UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-KSB





(Mark
One)


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





For the
Fiscal Year Ended December 31, 2007





OR





£ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





For the
Transition Period from _________ to _________





Commission
file number:  000-50590





REXAHN
PHARMACEUTICALS, INC.


(Name of
small business issuer in its charter)





Delaware
            
            11-3516358(State
      or other jurisdiction of incorporation or organization)
            
            (IRS
      Employer Identification No.)





9620
Medical Center Drive


Rockville,
Maryland 20850


(Address
of principal executive offices)





(240)
268-5300


(Issuer's
telephone number)





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





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


Common
Stock, par value $0.0001 per share


(Title of
class)





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act: Yes £No T.





Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes TNo £





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. T














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





State
issuer's revenues for its most recent fiscal year: $75,000.





As of
March 28, 2008, the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the issuer was approximately $103,589,122 based
on the closing trade reported on the Over-the-Counter Bulletin
Board.





As of
March 28, 2008, the number of shares of the issuer's common stock outstanding
was: 55,935,649.





Documents
incorporated by reference:  Certain information contained in the
issuer’s definitive Proxy Statement for the 2008 annual meeting of stockholders
(the “Definitive Proxy Statement”), to be filed not later than 120 days after
the end of the fiscal year covered by this report, is incorporated by reference
into Part III hereof.





Transitional
Small Business Disclosure Format (Check one): Yes £No T





ii





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





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





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





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





·
            demand
      for and market acceptance of our drug
  candidates;





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





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





·
            other
      risks and uncertainties, including those set forth herein under the
      caption "Risk Factors" and those detailed from time to time in our filings
      with the Securities and Exchange
Commission.





These
forward-looking statements are made only as of the date hereof, and we undertake
no obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.  The safe
harbors for forward-looking statements provided by the Private Securities
Litigation Reform Act are unavailable to issuers of "penny
stock".  Our shares may be considered a penny stock and, as a result,
the safe harbors may not be available to us.





iii





REXAHN PHARMACEUTICALS,
INC.








INDEX


PAGEPART
      I
            
            
            
            1Item 1.
            
            Description of Business
            
            1Item 2.
            
            Description of Property.
            
            27Item 3.
            
            Legal Proceedings.
            
            28Item 4.
            
            Submission of Matters to a Vote of Security
      Holders.
            
            28PART
      II
            
            
            
            29Item 5.
            
            Market for Common Equity and Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities.
            
            29Item 6.
            
            Management's Discussion and Analysis or Plan of
      Operation
            
            30Item 7.
            
            Financial Statements
            
            40Item 8A.
            
            Controls and Procedures
            
            62Item 8B.
            
            Other Information
            
            63PART
      III
            
            
            
            64Item 9.
            
            Directors, Executive Officers, Promoters and Control
      Persons; Compliance with Section 16(a) of the Exchange
      Act
            
            64Item
      10.
            
            Executive Compensation
            
            64Item 11.
            
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            64Item 12.
            
            Certain Relationships and Related Transactions; and
      Director Independence
            
            64Item 13.
            
            Exhibits
            
            65Item 14.
            
            Principal Accountant Fees and Services
            
            67SIGNATURES
            
            68





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
entering Phase II clinical trials this year and four 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 is
developing targeted cancer drugs and nano-medicines to address unmet needs in
cancer treatment, and significantly improve quality of life and survival of
patients.





·
            Targeted cancer
      drugs.  Signal
      transduction is the process of relaying external information from the
      surface of cells to a specific internal response, such as cancer cell
      proliferation. Signals are conveyed through tightly regulated
      communication networks and pathways that consist of functionally diverse
      molecules such as protein kinases, transcription factors and their
      interacting molecules. As understanding of the molecular basis for
      signal transduction of cancer cells continues to increase, the
      identification of molecular targets and development of more targeted
      therapeutics have evolved.1





Rexahn is
developing targeted cancer drugs that inhibit cancer cell signal transduction
and block the production of proteins involved in tumor growth and survival. The
protein kinase Akt, and the transcription factor hypoxia-Inducible Factor-1
alpha
(HIF-1α) are
key signal proteins important for tumor growth and expansion.Akt is
often over-expressed and activated in major human solid tumors, and may
contribute to cancer cell survival, proliferation, