KRIBB").  On April 1, 2006, we entered into a
research agreement with KRIBB to evaluate anti-tumor activity, toxicology,
pharmacokinetics and mechanisms of action for RX-5902.  This project
was completed as of December 31, 2008.





EwhaWomansUniversity("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.  In March 1, 2006, we entered into another research program with
Ewha.  This project was completed as of December 31,
2008.





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.  The research term expired in early
2006.  Intellectual property made or developed under this agreement is
jointly owned by us and KRICT.  On March 1, 2007, we entered into a
research agreement with KRICT with respect to research regarding evaluation of
plasma pharmacokinetics of RX-10100 in male Beagle dogs.  Inventions
or discoveries made or developed under this agreement is solely owned by
us.  This project was completed as of December 31, 2008.





TheUniversityofMaryland("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. This project was completed as of
December 31, 2008.





TheUniversityofMarylandBaltimore(“UMB”).  On February 1,
2007, we entered into a Maryland Industrial Partnership agreement with the UMB
to collaborate with and sponsor the joint development of polymer-drug conjugates
for cancer therapy, for the targeted delivery of cancer
drugs.  Intellectual property made or developed under this agreement
is jointly owned by us and UMB.  This project is currently
on-going.





18
 Index





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 four patents and multiple 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 as royalties for sales of licensed products based on net sales
of the licensed products.





Formatech, Inc.
("Formatech").On August 17, 2004 we entered into an agreement
with Formatech to monitor and perform stability studies on our drug candidate,
ArchexinTM.  On January 3, 2006 and March 29, 2006, we contracted with
Formatech to perform experiments on ArchexinTM dosage form and
concentrations.








Employees





We
currently have 14 full-time 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.








Item1A.  Risk Factors.





You
should carefully consider the risks described below together with the other
information included in this Annual Report on Form 10-K.  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, have incurred negative cash flows from
operations since inception, and will need to raise additional capital to operate
our business.





To date,
we have generated no product revenues and have incurred negative cash flow from
operations.  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.  Through the end of 2009, we expect to
spend approximately $1.2 million on clinical development for Phase II clinical
trials of ArchexinTM, SerdaxinTM and ZoraxelTM, and the development of preclinical
compounds, $2.4 million on general corporate expenses and approximately $113,000
on facilities rent.  We will need to raise additional money through
debt and/or equity offerings in order to continue to develop our drug
candidates.  If we are not able to raise sufficient additional money,
we will have to reduce our research and development activities.  We
will first reduce research and development activities associated with our
preclinical compounds.  To the extent necessary, we will then reduce
our research and development activities related to some or all of our clinical
drugs.





19
 Index





Additionally,
changes may occur that would consume our existing capital at a faster rate than
projected, including but not limited to, the progress of our research and
development efforts, the cost and timing of regulatory approvals and the costs
of protecting our intellectual property rights.  We may seek
additional financing to implement and fund other drug candidate development,
clinical trial and research and development efforts, including Phase I clinical
trials for other new drug candidates, as well as other research and development
projects, which together with the current operating plan for the next year,
could aggregate up to $3.6 million through the end of 2009.





We will
need additional financing to continue to develop our drug candidates, which may
not be available on favorable terms, if at all.  If we are unable to
secure additional financing in the future on acceptable terms, or at all, we may
be unable to complete our planned pre-clinical and clinical trials or obtain
approval of our drug candidates from the FDA and other regulatory
authorities.  In addition, we may be forced to reduce or discontinue
product development or product licensing, reduce or forego sales and marketing
efforts and forego attractive business opportunities in order to improve our
liquidity to enable us to continue operations.  Any additional sources
of financing will likely involve the sale of our equity securities or securities
convertible into our equity securities, which may have a dilutive effect on our
stockholders.





We
are not currently profitable and may never become profitable.





We have
generated no revenues to date from product sales.  Our accumulated
deficit as of December 31, 2008 and 2007 was $29,906,479 and
$24,994,331, respectively.  For the years ended December 31, 2008
and 2007, we had net losses of $4,912,148 and $4,304,005 respectively, primarily
as a result of expenses incurred through a combination of research and
development activities related to the various technologies under our control and
expenses supporting those activities.  Even if we succeed in
developing and commercializing one or more of our drug candidates, we expect to
incur substantial losses for the foreseeable future and may never become
profitable.  We also expect to continue to incur significant operating
and capital expenditures and anticipate that our expenses will increase
substantially in the foreseeable future, based on the following
considerations:





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





·
            efforts
      to seek regulatory approvals for our drug
  candidates;





·
            implementing
      additional internal systems and
infrastructure;





·
            licensing
      in additional technologies to develop;
and





20
 Index





·
            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.  Until we
have the capacity to generate revenues, we are relying upon outside funding
resources to fund our cash flow requirements.





We
have a limited operating history.





We are a
development-stage company with a limited number of drug
candidates.  To date, we have not demonstrated an ability to perform
the functions necessary for the successful commercialization of any of our drug
candidates.  The successful commercialization of our drug candidates
will require us to perform a variety of functions, including, but not limited
to:





·
            conducting
      pre-clinical and clinical trials;





·
            participating
      in regulatory approval processes;





·
            formulating
      and manufacturing products; and





·
            conducting
      sales and marketing activities.





To date,
our operations have been limited to organizing and staffing our company,
acquiring, developing and securing our proprietary technology, drug candidate
research and development and undertaking, through third parties, pre-clinical
trials and clinical trials of our principal drug candidates.  These
operations provide a limited basis for assessment of our ability to
commercialize drug candidates.





We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize our drug candidates.





We will
need FDA approval to commercialize our drug candidates in the U.S. and
approvals from the FDA-equivalent regulatory authorities in foreign
jurisdictions to commercialize our drug candidates in those
jurisdictions.  In order to obtain FDA approval of our drug
candidates, we must submit to the FDA a New Drug Application
("NDA") demonstrating that the drug candidate is safe for humans and
effective for its intended use.  This demonstration requires
significant research and animal tests, which are referred to as pre-clinical
studies, as well as human tests, which are referred to as clinical
trials.  Satisfaction of the FDA's regulatory requirements typically
takes many years, and depends upon the type, complexity and novelty of the drug
candidate and requires substantial resources for research, development and
testing.  We cannot predict whether our research and clinical
approaches will result in drugs that the FDA considers safe for humans and
effective for indicated uses.  Two of our drug candidates, ArchexinTM
and RX-0047, are ASO compounds.  To date, the FDA has not approved any
NDAs for any ASO compounds.  In addition, each of ArchexinTM,
RX-0201-nano and RX-0047-nano is of a drug class (Akt inhibitor, in the
case of ArchexinTM and RX-0201-nano, and HIF inhibitor, in the case of RX-0047)
that has not been approved by the FDA to date, nor have we submitted such
NDA.  After the clinical trials are completed, the FDA has substantial
discretion in the drug approval process and may require us to conduct additional
pre-clinical and clinical testing or to perform post-marketing
studies.





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





21
 Index





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 2007, ArchexinTM, an oncology drug candidate, entered Phase
II clinical trials. In 2008, we initiated Phase II clinical trial of ZoraxelTM,
sexual dysfunction drug candidate, and received FDA approval to initiate Phase
II clinical trial of SerdaxinTM, drug candidate for depression and other CNS
disorders.





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 up to three years to complete.  Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials.  The commencement
and completion of clinical trials may be delayed by several factors, including,
but not limited to:





·
            unforeseen
      safety issues;





·
            determination
      of dosing issues;





·
            lack
      of effectiveness during clinical
trials;





·
            reliance
      on third party suppliers for the supply of drug candidate
      samples;





·
            slower
      than expected rates of patient
recruitment;





·
            inability
      to monitor patients adequately during or after
  treatment;





·
            inability
      or unwillingness of medical investigators and institutional review boards
      to follow our clinical protocols;
and





·
            lack
      of sufficient funding to finance the clinical
  trials.





In
addition, we or the FDA may suspend clinical trials at any time if it appears
that we are exposing participants to unacceptable health risks or if the FDA
finds deficiencies in our IND submissions or the conduct of these
trials.





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





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





22
 Index





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 and
toxicology studies.  This business practice is typical for the
pharmaceutical industry and companies like us.  For example, the
Phase I clinical trials of ArchexinTM were conducted at the Lombardi
Comprehensive Cancer Center of Georgetown Medical Center and the University of
Alabama at Birmingham, with the assistance of Amarex, LLC, a pharmaceutical
clinical research service provider who is responsible for creating the reports
that will be submitted to the FDA.  We also relied on TherImmune
Research Corporation (now named Bridge Global Pharmaceutical Services, Inc.), a
discovery and pre-clinical service provider, to summarize ArchexinTM '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. For
example, we have a billing dispute on the work performance and
expenses with Amarex, LLC for clinical trials.  The dispute
might cause a delay of the program or increase our costs associated with the
program.  If outside collaborators fail to devote sufficient time and
resources to our drug-development programs, or if their performance is
substandard, the approval of our FDA applications, if any, and our introduction
of new drugs, if any, may be delayed.  The risk of completion or delay
of these studies is not within our direct control and a program delay may occur
due to circumstances outside our control.  A delay in any of these
programs may not necessarily have a direct impact on our daily
operations.  However, to the extent that a delay results in additional
cost to us, a higher than expected expense may result. These collaborators may
also have relationships with other commercial entities, some of which may
compete with us.  If our collaborators assist our competitors at our
expense, our competitive position would be harmed.





23
 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., Avecia
Biotechnology Inc. and UPM Pharmaceuticals, Inc. to manufacture, supply,
store and distribute supplies of our drug candidates for our clinical
trials.  If any of our drug candidates receive FDA approval, we will
rely on these or other third-party contractors to manufacture our
drugs.  Our reliance on third-party manufacturers exposes us to the
following potential risks:





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





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





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





·
            Drug
      manufacturers are subject to ongoing periodic unannounced inspection by
      the FDA, the Drug Enforcement Agency ("DEA"), and corresponding state
      agencies to ensure strict compliance with good manufacturing practice and
      other government regulations and corresponding foreign
      standards.  We do not have control over third-party
      manufacturers' compliance with these regulations and standards, but we may
      be ultimately responsible for any of their
  failures.





·
            If
      any third-party manufacturer makes improvements in the manufacturing
      process for our products, we may not own, or may have to share, the
      intellectual property rights to the
innovation.





Each of
these risks could delay our clinical trials, drug approval and commercialization
and potentially result in higher costs and/or reduced revenues.




24
 Index


We
have no experience selling, marketing or distributing products and currently no
internal capability to do so.


We
currently have no sales, marketing or distribution
capabilities.  While we intend to have a role in the commercialization
of our products, we do not anticipate having the resources in the foreseeable
future to globally develop sales and marketing capabilities for all of our
proposed products.  Our future success depends, in part, on our
ability to enter into and maintain collaborative relationships with other
companies having sales, marketing and distribution capabilities, the
collaborator's strategic interest in the products under development and such
collaborator's ability to successfully market and sell any such
products.  To the extent that we decide not to, or are unable to,
enter into collaborative arrangements with respect to the sales and marketing of
our proposed products, significant capital expenditures, management resources
and time will be required to establish and develop an in-house marketing and
sales force with technical expertise.  We cannot assure you that we
will be able to establish or maintain relationships with third party
collaborators or develop in-house sales and distribution
capabilities.  To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, as well as the terms of its agreements with such third
parties, which cannot be predicted at this early stage of our
development.  We cannot assure you that such efforts will be
successful.  In addition, we cannot assure you that we will be able to
market and sell our products in the United States or overseas.





Developments
by competitors may render our products or technologies obsolete or
non-competitive.





We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, such as
Keryx Biopharmaceuticals, Genta Incorporated and Imclone Systems
Incorporated, as well as academic institutions, government agencies and other
public and private research organizations. 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 staff and facilities, longer drug development history in obtaining
regulatory approvals and greater manufacturing and marketing capabilities than
we do.  These organizations also compete with us to attract qualified
personnel, parties for acquisitions, joint ventures or other
collaborations.





If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish and our business and competitive position would
suffer.





Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.  We have filed U.S. and PCT patent
applications for anti-Akt compounds, including ArchexinTM and anti-HIF compounds,
including RX-0047.  In November 2006, we were granted a
U.S. patent for our anti-Akt compounds, including ArchexinTM.  The
patent covers the nucleotide sequences of the antisense compounds that target
and inhibit the expression of Akt in human tissues or cells.  The
patent also covers the method of using the compounds to induce cytotoxicity in
cancer cells.  We have also filed three U.S. provisional patent
applications for new anticancer quinazoline compounds, new anticancer nucleoside
products and a drug target, cenexin, a polo-box binding protein.  In
December 2004, we also filed two Korean patent applications for new
anticancer piperazine compounds.  Through our licensing agreement with
Revaax, we hold exclusive rights to five patents and multiple patent
applications, with respect to certain chemical structures related to
antibiotics, but without antibiotic efficacy.  However, we cannot
predict:





25
 Index





·
            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;





26
 Index





·
            pay
      damages; or





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





Although
to date, we have not received any claims of infringement by any third parties,
as our drug candidates move into clinical trials and commercialization, our
public profile and that of our drug candidates may be raised and generate such
claims.





Our
license agreement with Revaax may be terminated in the event we commit a
material breach, the result of which would significantly harm our business
prospects.





Our
license agreement with Revaax is subject to termination by Revaax if we
materially breach our obligations under the agreement, including breaches with
respect to certain installment payments and royalty payments, if such breaches
are not cured within a 60-day period.  The agreement also provides
that it may be terminated if we become involved in a bankruptcy, insolvency or
similar proceeding.  If this license agreement is terminated, we will
lose all of our rights to develop and commercialize the licensed compounds,
including SerdaxinTM and ZoraxelTM, 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 the 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.





27
 Index





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.





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, 2008 and 2007 was $29,906,479 and $24,994,331,
respectively.  For the years ended December 31, 2008 and 2007, we
had net losses of $4,912,148 and $4,304,005, 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.





28
 Index





Some or
all of the "restricted" shares of our common stock issued in the merger of CPRD
and Rexahn, Corp 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, an
affiliated person who has held restricted shares for a period of six months 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 600,000 shares) during a three-month
period.  Non-affiliates may sell restricted securities after six
months without any limits on volume.




Our common stock may be delisted
fromNYSE
Alternext.




On
February 24, 2009, we received a notice from NYSE Alternext providing
notification that we are not in compliance with Section 1003(a)(iii) of the NYSE
Alternext US LLC Company Guide (the “Guide”) because we have stockholders’
equity of less than $6,000,000 and losses from continuing operations and net
losses in our five most recent fiscal years.  We must submit a plan of
compliance by March 24, 2009 addressing how we intend to regain compliance with
Section 1003(a)(iii) of the Guide within a maximum of eighteen months (the “Plan
Period”).  The Corporate Compliance Department management of NYSE
Alternext will evaluate our plan and determine whether we have reasonably
demonstrated that we will be able to regain compliance with the continued
listing standards.  If the plan is accepted, we will be subject to
review during the Plan Period.  We intend to submit our plan by March
24, 2009.If
we do not submit a plan or if our plan is not accepted, we will immediately
become subject to delisting proceedings.  Additionally, if the plan is
accepted but we are not in compliance with the continued listing standards of
the Guide within the appropriate time periods, or if we do not make progress
consistent with the plan during the Plan Period, we will become subject to
delisting proceedings.




We
believe that the listing of our common stock on a recognized national trading
market, such as NYSE Alternext, is an important part of our business and
strategy. Such a listing helps our stockholders by providing a readily available
trading market with current quotations. Without that, stockholders may have a
difficult time getting a quote for the sale or purchase of our stock, the sale
or purchase of our stock would likely be made more difficult and the trading
volume and liquidity of our stock would likely decline. The absence of such a
listing may adversely affect the acceptance of our common stock as currency or
the value accorded it by other parties.  The delisting from NYSE
Alternext would result in negative publicity and would negatively impact our
ability to raise capital in the future.





If
NYSE Alternext delists our securities from trading on its exchange, we
could face significant material adverse consequences including:





·
            a
      limited ability of market quotations for our
  securities;





·
            a
      determination that our common stock is a “penny stock” which will require
      brokers trading in our common stock to adhere to more stringent rules and
      possibly resulting in a reduced level of trading activity in the secondary
      trading market for our common
stock;





·
            a
      limited amount of news and analyst coverage for our company;
      and





·
            a
      decreased ability to issue additional securities or obtain additional
      financing in the future.





Our
common stock is currently listed on the NYSE Alternext.  However,
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.





29
 Index





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.





Our
business could be adversely impacted if we have deficiencies in our disclosure
controls and procedures or internal control over financial
reporting.





Effective internal control over
financial reporting and disclosure controls and procedures are necessary in
order for us to provide reliable financial and other reports and effectively
prevent fraud. These types of controls are designed to provide reasonable
assurance regarding the reliability of financial reporting and the proper
preparation of our financial statements, as well as regarding the timely
reporting of material information. If we cannot maintain effective internal
control or disclosure controls and procedures, or provide reliable financial or
SEC reports or prevent fraud, investors may lose confidence in our reported
financial information, our common stock could be subject to delisting on the
stock exchange where it is traded, our operating results and the trading price
of our common stock could suffer, and we might become subject to
litigation.





While our management will continue to
review the effectiveness of our internal control over financial reporting and
disclosure controls and procedures, there is no assurance that our disclosure
controls and procedures or our internal control over financial reporting will be
effective in accomplishing all control objectives, including the prevention and
detection of fraud, all of the time.




Item1B.  Unresolved Staff Comments.





None.




Item2.  Description of Property.





We lease
approximately 8,030 square feet of laboratory and office space at 9620 Medical
Center Drive, Rockville, Maryland, 20850.  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 are in the process of negotiating a new lease at a different
location.  We do not own any real property.








30
 Index





Item3.  Legal
Proceedings.





We are not subject to any material
pending legal proceedings.





Item4.  Submission of Matters to a Vote of Security
Holders.





None.





31
 Index





PART
II





Item5.  Market for Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.





As of
March 16, 2009, 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 16, 2009, we have 56,025,649 shares of
common stock outstanding and approximately 800 stockholders of record of
common stock.  As of March 16, 2009, no shares of preferred stock are
outstanding.





Our
common stock is traded on the NYSE Alternext, formerly known as the
American Stock Exchange, under the ticker symbol “RNN”.  From May 16,
2005 to May 23, 2008 our common stock was traded on the Over the Counter
Bulletin Board (the "OTC-BB") under the ticker symbol "RXHN."  Prior
to May 13, 2005, our common stock was traded on the OTC-BB under the ticker
symbol "CPRD" since November 2004.





The
following table sets forth the high and low sales prices of our common shares as
reported during the periods indicated.





Period
                    
                    High
                    
                    
                    Low2007First
      Quarter
                    
                    
                    1.85
                    
                    
                    
                    1.10Second
      Quarter
                    
                    
                    2.52
                    
                    
                    
                    1.25Third
      Quarter
                    
                    
                    2.20
                    
                    
                    
                    1.01Fourth
      Quarter
                    
                    
                    2.45
                    
                    
                    
                    1.052008First
      Quarter
                    
                    
                    2.50
                    
                    
                    
                    1.35Second
      Quarter
                    
                    
                    9.99
                    
                    
                    
                    1.85Third
      Quarter
                    
                    
                    3.50
                    
                    
                    
                    0.51Fourth
      Quarter
                    
                    
                    1.35
                    
                    
                    
                    0.66








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.





Purchase
of Equity Securities by the Issuer and Affiliated Purchasers





There
were no repurchases of equity securities in 2008.





32
 Index





Equity
Compensation Plan Information





The
following table provides information, as of December 31, 2008, 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.





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 plansEquity
      compensation plans approved by stockholders
                  
                  
                  7,760,795
                  
                  
                  $
                  1.01
                  
                  
                  
                  8,912,500Equity
      compensation plans not approved by stockholders
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  
                  7,760,795
                  
                  
                  $
                  1.01
                  
                  
                  
                  8,912,500








Item6.  Selected Financial Data.





A smaller reporting company is not
required to provide the information required by this Item.





Item7.  Management's Discussion and Analysis of Financial
Condition and Results 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-K.  Some of the information contained in this discussion
and analysis or set forth elsewhere in this Annual Report on Form 10-K,
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 1A 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.





33
 Index





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, or GAAP, and their basis of
application is consistent with that of the previous year. Our significant
estimates include assumptions made in estimating the fair values of stock-based
compensation and our assessment relating to the impairment of intangible assets
and deferred revenues.





Use
of Estimates





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.  These estimates are based on
management's best knowledge of current events and actions the Company may
undertake in the future.  Actual results may ultimately differ from
those estimates.  These estimates are reviewed periodically and as
adjustments become necessary, they are reported in earnings in the period in
which they become available.





Stock-Based
Compensation





Effective January 1, 2006, the
Company’s Plan is accounted for in accordance with the recognition and
measurement provisions of Statement of Financial Accounting Standards ("FAS")
No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS
No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees, and related interpretations. FAS 123(R) requires compensation costs
related to share-based payment transactions, including employee stock options,
to be recognized in the financial statements. In addition, the Company adheres
to the guidance set forth within Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin No. 107 ("SAB 107"), which provides the Staff's views
regarding the interaction between FAS No. 123(R) and certain SEC rules and
regulations and provides interpretations with respect to the valuation of
share-based payments for public companies.  See Note 7 to the
Financial Statements in Item 7 of this Annual Report for further
details.





Recently
Issued Accounting Standards





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





34
 Index





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





In December 2007, FASB issued FAS No.
160, “Noncontrolling Interests in Consolidated Financial Statements—amendment of
Accounting Research Bulletin No. 51” (“FAS No. 160”). FAS No. 160 establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated  entity that should be reported as equity in the
consolidated financial statements. FAS No. 160 also changes the way the
consolidated income statement is presented by requiring consolidated net income
to be reported at amounts that include the amounts attributable to both the
parent and the noncontrolling interest. It also requires disclosure, on the face
of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. FAS No.
160 requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent owners and the interests of the noncontrolling
owners of a subsidiary. FAS No.160 is effective for fiscal periods, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  The adoption of FAS No. 160 will not have an impact on the
Company’s financial statements.





35
 Index





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





Results
of Operations




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 ArchexinTM drug candidate in Asia.  This agreement
provides Rexgene with exclusive rights to license, sublicense, make, have made,
use, sell and import ArchexinTM in Asia.  A one-time contribution to
the joint development and research of ArchexinTM 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 fiscal year
beginning with 2003 and the remaining $1,050,000 is reflected as deferred
revenue on the balance sheet as of December 31, 2008.  We adopted
SAB 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 ArchexinTM.





Comparison
of the Year Ended December 31, 2008 and the Year Ended December 31,
2007





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 decreased $202,447, or 7.4%, from $2,728,152 in
fiscal 2007 to $2,525,705 in fiscal 2008.  The decrease was due
primarily to a reduction of $389,000 in stock compensation expense due to lower
fair values calculated using option pricing model as a result of the decline in
our share price for the current year as compared to 2007.  In 2008, we
issued 2,005,000 options compared to 525,000 in 2007.  The decrease in
our stock value more than offset the increase of 1,480,000 options issued in
2008.  The decrease in general and administrative expenses is partly
offset by increase in payroll expenses of $105,000 as more employees were hired
and payment of $87,000 for the initial listing fee on the NYSE Alternext US LLC,
formerly the American Stock Exchange.





36
 Index





Research and Development
Expenses





Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for laboratory
development and other expenses relating to the design, development, testing, and
enhancement of our drug candidates.  We expense our research and
development costs as they are incurred.





Research
and development expenses increased $902,213 or 59.1%, from $1,527,294 in fiscal
2007 to $2,429,507 in fiscal 2008.  The increase was due primarily to
expenses incurred in relation to Phase II clinical trials for Serdaxin and
Zoraxel drug candidates.  We expect that research and development
expenses will increase as our other drug candidates move into the clinical
trials phases of development.





Patent Fees





Our
patent fees increased $29,747, or 15.9%, from $186,613 in fiscal 2007 to
$216,360 in fiscal 2008.  This was primarily due to increased activity
and legal costs incurred to respond to existing patent applications in 2008 as
compared to 2007.





Depreciation and
Amortization





Depreciation
expense decreased $9,327, or 14.3%, from $65,070 in fiscal 2007 to $55,743 in
fiscal 2008.  The decrease was due primarily to lab equipment being
depreciated based on a declining balance.





Interest Expense





Our
interest expense was $0 for fiscal 2007 and 2008.





Interest Income





In fiscal
2008, we recorded $260,533 of interest income from the investment of our cash
and cash equivalents and other short-term investments, compared to $128,124
recorded in fiscal 2007.  The increase of $132,409, or 103.3%, was
primarily due to higher average cash and equivalents balance in 2008 as a result
of private placements occurring in late 2007.





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 three clinical stage lead drug candidates, ArchexinTM, SerdaxinTM
and ZoraxelTM and pre-clinical stage nano drug candidates, RX-0201-Nano,
RX-0047-Nano and Nano-polymer Anticancer Drugs. Each of our lead drug candidates
is in various stages of completion as described below.  As we expand
our clinical studies, we will enter into additional development
agreements.  Significant additional expenditures will be required if
we complete our clinical trials, start new trials, apply for regulatory
approvals, continue development of our technologies, expand our operations and
bring our products to market.  The eventual total cost of each
clinical trial is dependent on a number of uncertainties such as trial design,
the length of the trial, the number of clinical sites and the number of
patients.  The process of obtaining and maintaining regulatory
approvals for new therapeutic products is lengthy, expensive and
uncertain.  Because the successful development of our most advanced
drug candidates, ArchexinTM, SerdaxinTM and ZoraxelTM, is uncertain, and because
RX-0201-Nano, RX-0047-Nano and Nano-polymer Anticancer Drugs are in early-stage
development, we are unable to estimate the costs of completing our research and
development programs, the timing of bringing such programs to market and,
therefore, when material cash inflows could commence from the sale of these drug
candidates.  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.





37
 Index





ArchexinTM





In
October 2006, we announced the conclusion of the Phase I clinical trial of
ArchexinTM, our leading drug candidate.  The costs incurred for the
clinical trial was approximately $1,500,000.





The Phase
I clinical trial of ArchexinTM, which took place at Georgetown University's
Lombardi Cancer Center beginning in September 2004 and at the University of
Alabama at Birmingham beginning in August 2005, was primarily to determine
the safety and tolerability of the drug in patients with advanced
cancer.  As the main purpose of the clinical trial was to establish
the safety of Archexin TM, the parameters that determined the completion of this
project were a direct function of the safety profile of this compound in
humans.  As this was the first time that ArchexinTM had been
administered to humans, the safety profile in humans was unknown and, therefore,
the number of doses required to determine the dosage at which the FDA safety
endpoints would be met was estimated.





The Phase
II clinical trial of ArchexinTM began in the third quarter of 2007 in
patients with advanced renal cell carcinoma who have failed previous
treatments.  The trial is the first of multiple trials planned
for ArchexinTM.  We estimate that the Phase II trials will be
completed in 2010 and will require approximately $5,000,000.  In
January 2005, we received "orphan drug designation" from the FDA for
ArchexinTM for five cancer indications, including renal cell carcinoma, ovarian
cancer, glioblastoma, stomach cancer, and pancreatic cancer.  The
orphan drug program is intended to provide patients with faster access to drug
therapies for diseases and conditions that affect fewer than 200,000
people.  Companies that receive orphan drug designation are provided
an accelerated review process, tax advantages, and seven years of market
exclusivity in the United States.  In the future, we plan to apply
ArchexinTM to the treatment of other orphan indications and other
cancers.





SerdaxinTM





SerdaxinTM is
being developed to treat depression and mood disorders, and has proven and
well-established safety in humans.  Through December 31, 2008, the
costs incurred for development of these compounds to date have been
approximately $800,000.  SerdaxinTM enters Phase II trials in the first
half of 2009. We currently estimate that these studies will require $1,750,000
through the end of 2011.





ZoraxelTM





ZoraxelTM is a
CNS-based sexual dysfunction drug that has extensive and excellent safety in
humans. Through December 31, 2008, the costs incurred for development of these
compounds to date have been approximately $1,000,000.  ZoraxelTM
entered Phase II trials in the first half of 2008. We currently estimate that
these studies will require approximately $1,250,000 through the end of
2011.





38
 Index





Pre-clinical
Pipeline





RX-0201-Nano,
RX-0047-Nano and Nano-polymer Anticancer Drugs are in a pre-clinical stage of
development and the next scheduled program for each compound is a pre-clinical
toxicology study required prior to submission of an Investigational New Drug
("IND") application to the FDA.  Through December 31, 2008,
the costs incurred for development of these compounds to date have been
approximately $1,250,000.  The estimated cost to complete pre-clinical
toxicology and Phase I clinical trials is estimated to be approximately
$1,500,000 per each compound for a total of $4,500,000.  These
compounds may be entered into these Phase I clinical trials in 2010.





The
conduct of the clinical trial and toxicology studies described above are being
accomplished in conjunction with third-party clinical research organizations, or
CROs, at external locations.  This business practice is typical for
the pharmaceutical industry and companies like us.  As a result, the
risk of completion or delay of these studies is not within our direct control
and a program delay may occur due to circumstances outside our
control.  A delay in any of these programs may not necessarily have a
direct impact on our daily operations.  However, to the extent that a
delay results in additional cost to us, a higher than expected expense may
result.





We will
need to raise additional money through debt and/or equity offerings in order to
continue to develop our drug candidates.  If we are not able to raise
sufficient additional money, we will have to reduce our research and development
activities.  We will first reduce research and development activities
associated with our preclinical compounds.  To the extent necessary,
we will then reduce our research and development activities related to some or
all of our clinical drugs.





Liquidity
and CapitalResources





Comparison
of 2008 and 2007





Cash used
in operating activities was $4,323,853 in fiscal 2008 compared to $3,394,839 in
fiscal 2007.  Fiscal 2008 operating cash flows reflect our loss from
continuing operations of $4,912,148, offset by net non-cash charges of $485,793
and a net increase in cash components of working capital of
$102,502.  Non-cash charges consist of depreciation and amortization
of $55,743, stock option compensation expense of $484,684, amortization of
deferred revenue of $75,000 and realized losses on securities available for sale
of $20,366.  The increase in working capital primarily consists of
prepaid expenses and other of $350,440 offset by reduction in accounts payable
and accrued expenses of $247,937.  Fiscal 2007 operating cash flows
reflect our loss from continuing operations of $4,304,005, offset by net
non-cash charges of $1,111,716 and a net decrease in cash components of working
capital of $202,550.  Non-cash charges consist of depreciation and
amortization of $65,070, stock option compensation expense of $1,121,646 and
amortization of deferred revenue of $75,000.  The decrease in working
capital primarily consists of a $31,469 increase in accounts payable and accrued
expenses and an increase of $234,019 to prepaid and other assets.





Cash of
$47,789 was used in investing activities in fiscal 2008, which consisted of
$27,193 for the purchase of equipment, $5,848,176 for the purchase of
available-for-sale securities and $5,827,580 for proceeds from sales of
available-for-sale securities.  Cash used in investing activities of
$3,550,000 in fiscal 2007 consisted of the purchase of $3,550,000 of
available-for-sale securities.





Cash
provided by financing activities of $931,201 in fiscal 2008 consists of proceeds
from the issuance of common stock for cash.  Cash provided by
financing activities of $6,720,350 in fiscal 2007 consists of proceeds from the
issuance of common stock for cash.





39
 Index





For the
years ended December 31, 2008 and 2007, we experienced net losses of
$4,912,148 and $4,304,005, respectively.  Our accumulated deficit as
of December 31, 2008 and 2007 was $29,906,479 and $24,994,331,
respectively.





Financings





We have
financed our operations since inception primarily through equity and convertible
debt financings and interest income from investments of cash and cash
equivalents.  During fiscal year 2008, we had a net decrease in cash
and cash equivalents of $3,440,441.  This decrease resulted primarily
from cash used in operating activities of $4,323,853 offset by cash provided by
financing activities of $931,201.  During fiscal 2007, we had a net
decrease in cash and cash equivalents of $224,489.  This decrease
primarily resulted from the cash provided by financing activities of $6,720,350,
offset by cash used in operating activities of $3,394,839 and cash used in
financing activities of $3,550,000





On
December, 24, 2007 we received approximately $6,800,000in net proceeds upon
closing of the sales of our securities. Such sales consisted of the following:
(1) sale to KT&G Corporation of 2,142,858 shares of our common stock and a
warrant to purchase 428,572 shares of our common stock for total consideration
of $3,000,000; (2) sale to Rexgene Biotech Co., Ltd. of 714,286 shares of our
common stock and a warrant to purchase 142,857 shares of our common stock for
total consideration of $1,000,000; (3) sale to Jungwoo Family Co., Ltd. of
142,857 shares of our common stock and a warrant to acquire up to 28,571 shares
of our common stock for aggregate cash consideration of $200,000; (4) sale to
Kumho Investment Bank of 357,143 shares of our common stock and a warrant
to acquire up to 71,429 shares of our common stock for aggregate cash
consideration of $500,000; and (5) sale to 26 individual Korean investors of a
total of 1,500,015 shares of our common stock and a warrant to acquire up to
300,003 shares of our common stock for aggregate cash consideration of
$2,100,000.





On March
20, 2008, we received approximately $900,000in net proceeds upon
closing of the sales of our securities. Such sales consisted of the
following: (1) sale to Jungwoo Family Co., Ltd. of 285,715 shares of our common
stock and a warrant to acquire up to 57,143 shares of our common stock for
aggregate cash consideration of $400,000; (2) sale to Super Bio Co.
Ltd. of 357,143 shares of our common stock and a warrant to acquire up
to 71,429 shares of our common stock for aggregate cash consideration of
$500,000.





For the
foreseeable future, we will have to fund all of our operations and capital
expenditures from the net proceeds of equity and 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. If we are not able to raise sufficient
additional money, we will have to reduce our research and development
activities.  We will first reduce research and development activities
associated with our preclinical compounds.  To the extent necessary,
we will then reduce our research and development activities related to some or
all of our clinical drugs.




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, enrollment and completion of 20
patients.  The clinical trial has been completed and $121,359 was paid
in 2008.





40
 Index





In
April 2004, we signed a 5-year lease for 8,030 square feet of office space
in Rockville, Maryland from July 2004 to June 2009.  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. We are currently in negotiations with a new party to enter into a lease
for new office space.





Minimum
future rental payments under this lease are as follows:





For the years ended December
    312009
                    
                    $
                    112,972








On
January 6, 2006, we contracted with Amarex, LLC to conduct Phase II
clinical studies for ArchexinTM.  In accordance with the agreement, the
estimated contract duration is 24 months for a total cost of $596,244 plus
pass through expenses.  The service costs are payable in
24 monthly payments of $18,633 plus an up front payment of $149,061 due
upon signing.  We paid $614,876 towards the cost of the study as
of December 31, 2008. We are in the process of negotiating with
Amarex, LLC to determine the actual cost of service.  In 2007, we
added additional services to the Phase II clinical
studies.   The cost of these services totals $106,220, all
of which was paid as of December 31, 2008.





On
October 2, 2003, we contracted with Amarex to conduct Phase I clinical studies
for ArchexinTM (then RX-0201).  Of the $239,337 to be paid under this
contract, $194,461 was paid as of December 31, 2008.  The balance will
be paid when the final report is accepted, which is expected to be in
2009.  Since 2003, additional services were added to the
study.  These services were contracted for $200,043, all of which was
paid as of December 31, 2008.





From
April 3, 2006 through 2008, we have contracted with UPM Pharmaceuticals,
Inc. to develop several release formulations for SerdaxinTM and
ZoraxelTM.  In accordance with the agreements, the estimated total cost
is $945,080, of which $785,315 was paid as of December 31,
2008.  The service costs were payable based upon a payment schedule
related to certain milestones.





On April
15, 2007 we entered into research agreement with University of Maryland
Biotechnology Institute to identify new JNK inhibitors using their NMR
technology.  The total amount to be paid under this contract is
$17,000, of which $10,000 was paid in 2007.  The balance will be paid
when the final report is submitted.





On May
18, 2007, we contracted with LabConnect to provide sample management and central
laboratory services for Phase II clinical studies for ArchexinTM clinical
trials.  The total contract amount is estimated to be $197,220, of
which $54,444 was paid in 2007 and $7,180 was paid in 2008.  The
balance will be paid as services are performed over the next 20
months.





On June
13, 2007, we contracted with Formatech to test the stability of the
ArchexinTM
package.  The total amount to be paid for this contract was $17,000,
of which $10,000 was paid in 2007.The balance will be paid when the final report
is submitted, which is expected to be in two years.





On May 6,
2008, we contracted with Delaware Valley Urology, LLC as a clinical site for our
Phase IIa erectile dysfunction study for ZoraxelTM.  In accordance with
the agreement, the estimated contract duration is 17 months for an estimated
cost of $57,365, with lab costs included.  $43,147 was paid in
2008.





41
 Index





On April
14, 2008, we contracted with Myron I Murdock M.D. LLC as a clinical site for our
Phase IIa erectile dysfunction study for a duration 12 months for
ZoraxelTM.  The estimated amount of this contract, without lab costs,
is $104,559, of which $37,750 was paid in 2008.





On April
15, 2008, we entered into a 24 month contract with Radiant Development CRO to
manage clinical trials for our Phase IIa erectile dysfunction study for
ZoraxelTM.  The total contract amount is estimated to be $109,655, of
which $55,217 was paid in 2008.





On
December 23, 2008, we entered into a 12 month contract with Radiant Development
CRO to manage clinical trials for our Phase IIa major depressive disorder study
for SerdaxinTM.  The total contract amount is estimated to be $169,343,
of which $16,934 was paid in 2008.





On
September 5, 2008, we contracted with Radiant Research - Greer as a
clinical site for our Phase IIa clinical study for ZoraxelTM for erectile
dysfunction.  The estimated cost for the 12 month study is $62,532, of
which $44,969 was paid in 2008.





On
January 17, 2008, we entered into a Research Services Agreement with the
University of Maryland, Baltimore to conduct in vivo studies of the PC-3
tumor model with ArchexinTM and RX-0047.  The total cost of the
contract is $27,288, of which $20,466 was paid in 2008.





On
December 1, 2008, we entered into Research Services Agreement with the
University of Tromso, Norway to conduct statistical analysis regarding sexual
incentive motivation for our erectile dysfunction study.  The total
cost for these services is $19,000, of which $9,500 was paid in
2008.





Current
and Future Financing Needs





We have
incurred negative cash flow from operations since we started our
business.  We have spent, and expect to continue to spend, substantial
amounts in connection with implementing our business strategy, including our
planned product development efforts, our clinical trials, and our research and
development efforts.  Based on our current plans and our capital
resources, we believe that our cash and cash equivalents will be sufficient to
enable us to meet our minimum planned operating needs through the end of 2009,
which would entail focusing our resources on Phase II clinical trials of
ArchexinTM, SerdaxinTM and ZoraxelTM. Through the end of 2009, we expect to
spend a minimum of approximately $1.2 million on clinical development for Phase
II clinical trials of ArchexinTM, SerdaxinTM and ZoraxelTM (including our
commitments described under "Contractual Commitments" of this Item 6), $2.3
million on general corporate expenses, and approximately $113,000 on facilities
rent.  We will need to seek additional financing to implement and fund
other drug candidate development, clinical trial and research and development
efforts to the maximum extent of our operating plan, including in-vivo animal
and pre-clinical studies, Phase II clinical trials for new product candidates,
as well as other research and development projects, which together with the
minimum operating plan through the end of 2009, could aggregate up to $3.6
million. If we are not able to secure additional financing, we will not be able
to implement and fund the research and development.





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;





42
 Index





·
            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.





Impact
of Inflation





To date
inflationary factors have not had a significant effect on our
operations.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.





43
 Index





Item7A.  Quantitative and Qualitative Disclosures
About Market Risk.





A smaller
reporting company is not required to provide the information required by this
Item.





Item 8.  Financial Statements and Supplementary
Data.





Our financial statements and financial
statement schedule and the Report of Independent Registered Public Accounting
Firm thereon are filed pursuant to this Item 8 and are included in this
Annual Report on Form 10-K beginning on page F-1.





Item9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.





None.





Item9A.  Controls and Procedures.





Evaluation of Disclosure Controls
and Procedures.  Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of
the end of the period covered by this report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures as of the end of the period covered by this
report were effective such that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding disclosure. A controls system
cannot provide absolute assurance, however, that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.





Changes in Internal Control Over
Financial Reporting.During the most recent quarter ended
December 31, 2008, there has been no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) ) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





44
 Index





MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those
policies and procedures that:





●
            Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and the dispositions of the assets of the
      Company;





●
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorization of management and the
      board of directors of the Company;
and





●
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluations
of effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions or because of declines in the degree
of compliance with the policies or procedures.





Our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008. In making this assessment, the
Company’s management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated
Framework.





Based on
this evaluation, our management, with the participation of the Chief Executive
Officer and Chief Financial Officer, concluded that, as of December 31, 2008,
our internal control over financial reporting was effective.





Our
independent registered public accounting firm, Parente Randolph, LLC, has issued
an audit report on the effectiveness of our internal control over financial
reporting as of December 31, 2008 as stated in their report, which is included
in this Annual Report on Form 10-K.





Chang H. Ahn
              
              Tae Heum
      JeongChairman
      and Chief Executive Officer
              
              Chief
      Financial Officer, Secretary and
Director





March 16,
2009




45
 Index




Item9B.  Other Information.





None.





46
 Index





Report
of Independent Registered Public Accounting Firm


on
Internal Control Over Financial Reporting








Board of
Directors and Stockholders


Rexahn
Pharmaceuticals, Inc.


Rockville,
Maryland:








We have
audited Rexahn Pharmaceuticals, Inc. (the “Company”) internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  Rexahn Pharmaceuticals, Inc.’s management
is reasonable for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting.  Our responsibility is to express
and opinion on the Company’s internal control over financial reporting 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
effective internal control over financial reporting was maintained in all
material respects.  Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audit also included performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) proved reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





47
 Index





Report
of Independent Registered Public Accounting Firm


on
Internal Control Over Financial Reporting


(Continued)








Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, Rexahn Pharmaceuticals, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control - Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheet of Rexahn Pharmaceuticals,
Inc. as of December 31, 2008, and the related statements of operations,
shareholders’ equity and comprehensive loss, and cash flows for the year then
ended, and the cumulative from inception column in the statements of operations
and cash flows for the year then ended, and our report dated March 10, 2009
expressed an unqualified opinion.








/s/
Parente Randolph, LLC








Morristown,
New Jersey


March 10,
2009





48
 Index





PART
III





Item10.  Directors, Executive Officers and Corporate
Governance.





The
information to be provided under the caption “Election of Directors,” to be
contained in the Definitive Proxy Statement and required to be disclosed in this
Item 10, is hereby incorporated by reference in this Item 10; and the
information to be provided under the caption “Section 16(a) Beneficial Ownership
Reporting Compliance,” to be contained in the Definitive Proxy Statement and
required to be disclosed pursuant to Section 16(a) of the Exchange Act, is also
hereby incorporated by reference in this Item 9.





Code
of Ethics





We have 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.  Rexahn’s Code of Ethics is posted on its website, which is
located at www.rexahn.com.





We intend to satisfy any disclosure
requirement regarding an amendment to, or waiver from, a provision of this code
of ethics by posting such information on our website, at the address specified
above.





Item11.  Executive Compensation.





The
information to be provided under the caption “Executive Compensation and Other
Matters”, to be contained in the Definitive Proxy Statement and required to be
disclosed in this Item 11, is hereby incorporated by reference in this
Item 11.





Item12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.





The
information to be provided under the captions “Equity Compensation Plan
Information” and “Security Ownership of Management and Certain Security
Holders”, each to be contained in the Definitive Proxy Statement and required to
be disclosed in this Item 12, is hereby incorporated by reference in this Item
12.





Item13.  Certain Relationships and Related
Transactions; and Director Independence.





49
 Index





Related
Transactions





The information to be provided under
the caption “Certain Relationships and Related Transactions,” to be contained in
the Definitive Proxy Statement and required to be disclosed in this Item 12, is
hereby incorporated by reference in this Item 13.





Item14.  Principal Accounting Fees and
Services.





The
following table presents fees for professional audit services rendered by our
independent registered public accounting firm for the audits of the
Company's annual financial statements for the years ended December 31, 2008
and 2007, respectively.1





2008
                    
                    
                    2007Audit
      Fees
                    
                    $
                    125,5002
                    
                    
                    $
                    83,000Audit-Related
      Fees
                    
                    
                    -
                    
                    
                    
                    -Tax
      Fees
                    
                    
                    -
                    
                    
                    
                    -All
      Other Fees
                    
                    
                    -
                    
                    
                    
                    -





1.For the year
endedDecember 31,
2007, the fees were
paid to Lazar Levine & Felix LLP. For the year endedDecember 31,
2008, the fees for
the quarterly reviews werepaid to Lazar
Levine & Felix LLPand the
remaining fees will be paid toParenteRandolph, LLC which
acquired the assets of
Lazar Levine & Felix LLP in 2009.


2.Audit Fees relate
to the audit of the Company's financial
statements,reviews of
certain financial statements included in the Company's quarterly reports on Form
10-Qand the audit of internal controls over financial
reporting.  The
amount shown represents the maximum fees for such services.





Our Audit
Committee reviews all audit fees at least annually and approves in advance the
fee arrangements.





50
 Index





Item15.  Exhibits, Financial Statement
Schedules.





(a) 
      The following documents are filed as a part of this Annual Report on Form
      10-K:(b)(1)
                          
                          Financial
      Statements:
                          PageReport
      of Parente Randolph, LLC
                          F-1Report
      of Lazar Levine & Felix LLP
                          F-2Balance
      Sheets at December 31, 2008 and December 31, 2007
                          F-3Statement
      of Operations for the years ended December 31, 2008 and December 31, 2007and
      cumulative from March 19, 2001 (Inception) to December 31,
      2008
                          F-4Statement
      of Stockholders’ Equity and Comprehensive Loss from March 19, 2001
      (Inception) to December 31, 2008
                          F-5Statement
      of Cash Flows for the years ended December 31, 2008 and December 31, 2007
      and cumulative from March 19, 2001 (Inception) to December 31,
      2008
                          F-7Notes
      to Financial Statements
                          F-8(2)All
      schedules for which provision is made in the applicable accounting
      regulations of the SEC are omitted because the required information is
      either presented in the financial statements or notes thereto, or is not
      applicable, required or material.(3)
                          
                          Exhibits:The
      documents listed below are filed with this Annual Report on Form 10-K as
      exhibits or incorporated into this Annual Report on Form 10-K by reference
      as
noted:








Exhibit
                          Number
                        
                        ExhibitDescription3.1.
                        
                        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, 2005, 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, 2005, 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.*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.





51
 Index




*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, effective September 12, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and T. H. Jeong, filed as Exhibit 10
      to the Company's Current Report on Form 8-K filed on October 9, 2007
      is incorporated herein by reference.10.4.
                
                Research
      Collaboration Agreement dated February 6, 2003 by and between Rexahn
      Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd., filed as Exhibit 10.5
      to the Company’s Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 2005, is incorporated herein by reference.10.5.
                
                Revaax
      License Agreement, dated February 8, 2005, by and between Rexahn
      Pharmaceuticals, Inc. and Revaax Pharmaceuticals LLC, filed as Exhibit
      10.6 to the Company’s Annual Report on Form 10-KSB for the fiscal year
      ended December 31, 2005, is incorporated herein by
    reference.10.6
                
                Lease
      Agreement, dated April 26, 2004, by and between Red Gate III LLC and
      Rexahn Corporation, filed as Exhibit 10.6 to the Company’s Annual Report
      on Form 10-KSB for the fiscal year ended December 31, 2007, is
      incorporated herein by reference.10.7
                
                Securities
      Purchase Agreement, dated as of November 19, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and KT&G Corporation, filed as Exhibit 10.1 to
      the Company’s Current Report on Form 8-K filed on November 21, 2007, is
      incorporated herein by reference.10.8
                
                Securities
      Purchase Agreement, dated as of November 20, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd, filed as Exhibit 10.4
      to the Company’s Current Report on Form 8-K filed on November 21, 2007, is
      incorporated herein by reference.10.9
                
                Securities
      Purchase Agreement, dated as of December 17, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and Jungwoo Family Co., Ltd, filed as Exhibit 10.1
      to the Company’s Current Report on Form 8-K filed on December 18, 2007, is
      incorporated herein by reference.10.10
                
                Securities
      Purchase Agreement, dated as of December 17, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and Kumho Investment Bank, filed as Exhibit 10.2 to
      the Company’s Current Report on Form 8-K filed on December 18, 2007, is
      incorporated herein by reference.10.11
                
                Securities
      Purchase Agreement, dated as of December 17, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and the several parties thereto, filed as Exhibit
      10.3 to the Company’s Current Report on Form 8-K filed on December 18,
      2007, is incorporated herein by reference.10.12
                
                Warrant,
      dated December 24, 2007, issued to KT&G Corporation, filed as Exhibit
      10.6 to the Company’s Current Report on Form 8-K filed on December 26,
      2007, is incorporated herein by reference.10.13
                
                Warrant,
      dated December 24, 2007, issued to Rexgene Biotech Co., Ltd., filed as
      Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December
      26,2007, is incorporated herein by reference.10.14
                
                Form
      of Warrant, dated December 24, 2007, issued to the purchasers pursuant to
      the Jungwoo Securities Purchase Agreement, the Kumho Securities Purchase
      Agreement, the Individual Investor Securities Purchase Agreement and to a
      consultant, filed as Exhibit 10.4 to the Company’s Current Report on Form
      8-K filed on December 18, 2007, is incorporated herein by
      reference.





52
 Index




10.15
                
                Registration
      Rights Agreement, dated as of December 24, 2007, by and among Rexahn
      Pharmaceuticals, Inc. and the purchasers pursuant to the KT&G
      Securities Purchase Agreement, the Rexgene Securities Purchase Agreement,
      the Jungwoo Securities Purchase Agreement, the Kumho Securities Purchase
      Agreement, the Individual Investor Securities Purchase Agreement and a
      consulting Services Agreement, filed as Exhibit 10.9 to the Company
      Current Report on Form 8-K filed on December 26, 2007, is incorporated
      herein by reference.10.16
                
                Securities
      Purchase Agreement, dated as of March 20, 2008, by and between Rexahn
      Pharmaceuticals, Inc. and Jungwoo Family Co., Ltd. (the "Jungwoo
      Securities Purchase Agreement”), filed as Exhibit 10.1 to the Company's
      current report on Form 8-K filed on March 26, 2008, is incorporated herein
      by reference.10.17
                
                Securities
      Purchase Agreement, dated as of March 20, 2008, by and between Rexahn
      Pharmaceuticals, Inc. and Super Bio Co. Ltd., (the "Super Bio Securities
      Purchase Agreement"), filed as Exhibit 10.2 to the Company's current
      report on Form 8-K filed on March 26, 2008, is incorporated herein by
      reference.10.18
                
                Form
      of Warrant for issuance pursuant to the Jungwoo Securities Purchase
      Agreement and the Super Bio Securities Purchase Agreement, filed as
      Exhibit 10.3 to the Company's current report on Form 8-K filed on March
      26, 2008, is incorporated herein by reference.*10.19
                
                Employment
      Agreement, dated July 14, 2008, by and between Rexahn Pharmaceuticals,
      Inc. and Rakesh Soni, filed as Exhibit 10.1 to the Company's
      Current Report on Form 8-K filed on July 16, 2008, is incorporated
      herein by reference.*10.20
                
                Consulting
      Agreement, dated August 12, 2008, by and between Rexahn Pharmaceuticals,
      Inc. and Y. Michelle Kang, filed as Exhibit 10.1 to the
      Company's Current Report on Form 8-K filed on August 27, 2008, is
      incorporated herein by reference.14.
                
                Code
      of Ethics and Business Conduct.23.1
                
                Consent
      of Parente Randolph, LLC, independent registered public accounting
      firm.23.2
                
                Consent
      of Lazar Levine & Felix 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.





53
 Index





SIGNATURES





In
accordance with the requirements of Section13 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
16th day
of March, 2009.





REXAHN
      PHARMACEUTICALS, INC.By:  /s/ChangH.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 16th day
of March, 2009 by the following persons on behalf of the issuer and in the
capacities indicated:





Name
                  
                  Title/s/ Chang H. Ahn*
                  
                  Chairman
      and Chief Executive OfficerChang
      H. Ahn/s/ Tae Heum Jeong*
                  
                  Chief
      Financial Officer, Secretary and DirectorTae
      Heum Jeong/s/ Freddie Ann Hoffman*
                  
                  DirectorFreddie
      Ann Hoffman/s/ David McIntosh*
                  
                  DirectorDavid
      McIntosh/s/CharlesBeever*
                  
                  DirectorCharles Beever/s/KwangSooCheong*
                  
                  DirectorKwang Soo Cheong/s/ Y. Michele Kang*
                  
                  DirectorY.
      Michele Kang





* By:
/s/TaeHeumJeong, Attorney-in
Fact


Tae Heum Jeong,
Attorney-in-Fact**





** By
authority of the power of attorney filed as Exhibit 24 hereto.





54
 Index





Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Stockholders


Rexahn
Pharmaceuticals, Inc.


Rockville,
Maryland:





We have
audited the balance sheet of Rexahn Pharmaceuticals, Inc. (the “Company”) (a
development stage company) as of December 31, 2008, and the related statements
of operations, stockholders’ equity and comprehensive loss, and cash flows for
the year then ended and the amounts in the cumulative from inception column in
the statements of operations 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 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.  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 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. as of
December 31, 2008, and the results of its operations and its cash flows for the
year then ended and the amounts included in the from inception columns in the
consolidated statements of operations and cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Rexahn Pharmaceuticals, Inc. internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 10, 2009 expressed an
unqualified opinion.





/s/
Parente Randolph, LLC





Morristown,
New Jersey


March 10,
2009





F-1
 Index





Report of Independent
Registered Public Accounting Firm





Board of
Directors and Stockholders of


Rexahn
Pharmaceutical, Inc.


Rockville,
Maryland:





We have
audited the accompanying balance sheet of Rexahn Pharmaceuticals, Inc. (a
development stage company) as of December 31, 2007 and the related statements of
operations, stockholders’ equity and comprehensive loss and cash flows for the
year ended December 31, 2007 and the cumulative period from inception (March 19,
2001) to December 31, 2007.  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
audits.




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 audits 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 the 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, 2007 and the results of its operations and its cash flows for the
year then ended and the cumulative period from inception (March 19, 2001) to
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.





/s/ LAZAR
LEVINE & FELIX LLP





New York,
New York


March 24,
2008





F-2
 Index




REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Balance
Sheets


December 31,
                                          2008
                                        
                                        
                                        December 31,
                                          2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                        
                                        $
                                        369,130
                                        
                                        
                                        $
                                        3,809,571Marketable
      securities (note 3)
                                        
                                        
                                        2,999,750
                                        
                                        
                                        
                                        3,550,000Prepaid
      expenses and other (note 4)
                                        
                                        
                                        366,765
                                        
                                        
                                        
                                        717,205Total
      Current Assets
                                        
                                        
                                        3,735,645
                                        
                                        
                                        
                                        8,076,776Equipment, Net(note
      5)
                                        
                                        
                                        92,212
                                        
                                        
                                        
                                        102,951Intangible Assets, Net(note 6)
                                        
                                        
                                        286,132
                                        
                                        
                                        
                                        303,943Total
      Assets
                                        
                                        $
                                        4,113,989
                                        
                                        
                                        $
                                        8,483,670LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses (note 7)
                                        
                                        $
                                        358,894
                                        
                                        
                                        $
                                        606,832Total
      Current Liabilities
                                        
                                        
                                        358,894
                                        
                                        
                                        
                                        606,832Deferred Revenue(note
      8)
                                        
                                        
                                        1,050,000
                                        
                                        
                                        
                                        1,125,000Total
      Liabilities
                                        
                                        
                                        1,408,894
                                        
                                        
                                        
                                        1,731,832Commitment and Contingencies(note 12)Stockholders' Equity(note 9):Preferred
      stock, par value $0.0001, 100,000 authorized shares, none issued and
      outstanding
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock, par value $0.0001, 500,000,000 authorized shares, 56,039,854 (2007
      – 55,306,996) issued and 56,025,649 (2007 – 55,292,791)
      outstanding
                                        
                                        
                                        5,604
                                        
                                        
                                        
                                        5,530Additional
      paid-in capital
                                        
                                        
                                        33,184,860
                                        
                                        
                                        
                                        31,769,049Accumulated
      deficit during the development stage
                                        
                                        
                                        (29,906,479
                                        )
                                        
                                        
                                        (24,994,331
                                        )Treasury
      stock, 14,205 (2007 – 14,205) shares, at cost
                                        
                                        
                                        (28,410
                                        )
                                        
                                        
                                        (28,410
                                        )Accumulated
      other comprehensive (loss)
                                        
                                        
                                        (550,480
                                        )
                                        
                                        
                                        -Total
      Stockholders' Equity
                                        
                                        
                                        2,705,095
                                        
                                        
                                        
                                        6,751,838Total
      Liabilities and Stockholders' Equity
                                        
                                        $
                                        4,113,989
                                        
                                        
                                        $
                                        8,483,670








(See the
notes accompanying the financial statements.)





F-3
 Index





REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Statements
of Operations


Years Ended
                                      December 31,
                                    
                                    
                                    Cumulative from
                                      March 19,2001
                                      (Inception) to
                                      December 31, 20082008
                                    
                                    
                                    2007Revenue:Research
                                    
                                    $
                                    75,000
                                    
                                    
                                    $
                                    75,000
                                    
                                    
                                    $
                                    450,000Expenses:General
      and administrative
                                    
                                    
                                    2,525,705
                                    
                                    
                                    
                                    2,728,152
                                    
                                    
                                    
                                    14,864,439Research
      and development
                                    
                                    
                                    2,429,507
                                    
                                    
                                    
                                    1,527,294
                                    
                                    
                                    
                                    13,231,844Patent
      fees
                                    
                                    
                                    216,360
                                    
                                    
                                    
                                    186,613
                                    
                                    
                                    
                                    921,833Depreciation
      and amortization
                                    
                                    
                                    55,743
                                    
                                    
                                    
                                    65,070
                                    
                                    
                                    
                                    503,204Total
      Expenses
                                    
                                    
                                    5,227,315
                                    
                                    
                                    
                                    4,507,129
                                    
                                    
                                    
                                    29,521,320Loss
      from Operations
                                    
                                    
                                    (5,152,315
                                    )
                                    
                                    
                                    (4,432,129
                                    )
                                    
                                    
                                    (29,071,320
                                    )Other
      (Income) ExpenseRealized
      loss on marketable securities
                                    
                                    
                                    20,366
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    20,366Interest  income
                                    
                                    
                                    (260,533
                                    )
                                    
                                    
                                    (128,124
                                    )
                                    
                                    
                                    (1,111,354
                                    )Interest
      expense
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    301,147Beneficial
      conversion feature
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,625,000(240,167
                                    )
                                    
                                    
                                    (128,124
                                    )
                                    
                                    
                                    835,159Loss
      Before Provision for Income Taxes
                                    
                                    
                                    (4,912,148
                                    )
                                    
                                    
                                    (4,304,005
                                    )
                                    
                                    
                                    (29,906,479
                                    )Provision
      for Income Taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      Loss
                                    
                                    $
                                    (4,912,148
                                    )
                                    
                                    $
                                    (4,304,005
                                    )
                                    
                                    $
                                    (29,906,479
                                    )Net
      Loss per share outstanding, basic and diluted
                                    
                                    $
                                    (0.09
                                    )
                                    
                                    $
                                    (0.09
                                    )Weighted
      average number of shares outstanding,  basic and
      diluted
                                    
                                    
                                    55,856,991
                                    
                                    
                                    
                                    50,332,642







(See the
notes accompanying the financial statements.)





F-4
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Statements
of Stockholders' Equity and Comprehensive Loss
 Period
from March 19, 2001 (Inception) to December 31, 2008


AccumulatedAccumulated
                                
                                
                                DeficitCommon Stock
                                
                                
                                Treasury Stock
                                
                                
                                Additional
                                
                                
                                Other
                                
                                
                                During
      the
                                
                                
                                TotalNumber
      of
                                
                                
                                
                                
                                
                                Number
      of
                                
                                
                                
                                
                                
                                Paid
      -
                                
                                
                                Comprehensive
                                
                                
                                Development
                                
                                
                                Stockholders’shares
                                
                                
                                Amount
                                
                                
                                shares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                Loss
                                
                                
                                Stage
                                
                                
                                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
                                )Balances
      at, December 31, 2001
                                
                                
                                7,126,666
                                
                                
                                
                                71,266
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,448,702
                                
                                
                                
                                -
                                
                                
                                
                                (625,109
                                )
                                
                                
                                3,894,859Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,181,157
                                )
                                
                                
                                (1,181,157
                                )Balances
      at, 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
                                )Balances
      at, 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
                                )Balances
      at, 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 merger
                                
                                
                                3,397,802
                                
                                
                                
                                340
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (340
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Common
      shares issued for cash
                                
                                
                                4,175,000
                                
                                
                                
                                17
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                8,349,565
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                8,349,982Common
      shares issued on conversion of convertible debt
                                
                                
                                650,000
                                
                                
                                
                                65
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,299,935
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,300,000Exercise
      of stock options
                                
                                
                                40,000
                                
                                
                                
                                4
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                9,596
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                9,600Common
      shares issued in exchange for services
                                
                                
                                7,000
                                
                                
                                
                                1
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                21,876
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                21,877Beneficial
      conversion feature
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,625,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,625,000Stock
      option compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                436,748
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                436,748Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (6,349,540
                                )
                                
                                
                                (6,349,540
                                )Balances
      at, December 31, 2005
                                
                                
                                46,410,632
                                
                                
                                
                                4,641
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                19,029,178
                                
                                
                                
                                -
                                
                                
                                
                                (14,204,323
                                )
                                
                                
                                4,829,496Exercise
      of stock options
                                
                                
                                61,705
                                
                                
                                
                                6
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                14,802
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                14,808Common
      shares issued on conversion of convertible debt
                                
                                
                                3,850,000
                                
                                
                                
                                385
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,849,615
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,850,000Purchase
      of treasury stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                14,205
                                
                                
                                
                                (28,410
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (28,410
                                )Stock
      option compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,033,956
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,033,956Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (6,486,003
                                )
                                
                                
                                (6,486,003
                                )Balances
      at, December 31, 2006
                                
                                
                                50,322,337
                                
                                
                                $
                                5,032
                                
                                
                                
                                14,205
                                
                                
                                $
                                (28,410
                                )
                                
                                $
                                23,927,551
                                
                                
                                $
                                -
                                
                                
                                $
                                (20,690,326
                                )
                                
                                $
                                3,213,847




(See the
notes accompanying the financial statements.)





F-5
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Statements
of Stockholders' Equity and Comprehensive Loss
 Period
from March 19, 2001 (Inception) to December 31, 2008


AccumulatedAccumulated
                                                                                                                            
                                                                                                                            
                                                                                                                            Deficit
                                                                                                                            
                                                                                                                            
                                                                                                                            TotalCommon Stock
                                                                                                                            
                                                                                                                            
                                                                                                                            Treasury Stock
                                                                                                                            
                                                                                                                            
                                                                                                                            Additional
                                                                                                                            
                                                                                                                            
                                                                                                                            Other
                                                                                                                            
                                                                                                                            
                                                                                                                            During
      the
                                                                                                                            
                                                                                                                            
                                                                                                                            Stockholders’Number
      of
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            Number
      of
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            Paid
      -
                                                                                                                            
                                                                                                                            
                                                                                                                            Comprehensive
                                                                                                                            
                                                                                                                            
                                                                                                                            Development
                                                                                                                            
                                                                                                                            
                                                                                                                            Equityshares
                                                                                                                            
                                                                                                                            
                                                                                                                            Amount
                                                                                                                            
                                                                                                                            
                                                                                                                            shares
                                                                                                                            
                                                                                                                            
                                                                                                                            Amount
                                                                                                                            
                                                                                                                            
                                                                                                                            Capital
                                                                                                                            
                                                                                                                            
                                                                                                                            Loss
                                                                                                                            
                                                                                                                            
                                                                                                                            Stage
                                                                                                                            
                                                                                                                            
                                                                                                                            (Deficit)Balances
      at, December 31, 2006
                                                                                                                            
                                                                                                                            
                                                                                                                            50,322,337
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            5,032
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            14,205
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (28,410
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            23,927,551
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (20,690,326
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            3,213,847Common
      shares issued for cash
                                                                                                                            
                                                                                                                            
                                                                                                                            4,857,159
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            486
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            6,799,538
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            6,800,024Exercise
      of stock options
                                                                                                                            
                                                                                                                            
                                                                                                                            127,500
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            12
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            59,988
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            60,000Stock
      option compensation
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,121,646
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,121,646Share
      issuance costs
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (139,674
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (139,674
                                                                                                                            )Net
      loss
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (4,304,005
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (4,304,005
                                                                                                                            )Balances
      at, December 31, 2007
                                                                                                                            
                                                                                                                            
                                                                                                                            55,306,996
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            5,530
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            14,205
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (28,410
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            31,769,049
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (24,994,331
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            6,751,838Common
      shares issued
                                                                                                                            
                                                                                                                            
                                                                                                                            628,858
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            65
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            899,936
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            900,001Exercise
      of stock options
                                                                                                                            
                                                                                                                            
                                                                                                                            90,000
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            9
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            31,191
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            31,200Stock
      option compensation expense
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            484,684
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            484,684Net
      (loss)
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (4,912,148
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (4,912,148
                                                                                                                            )Unrealized
      loss on securities available for sale
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (550,480
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (550,480
                                                                                                                            )Balances
      at, December 31, 2008
                                                                                                                            
                                                                                                                            
                                                                                                                            56,039,854
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            5,604
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            14,205
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (28,410
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            33,184,860
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (550,480
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            (29,906,479
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,705,095








(See the
notes accompanying the financial statements.)





F-6
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Statement
of Cash Flows


Years Ended
                                          December 31,
                                        
                                        
                                        Cumulative
                                          From
      March 19,
                                          2001
                                          (Inception)
      to
                                          December 31,2008
                                        
                                        
                                        2007
                                        
                                        
                                        2008Cash
      Flows from Operating Activities:Net
      loss
                                        
                                        $
                                        (4,912,148
                                        )
                                        
                                        $
                                        (4,304,005
                                        )
                                        
                                        $
                                        (29,906,479
                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Beneficial
      conversion feature
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,625,000Compensatory
      stock
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        21,877Depreciation
      and amortization
                                        
                                        
                                        55,743
                                        
                                        
                                        
                                        65,070
                                        
                                        
                                        
                                        503,585Stock
      option compensation expense
                                        
                                        
                                        484,684
                                        
                                        
                                        
                                        1,121,646
                                        
                                        
                                        
                                        3,856,834Amortization
      of deferred revenue
                                        
                                        
                                        (75,000
                                        )
                                        
                                        
                                        (75,000
                                        )
                                        
                                        
                                        (450,000
                                        )Realized
      losses on marketable securities available-for-sale
                                        
                                        
                                        20,366
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        20,366Changes
      in assets and liabilities:Prepaid
      expenses and other
                                        
                                        
                                        350,440
                                        
                                        
                                        
                                        (234,019
                                        )
                                        
                                        
                                        (366,765
                                        )Accounts
      payable and accrued expenses
                                        
                                        
                                        (247,938
                                        )
                                        
                                        
                                        31,469
                                        
                                        
                                        
                                        358,894Net
      Cash Used in Operating Activities
                                        
                                        
                                        (4,323,853
                                        )
                                        
                                        
                                        (3,394,839
                                        )
                                        
                                        
                                        (24,336,688
                                        )Cash
      Flows from Investing Activities:`Purchase
      of equipment
                                        
                                        
                                        (27,193
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (525,713
                                        )Purchase
      of marketable securities
                                        
                                        
                                        (5,848,176
                                        )
                                        
                                        
                                        (3,550,000
                                        )
                                        
                                        
                                        (9,398,176
                                        )Proceeds
      from sales of marketable securities
                                        
                                        
                                        5,827,580
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        5,827,580Net
      Cash Used in Investing Activities
                                        
                                        
                                        (47,789
                                        )
                                        
                                        
                                        (3,550,000
                                        )
                                        
                                        
                                        (4,096,309
                                        )Cash
      Flows from Financing Activities:Issuance
      of common stock
                                        
                                        
                                        931,201
                                        
                                        
                                        
                                        6,720,350
                                        
                                        
                                        
                                        22,536,753Proceeds
      from long-term debt
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,150,000Proceeds
      from research contribution
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,500,000Payment
      of licensing fees
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (356,216
                                        )Principal
      payments on long-term debt
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (28,410
                                        )Net
      Cash Provided by Financing Activities
                                        
                                        
                                        931,201
                                        
                                        
                                        
                                        6,720,350
                                        
                                        
                                        
                                        28,802,127Net
      (Decrease) Increase in Cash and Cash Equivalents
                                        
                                        
                                        (3,440,441
                                        )
                                        
                                        
                                        (224,489
                                        )
                                        
                                        
                                        369,130Cash
      and Cash Equivalents - beginning of period
                                        
                                        
                                        3,809,571
                                        
                                        
                                        
                                        4,034,060
                                        
                                        
                                        
                                        -Cash
      and Cash Equivalents - end of period
                                        
                                        $
                                        369,130
                                        
                                        
                                        $
                                        3,809,571
                                        
                                        
                                        $
                                        $369,130Supplemental
      Cash Flow Information:Interest
      paid
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        8,235
                                        
                                        
                                        $
                                        $301,147Non-cash
      financing and investing activities:Warrants
                                        
                                        $
                                        220,004
                                        
                                        
                                        $
                                        1,194,283
                                        
                                        
                                        $
                                        $1,414,287








(See the
notes accompanying the financial statements.)





F-7
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


1.
            Operations
      and Organization




Operations,
Organization and Management Plans


Rexahn
Pharmaceuticals, Inc. (the "Company" or "Rexahn Pharmaceuticals"), a Delaware
corporation, is a development stage biopharmaceutical company dedicated to the
discovery, development and commercialization of innovative treatments for
cancer, central nervous system (CNS) disorders, sexual dysfunction and other
medical needs.  The Company had an accumulated deficit of
approximately $29,900,000 at December 31, 2008 and anticipates incurring losses
through the year 2009 and beyond.  The Company has not yet generated
commercial sales revenue and has been able to fund it operating losses to date
through the sale of its common stock, issuance of long-term debt, and proceeds
from reimbursed research and development costs.  The Company believes
that its existing cash and cash equivalents and short-term investments will be
sufficient to cover its cash flow requirements for 2009.  Management
has the capability of managing the Company’s operations within existing cash and
marketable securities available by reducing its research and development
activities.  This may result in slowing down clinical studies, but
will conserve the Company’s cash to allow it to operate for the next twelve
months.




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.




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





F-8
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


2.
            Summary
      of Significant Accounting Policies





a)
              Cash
      and Cash Equivalents





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





b)
              Marketable
      securities





Marketable
securities are considered “available-for-sale” securities in accordance with FAS
No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and
thus are reported at fair value in our accompanying balance sheets, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders’ equity.  Realized gains and losses are
accounted on the basis of specific identification and are included in other
income (expense) in our income statements.  If a decline in the fair
value of a marketable security below the Company’s cost basis is determined to
be other than temporary, such marketable security is written down to its
estimated fair value as a new cost basis and the amount of the write-down is
included in earnings as an impairment charge. To date, only temporarily
impairment charges have been recorded in any of the years presented
herein.  We classify marketable securities as current assets on our
balance sheets as the investments are readily marketable and available for use
in our current operations.





c)
              Equipment





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





Life
                        
                        Depreciation MethodFurniture
      and fixtures
                        7
      years
                        
                        double
      declining balanceOffice
      equipment
                        5
      years
                        
                        double
      declining balanceLab
      and computer equipment
                        5-7
      years
                        
                        double
      declining
balance





d)
              Research
      and Development





Research
and development costs are expensed as incurred.  Research and
development expenses consist primarily of amounts paid to contract research
organizations, hospitals and laboratories for the provision of services and
materials for drug development, clinical trials and salaries and related
personnel costs, as well as stock compensation related to these costs, costs to
acquire pharmaceutical products and product rights for development.




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)
              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.





F-9
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


f)
              Fair
      Value of Financial
Instruments





The
carrying amounts reported in the accompanying financial statements for cash and
cash equivalents, prepaid expenses and other current assets and accounts payable
and accrued expenses approximate fair value because of the short-term maturity
of these financial instruments.





g)
              Income
      Taxes





The
Company accounts for income taxes pursuant to Statement of Financial Accounting
Standards ("FAS") 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.  The Company has adopted FASB
Interpretation No. 48, or FIN 48, Accounting for Uncertainty in Income
Taxes, issued July 2006. FIN 48 applies to all tax positions related to
income taxes subject to FAS No. 109.  Under FIN 48, we recognize the
benefit from a tax position only if it is more-likely-than-not that the position
would be sustained upon an audit based solely on the technical merits of the tax
position.  Our policy to include interest and penalties related to
unrecognized tax benefits as a component of income tax expense did not change as
a result of implementing FIN 48.


h)
              Earnings
      or Loss Per Share:





The
Company accounts for earnings per share pursuant to FAS 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.




Diluted
loss per share for the years ended December 31, 2008 and 2007 is the same as
basic loss per share, since the effects of the calculation were anti-dilutive
due to the fact that the Company incurred losses for all periods presented. The
following securities, presented on a common share equivalent basis, have been
excluded from the per share computations:





F-10
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007





For the years endedDecember 31,
                    2008
                  
                  
                  December 31,
                    2007Stock
      Options
                  
                  
                  7,760,795
                  
                  
                  
                  6,045,795Warrants
                  
                  
                  1,207,148
                  
                  
                  
                  1,078,5768,967,943
                  
                  
                  
                  7,124,371





i)
              Stock-Based
      Compensation





Effective
January 1, 2006, the Company’s Stock-based Employee Compensation Plan is
accounted for in accordance with the recognition and measurement provisions of
Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004),
Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. FAS 123(R) requires compensation costs related to share-based
payment transactions, including employee stock options, to be recognized in the
financial statements. In addition, the Company adheres to the guidance set forth
within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No.
107 ("SAB 107"), which provides the Staff's views regarding the interaction
between FAS No. 123(R) and certain SEC rules and regulations and provides
interpretations with respect to the valuation of share-based payments for public
companies.  See footnote 9 for further details.


j)
              Impairment
      of Long-Lived Assets and Intangible
Assets





In
accordance with FAS 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.




F-11
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


k)
            Concentration
      of Credit Risk





The
Company does not have significant off-balance sheet risk or credit
concentration.  The Company maintains cash and marketable securities
with major financial institutions.  From time to time the Company has
funds on deposit with commercial banks that exceed federally insured
limits.  As of December 31, 2008, the Company had cash of $119,130 in
excess of insured limits.  The marketable securities are not covered
by any federal insurance programs.





l)
              Comprehensive
      Loss





Comprehensive
loss for 2008 was $5,462,628 which is comprised of $550,480 of other
comprehensive loss and net loss for the year ended December 31, 2008 of
$4,912,148





m)
              Recent
      Accounting Standards Affecting the
Company





Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (“FAS
159”).  FAS 159 provides companies an option to report certain
financial assets and liabilities at fair value and established presentation and
disclosure requirements.  The intent of FAS 159 is to reduce the
complexity in accounting for financial instruments and the volatility of
earnings caused by measuring related assets and liabilities
differently.  The Company chose not to elect the fair value option for
its financial assets and liabilities exiting at January 1, 2008, and did not
elect the fair value option on financial assets and liabilities transacted
during the year ended December 31, 2008.  Therefore, the adoption of
SFAS 159 had no impact on the Company’s financial
statements.  Effective January 1, 2008, the Company adopted FAS No.
157, with the exception of the application of the statement to non-recurring
nonfinancial assets and nonfinancial liabilities. The adoption of FAS No. 157
did not impact the Company’s financial position or results of
operations.





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





F-12
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


In
December 2007, FASB issued FAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—amendment of Accounting Research Bulletin No.
51” (“FAS No. 160”). FAS No. 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. FAS No. 160 also changes the
way the consolidated income statement is presented by requiring consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the noncontrolling interest. It also requires disclosure, on the
face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. FAS No.
160 requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent owners and the interests of the noncontrolling
owners of a subsidiary. FAS No.160 is effective for fiscal periods, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  The adoption of FAS No. 160 will not have an impact on the
Company’s financial statements.





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





In June
2007, the EITF issued EITF Issue No. 07-03, “Accounting for Advance Payments for
Goods or Services to Be Used in Future Research and Development,” (“EITF
07-03”).  EITF 07-03 addresses the accounting for the non-refundable
portion of a payment made by a research and development entity for future
research and development activities.  Pursuant to EITF 07-03, an
entity is required to defer and capitalize non-refundable advance payments made
for research and development activities until the related goods are delivered or
the related services are performed.  EITF 07-03 is effective for
fiscal years beginning after December 15, 2007.  We adopted EITF 07-03
beginning in the first quarter of our 2008 fiscal year and it did not have a
material impact to our financial position or results of operations.





F-13
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


3.
            Marketable
      Securities





The
following is a summary of marketable securities:





Cost
                            
                            
                            Gross Unrealized Gains
                            
                            
                            Gross Unrealized Losses
                            
                            
                            Estimated Fair ValueDecember
      31, 2008State
      authority auction rate bonds
                            
                            $
                            3,550,000
                            
                            
                            $
                            0
                            
                            
                            $
                            550,250
                            
                            
                            $
                            2,999,750$
                            3,550,000
                            
                            
                            $
                            0
                            
                            
                            $
                            550,250
                            
                            
                            $
                            2,999,750December
      31, 2007State
      authority auction rate bonds
                            
                            $
                            3,550,000
                            
                            
                            $
                            0
                            
                            
                            $
                            0
                            
                            
                            $
                            3,550,000$
                            3,550,000
                            
                            
                            $
                            0
                            
                            
                            $
                            0
                            
                            
                            $
                            3,550,000





The amortized cost and estimate fair
value of marketable securities on December 31, 2008, by contractual maturities,
are shown below:





Cost
                  
                  
                  Estimated Fair ValueDue
      in one year or less
                  
                  $
                  0
                  
                  
                  $
                  0Due
      in two to ten years
                  
                  
                  0
                  
                  
                  
                  0Due
      in ten to twenty years
                  
                  
                  0
                  
                  
                  
                  0Due
      in twenty to forty years
                  
                  
                  3,550,000
                  
                  
                  
                  2,999,750$
                  3,550,000
                  
                  
                  $
                  2,999,750





In January 2009, the Company redeemed
all of its marketable securities at their cost of $3,550,000.





4.
            Prepaid
      Expenses and Other





December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007Deposits
      on contracts
                  
                  $
                  294,337
                  
                  
                  $
                  679,769Other
      assets
                  
                  
                  72,428
                  
                  
                  
                  37,436$
                  366,765
                  
                  
                  $
                  717,205





F-14
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


5.
            Equipment,
      Net





December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007Furniture
      and fixtures
                  
                  $
                  31,713
                  
                  
                  $
                  31,713Office
      equipment
                  
                  
                  70,276
                  
                  
                  
                  43,648Lab
      and computer equipment
                  
                  
                  423,724
                  
                  
                  
                  423,159525,713
                  
                  
                  
                  498,520Less:
      Accumulated depreciation
                  
                  
                  (433,501
                  )
                  
                  
                  (395,569
                  )Net
      carrying amount
                  
                  $
                  92,212
                  
                  
                  $
                  102,951





Depreciation
expense was $37,932 and $47,042 for the years ended December 31, 2008 and 2007,
respectively.





6.
            Intangible
      Assets, Net





On
February 10, 2005, the Company entered into a licensing agreement with Revaax
Pharmaceuticals LLC ("Revaax"), whereby the Company received an exclusive,
worldwide, royalty bearing license, with the right to sub-license Revaax's
licensed technology and products.  The agreement called for an initial
licensing fee of $375,000 to be payable to Revaax in eight quarterly
installments ending on November 10, 2006.  Accordingly, the Revaax
license has been measured at fair value at the date the licensing agreement was
entered into.  The fair value of the license component of $356,216 was
determined by discounting the stream of future quarterly payments of $46,875 at
6%, the prevailing market rate for a debt instrument of comparable maturity and
credit quality.  The asset is amortized on a straight line basis
over the estimated useful life of 20 years.  The discount was accreted
over the term of the liability, calculated based on the Company's estimated
effective market interest rate of 6%. During 2006 the outstanding balance was
paid.  Amortization expense was $17,811 and $18,028 for the years
ended December 31, 2008 and 2007 respectively. Management does not believe that
there is an impairment of intangible assets at December 31, 2008.


The
following table sets forth the intangible asset:





December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007Revaax
      license, original cost
                  
                  $
                  356,216
                  
                  
                  $
                  356,216Less:
      Accumulated amortization
                  
                  
                  (70,084
                  )
                  
                  
                  (52,273
                  )Balance
                  
                  $
                  286,132
                  
                  
                  $
                  303,943




F-15
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


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


2009
                  
                  $
                  17,8112010
                  
                  
                  17,8112011
                  
                  
                  17,8112012
                  
                  
                  17,8112013
                  
                  
                  17,811Thereafter
                  
                  
                  197,077$
                  286,132





7.
            Accounts
      Payable and Accrued Expenses





December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007Trade
      payables
                  
                  $
                  136,906
                  
                  
                  $
                  246,786Accrued
      expenses
                  
                  
                  98,486
                  
                  
                  
                  259,871Payroll
      liabilities
                  
                  
                  123,502
                  
                  
                  
                  100,175$
                  358,894
                  
                  
                  $
                  606,832





8.
            Deferred
      Revenue





In 2003,
the Company entered into a collaborative research agreement with Rexgene Biotech
Co., Ltd. ("Rexgene"), a minority stockholder.  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 the years ended December 31, 2008 and
2007.  The remaining $1,050,000 at December 31, 2008 (2007 -
$1,125,000) is reflected as deferred revenue on the balance
sheet.  The Company adopted SAB No. 104, "Revenue Recognition
Nonrefundable Up-front Fees" with respect to the accounting for this
transaction. These fees are being used in the cooperative funding of the costs
of development of RX-0201.  Royalties of 3% of net sales of licensed
products will become payable to the Company on a quarterly basis once commercial
sales of RX-0201 begin. The product is still under development and commercial
sales are not expected to begin until at least 2010.




9.
            Common
      Stock





The
following transactions occurred during fiscal years 2001 through December 31,
2008:





F-16
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


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





b)
            On
      August 10, 2001 the Company
issued:





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





ii)
            958,334
      shares of common stock to Rexgene for cash of
    $550,000.





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





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





c)
              On
      October 10, 2001 the Company issued 400,000 shares of common stock to
      Chong Kun Dang Pharmaceutical Corp. ("CKD") for cash of $479,991 and
      400,000 shares of common stock to an individual investor for cash of
      $479,991.





d)
            On
      October 10, 2001 the Company issued 200,000 shares of common stock to CKD
      for cash of $479,985.





e)
            Since
      inception, the Company's founders have transferred 800,000 shares of the
      common stock described in a) to officers and directors of the
      Company.





f)
            In
      July 2003, the shareholders described in b)(iii) and e) transferred an
      aggregate of 1,268,332 shares of common stock to a voting
      trust.  The trust allows for the unified voting of the stock by
      the trustees.  The appointed trustees are senior management of
      the Company who, together with their existing shares, control a majority
      of the voting power of the
Company.





g)
            On
      August 20, 2003 the Company issued 500,000 shares of common stock to
      KT&G Corporation for cash of
  $2,000,000.





h)
            On
      October 29, 2004, an option holder exercised options to purchase shares of
      the Company’s common stock for cash of $1,800 and the Company issued an
      aggregate of 1,500 shares.





i)
            Pursuant
      to the agreement and plan of merger which occurred on May 13, 2005, (i)
      each share of the issued and outstanding common stock of Rexahn, Corp
      (“Rexahn”) (other than dissenting shares) was converted into the right to
      receive five shares of Rexahn Pharmaceuticals common stock; (ii) each
      issued, outstanding and unexercised option to purchase a share of Rexahn
      common stock was converted into an option to purchase five shares of
      Rexahn Pharmaceuticals common stock and (iii) the par value of Rexahn's
      common stock was adjusted to reflect the par value of Corporate Road Show.
      Com Inc. (“CRS”) common stock.  In the acquisition merger,
      289,780,000 CRS pre-reverse stock split shares were converted into
      2,897,802 post-reverse stock split Rexahn Pharmaceuticals shares, and an
      additional 500,000 post-reverse stock split Rexahn Pharmaceuticals shares
      were issued to a former executive of CRS. For purposes of the Statement of
      Stockholders' Equity, the five-for-one stock split is reflected as a
      one-line adjustment.  All shares and earnings per share
      information has been retroactively restated in these financial
      statements.




F-17
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


j)
              On
      August 8, 2005, the Company issued, in a transaction exempt from
      registration under the Securities Act, 4,175,000 shares of common stock at
      a purchase price of $2.00 per
share.





k)
            On
      October 3, 2005, the Company issued 7,000 shares of common stock for
      $21,877 and $7,500 cash in exchange for
  services.





l)
            On
      December 2, 2005, the holders of a convertible note, representing
      $1,300,000 aggregate principal amount, exercised their option to convert
      the entire principal amount of the note into the Company's common
      stock.  Based on a $2.00 per share conversion price, the holders
      received an aggregate of 650,000
shares.




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





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





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





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





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





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





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





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





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





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





F-18
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


w)
              On
      December 18, 2007, the Company issued 4,857,159 units at a price $1.40 per
      share for total gross proceeds of $6,800,023.  Investors also were
      issued one warrant for every five shares purchased.  One warrant
      will entitle the holder to purchase an additional share of common stock at
      a purchase price of $1.80 at any time over a period of three years from
      the date of the closing of the private placement valued at $1,103,164 on
      closing and were charged to additional paid in capital. Private placement
      closing costs of $139,674, including 107,144 warrants issued, valued at
      $91,119, were recorded as a reduction of the issuance
      proceeds.





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





y)
            On
      March 20, 2008, the Company issued 642,858 units consisting of one share
      of the Company’s common stock and one warrant for every five common shares
      purchased in a private placement at a price of $1.40 per unit for total
      gross proceeds of $900,001. One warrant will entitle the holder to
      purchase an additional share of common stock at a price of $1.80 at any
      time over a period of three years from the date of the private placement.
      The warrants were valued at $220,004 and were charged to additional
      paid-in-capital.





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





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





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





10.
            Stock-Based
      Compensation





On August
5, 2003, the Company established a stock option plan (the “Plan”). Under the
Plan, the Company grants stock options to key employees, directors and
consultants of the Company. For all grants prior to September 12, 2005 and
grants to employees of the Company after September 12, 2005, the vesting period
is 30% on the first anniversary of the grant date, an additional 30% on the
second anniversary and the remaining 40% on the third anniversary. Options
expire between 5 and 10 years from the date of grant.





For
grants to non-employee directors and consultants of the Company after September
12, 2005, the vesting period is between 1 to 3 years, subject to the fulfillment
of certain conditions in the individual stock option grant agreements, or 100%
upon the occurrence of certain events specified in the individual stock option
grant agreements. Options authorized for issuance under the Plan total
17,000,000 after giving effect to an amendment to the Plan approved at the
Annual Meeting of the Stockholders of the Company on June 2, 2006 and at
December 31, 2008, 8,912,500 options were available for issuance.





Prior to
adoption of the plan, the Company made restricted stock grants. During 2003 all
existing restricted stock grants were converted to stock options. The converted
options maintained the same full vesting period as the original restricted stock
grants.





F-19
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


Accounting
for Employee Awards





Effective
January 1, 2006, the plan is accounted for in accordance with the recognition
and measurement provisions of FAS No. 123R, which replaces FAS No. 123 and
supersedes APB No. 25, and related interpretations.





The
Company's results of operations for the year ended December 31, 2008 and 2007
include share-based employee compensation expense totaling $253,198 and
$596,097, respectively. Such amounts have been included in the Statements of
Operations in general and administrative and research and development expenses.
No income tax benefit has been recognized in the Statements of Operations for
share-based compensation arrangements as the Company has provided for a 100%
valuation allowance on its deferred tax assets.  Employee stock option
compensation expense in 2008 is the estimated fair value of options granted
amortized on a straight-line basis over the requisite service period for the
entire portion of the award.





Accounting
for Non-Employee Awards





The
Company previously accounted for options granted to its non-employee consultants
and non-employee registered representatives using the fair value cost in
accordance with FAS No. 123 and EITF 96-18. The adoption of FAS No. 123R and SAB
No. 107, as of January 1, 2006, had no material impact on the accounting for
non-employee awards. The Company continues to consider the additional guidance
set forth in EITF Issue No. 96-18.





Stock
compensation expenses related to non-employee options were $231,487 and $525,549
for the year ended December 31, 2008 and 2007, respectively. Such amounts have
been included in the Statements of Operations in general and administrative and
research and development expenses.





Total
stock-based compensation recognized by the Company in the years ended December
31, 2008 and 2007, and the period from inception (March 19, 2001) to December
31, 2008, all of which relates to stock options and warrants, is as
follows:





F-20
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


Years ended
                        
                        
                        Inception
                          (March 19, 2001)
                          toDecember 31,
                          2008December 31,
                          2008
                        
                        
                        December 31,
                          2007Statement
      of Operations line item:  General and
    administrativePayroll
                        
                        $
                        60,350
                        
                        
                        $
                        408,731
                        
                        
                        $
                        1,157,078Consulting
      and other professional fees
                        
                        
                        136,918
                        
                        
                        
                        178,167
                        
                        
                        
                        734,020Research
      and development:Payroll
                        
                        
                        192,848
                        
                        
                        
                        187,366
                        
                        
                        
                        677,218Consulting
      and other professional fees
                        
                        
                        94,568
                        
                        
                        
                        347,382
                        
                        
                        
                        1,288,518Total
                        
                        $
                        484,684
                        
                        
                        $
                        1,121,646
                        
                        
                        $
                        3,856,834





During
the year ended December 31, 2008 and 2007, 2,005,000 and 525,000 stock options
were granted with fair values of $1,485,885 and $2,335,325
respectively.  The fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model. The Company took into
consideration guidance under FAS No. 123(R) and SAB No. 107 when reviewing and
updating assumptions. The expected volatility is based upon historical
volatility of the Company's stock. The expected term is based upon the
simplified method as allowed under SAB 110.





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








Year Ended
December 31,2008
                  
                  
                  2007Black-Scholes
      weighted average assumptionsExpected
      dividend yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Expected
      volatility
                  
                  
                  104
      - 114
                  %
                  
                  
                  100
                  %Risk
      free interest rate
                  
                  
                  1.55
      - 2.98
                  %
                  
                  
                  2.76
      - 4.99
                  %Expected
      term (in years)
                  
                  0.25
      - 5 years
                  
                  
                  0.05
      - 5 years





F-21
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


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





2008
                  
                  
                  2007Shares
                    subject to
                    Options
                  
                  
                  Weighted
                    Avg.
                    OptionPrices
                  
                  
                  Shares
                    Subject to
                    Options
                  
                  
                  Weighted
                    Avg.
                    Option PricesOutstanding
      at January 1
                  
                  
                  6,045,795
                  
                  
                  $
                  0.97
                  
                  
                  
                  6,123,295
                  
                  
                  $
                  0.94Granted
                  
                  
                  2,005,000
                  
                  
                  
                  1.13
                  
                  
                  
                  525,000
                  
                  
                  
                  1.48Exercised
                  
                  
                  (90,000
                  )
                  
                  
                  0.35
                  
                  
                  
                  (127,500
                  )
                  
                  
                  0.47Cancelled
                  
                  
                  (200,000
                  )
                  
                  
                  1.33
                  
                  
                  
                  (475,000
                  )
                  
                  
                  1.29Outstanding
      at December 31
                  
                  
                  7,760,795
                  
                  
                  $
                  1.01
                  
                  
                  
                  6,045,795
                  
                  
                  $
                  0.97Exercisable
      at December 31
                  
                  
                  5,366,795
                  
                  
                  $
                  0.92
                  
                  
                  
                  3,877,795
                  
                  
                  $
                  0.87Weighted
      Average Remaining Contractual Terms (Years)Outstanding
                  
                  
                  6.9
                  
                  
                  
                  
                  
                  
                  
                  6.9Exercisable
                  
                  
                  6.7
                  
                  
                  
                  
                  
                  
                  
                  6.7





The
intrinsic value of the options outstanding and exercisable was $987,817 and
$849,767, respectively, at December 31, 2008.The intrinsic value of
the options outstanding and exercisable was $8,029,932 and $5,521,496,
respectively, at December 31, 2007.




As of
December 31, 2008 and 2007, there was $2,411,468 and $1,410,269 of total
unrecognized compensation cost, respectively, and 2,394,000 and
2,168,000 unvested stock options, respectively, which is expected to be
recognized over a weighted average vesting period of 1.2 years and 1.8 years,
respectively.





Warrants
and Options





As at
December 31, 2008, warrants to purchase 1,207,148 shares were outstanding,
having an exercise price of $1.80 per share with an average remaining
contractual life of 2 years.





2008
                  
                  
                  2007Number of
                    warrants
                  
                  
                  Weighted average
                    exercise price
                  
                  
                  Number of
                    warrants
                  
                  
                  Weighted average
                    exercise priceBalance,
      January 1
                  
                  
                  1,078,576
                  
                  
                  $
                  1.80
                  
                  
                  
                  -
                  
                  
                  $
                  -Issued
      during the period
                  
                  
                  128,572
                  
                  
                  $
                  1.80
                  
                  
                  
                  1,078,576
                  
                  
                  $
                  1.80Exercised
      during the period
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -Balance,
      December 31,
                  
                  
                  1,207,148
                  
                  
                  $
                  1.80
                  
                  
                  
                  1,078,576
                  
                  
                  $
                  1.80





F-22
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


As at
December 31, 2008 the range of exercise prices of the outstanding warrants and
options were as follows:




Range
      of exercise prices
                                    
                                    
                                    Number
      of warrants
                                    
                                    Average
      remaining contractual life
                                    
                                    Weighted
      average exercise price$
                                    1.80
                                    
                                    
                                    
                                    1,207,148
                                    
                                    2
      years
                                    
                                    $
                                    1.80


Warrants
were valued using the Black-Scholes model, using the weighted average key
assumptions of volatility of 100%, a risk-free interest rate of 1.80% - 3.2%, a
term equivalent to the life of the warrant, and reinvestment of all dividends in
the Company of zero percent.





11.
            Income
      Taxes





No
provision for Federal income taxes was required for the years ended December 31,
2008 and 2007, due to the Company’s operating losses.  At December 31,
2008 and 2007, the Company has unused net operating loss carry-forwards of
approximately $ 29,906,000 and $24,994,000 which expire at various dates through
2028.  Most of this amount is subject to annual limitations under
certain provisions of the Internal Revenue Code related to “changes in
ownership”.





Income
tax benefit differs from the amount computed by applying the federal statutory
income tax rate of 35% to loss before income taxes due to the valuation
allowance.





As of
December 31, 2008 and 2007, the deferred tax assets related to the
aforementioned carry-forwards have been fully offset by valuation allowances,
since significant utilization of such amounts is not presently expected in the
foreseeable future.





Deferred
tax assets and valuation allowances consist of:




2008
                        
                        
                        2007Net
      operating loss carry-forwards
                        
                        $
                        11,364,336
                        
                        
                        $
                        9,554,013Valuation
      allowance
                        
                        
                        (11,364,336
                        )
                        
                        
                        (9,554,013
                        )Net
      deferred tax assets
                        
                        $
                        
                        
                        
                        $
                        -


We file
income tax returns in the U.S. federal and Maryland state
jurisdictions.  Tax years for fiscal 2005 through 2007 are open and
potentially subject to examination by the federal and Maryland state taxing
authorities.





12.
            Commitments
      and Contingencies





a)
              The
      Company has contracted with various vendors to provide research and
      development services. The terms of these agreements usually require an
      initiation fee and monthly or periodic payments over the terms of the
      agreement, ranging from 6 months to 24 months. The costs to be incurred
      are estimated and are subject to
revision.





As of
December 31, 2008 and 2007, the total dollar amount of these agreements was
approximately $3,125,000 and $1,972,000 and the Company made payments totaling
$2,475,000 and $1,353,000 under the terms of the agreements. All of these
agreements may be terminated by either party upon appropriate notice as
stipulated in the respective agreements.





F-23
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


b)
              The
      Company and three of its key executives entered into employment
      agreements. One of the two agreements was renewed on September 12, 2007
      and results in an annual commitment of $160,000 through September 12,
      2009. The second agreement expires on September 12, 2010 and results in an
      annual commitment of $350,000.  The third agreement expires on
      July 13, 2009 and results in an annual commitment of
    $200,000.





c)
            In
      April 2004, the Company signed a 5 year lease for 8,030 square feet of
      office space in Rockville, Maryland from July 2004 to June 2009. The lease
      requires annual base rents of $200,750 subject to annual increases of 3%
      of the preceding year’s adjusted base rent. Under the leasing agreement,
      the Company also pays its allocable portion of real estate taxes and
      common area operating charges.  Rent expense was $222,656 and
      $216,170, as of December 31, 2008 and 2007,
      respectively.





Minimum
future rental payments under this lease as of December 31, 2008 total $112,973
for fiscal year 2009.





d)
              Regulation
      by governmental authorities in the United States and in other countries
      constitutes a significant consideration in our product development,
      manufacturing and marketing strategies. The Company expects that all of
      drug candidates will require regulatory approval by appropriate
      governmental agencies prior to commercialization and will be subjected to
      rigorous pre-clinical, clinical, and post-approval testing, as well as to
      other approval processes by the FDA and by similar health authorities in
      foreign countries. United States federal regulations control the ongoing
      safety, manufacture, storage, labeling, record keeping, and marketing of
      all biopharmaceutical products intended for therapeutic
      purposes.





e)
              On
      August 19, 2008, the Company entered into an agreement with KCSA Strategic
      Communications (“KCSA”) for KCSA to provide investor relations services to
      the Company. Under this agreement, the Company agreed to pay KCSA a
      monthly fixed retainer amount of $7,000 commencing August 19,
      2008.  In December 2008, the monthly retainer was reduced to
      $4,000 per month.  In accordance with the agreement, the
      contract may be terminated by either party upon thirty (30) days prior
      written notice to the other
party.




13.
            Fair
      Value Measurements





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





F-24
 Index


REXAHN
PHARMACEUTICALS, INC.
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2008 and 2007


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





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





Investments,
at fair value—The Company investments, at fair value, consists of marketable
debt securities which are valued at market and classified within level 2 of the
fair value hierarchy.





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





Fair Value Measurements as ofDecember 31, 2008Total
                            
                            
                            Level 1
                            
                            
                            Level 2
                            
                            
                            Level 3Assets:State
      Authority Auction Rate Bonds
                            
                            $
                            2,999,750
                            
                            
                            
                            -
                            
                            
                            $
                            2,999,750
                            
                            
                            
                            -Total
      Assets
                            
                            $
                            2,999,750
                            
                            
                            $
                            -
                            
                            
                            $
                            2,999,750
                            
                            
                            $
                            -





14.
            Comparative
      Information





Certain
amounts for the year-ended December 31, 2007 have been reclassified to conform
with the current year’s financial statement presentation.





F-25
 Index





EXHIBIT
INDEX





Exhibit
                      Number
                    
                    ExhibitDescription3.1.
                    
                    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, 2005, 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, 2005, 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.*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-KSB filed on
      September 12, 2005, is incorporated herein by
    reference.*10.3.
                    
                    Employment
      Agreement, effective September 12, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and T. H. Jeong, filed as Exhibit 10
      to the Company's Current Report on Form 8-KSB filed on October 9,
      2007 is incorporated herein by reference.10.4.
                    
                    Research
      Collaboration Agreement dated February 6, 2003 by and between Rexahn
      Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd., filed as Exhibit 10.5
      to the Company’s Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 2005, is incorporated herein by reference.10.5.
                    
                    Revaax
      License Agreement, dated February 8, 2005, by and between Rexahn
      Pharmaceuticals, Inc. and Revaax Pharmaceuticals LLC, filed as Exhibit
      10.6 to the Company’s Annual Report on Form 10-KSB for the fiscal year
      ended December 31, 2005, is incorporated herein by
      reference.10.6
                    
                    Lease
      Agreement, dated April 26, 2004, by and between Red Gate III LLC and
      Rexahn Corporation, filed as Exhibit 10.3 to the Company’s Annual Report
      on Form 10-KSB for the fiscal year ended December 31, 2007, is
      incorporated herein by reference..10.7
                    
                    Securities
      Purchase Agreement, dated as of November 19, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and KT&G Corporation, filed as Exhibit 10.1 to
      the Company’s Current Report on Form 8-K filed on November 21, 2007, is
      incorporated herein by reference.10.8
                    
                    Securities
      Purchase Agreement, dated as of November 20, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and Rexgene Biotech Co., Ltd, filed as Exhibit 10.4
      to the Company’s Current Report on Form 8-K filed on November 21, 2007, is
      incorporated herein by reference.10.9
                    
                    Securities
      Purchase Agreement, dated as of December 17, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and Jungwoo Family Co., Ltd, filed as Exhibit 10.1
      to the Company’s Current Report on Form 8-K filed on December 18, 2007, is
      incorporated herein by reference.10.10
                    
                    Securities
      Purchase Agreement, dated as of December 17, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and Kumho Investment Bank, filed as Exhibit 10.2 to
      the Company’s Current Report on Form 8-K filed on December 18, 2007, is
      incorporated herein by
reference.





Index




Exhibit
                      Number
                    
                    ExhibitDescription10.11
                    
                    Securities
      Purchase Agreement, dated as of December 17, 2007, by and between Rexahn
      Pharmaceuticals, Inc. and the several parties thereto, filed as Exhibit
      10.3 to the Company’s Current Report on Form 8-K filed on December 18,
      2007, is incorporated herein by reference.10.12
                    
                    Warrant,
      dated December 24, 2007, issued to KT&G Corporation, filed as Exhibit
      10.6 to the Company’s Current Report on Form 8-K filed on December 26,
      2007, is incorporated herein by reference.10.13
                    
                    Warrant,
      dated December 24, 2007, issued to Rexgene Biotech Co., Ltd., filed as
      Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December
      26, 2007, is incorporated herein by reference.10.14
                    
                    Form
      of Warrant, dated December 24, 2007, issued to the purchasers pursuant to
      the Jungwoo Securities Purchase Agreement, the Kumho Securities Purchase
      Agreement, the Individual Investor Securities Purchase Agreement and to a
      consultant, filed as Exhibit 10.4 to the Company’s Current Report on Form
      8-K filed on December 18, 2007, is incorporated herein by
      reference.10.15
                    
                    Registration
      Rights Agreement, dated as of December 24, 2007, by and among Rexahn
      Pharmaceuticals, Inc. and the purchasers pursuant to the KT&G
      Securities Purchase Agreement, the Rexgene Securities Purchase Agreement,
      the Jungwoo Securities Purchase Agreement, the Kumho Securities Purchase
      Agreement, the Individual Investor Securities Purchase Agreement and a
      consulting Services Agreement, filed as Exhibit 10.9 to the Company
      Current Report on Form 8-K filed on December 26, 2007, is incorporated
      herein by reference.10.16
                    
                    Securities
      Purchase Agreement, dated as of March 20, 2008, by and between Rexahn
      Pharmaceuticals, Inc. and Jungwoo Family Co., Ltd. (the "Jungwoo
      Securities Purchase Agreement”), filed as Exhibit 10.1 to the Company's
      current report on Form 8-K filed on March 26, 2008, is incorporated herein
      by reference.10.17
                    
                    Securities
      Purchase Agreement, dated as of March 20, 2008, by and between Rexahn
      Pharmaceuticals, Inc. and Super Bio Co. Ltd., (the "Super Bio Securities
      Purchase Agreement"), filed as Exhibit 10.2 to the Company's current
      report on Form 8-K filed on March 26, 2008, is incorporated herein by
      reference.10.18
                    
                    Form
      of Warrant for issuance pursuant to the Jungwoo Securities Purchase
      Agreement and the Super Bio Securities Purchase Agreement, filed as
      Exhibit 10.3 to the Company's current report on Form 8-K filed on March
      26, 2008, is incorporated herein by reference.*10.19
                    
                    Employment
      Agreement, dated July 14, 2008, by and between Rexahn Pharmaceuticals,
      Inc. and Rakesh Soni, filed as Exhibit 10.1 to the Company's
      Current Report on Form 8-K filed on July 16, 2008, is incorporated
      herein by reference.*10.20
                    
                    Consulting
      Agreement, dated August 12, 2008, by and between Rexahn Pharmaceuticals,
      Inc. and Y. Michelle Kang, filed as Exhibit 10.1 to the
      Company's Current Report on Form 8-K filed on August 27, 2008, is
      incorporated herein by reference.14
                    
                    Code
      of Ethics and Business Conduct.23.1
                    
                    Consent
      of Parente Randolph, LLC, independent registered public accounting
      firm.23.2
                    
                    Consent
      of Lazar Levine & Felix 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.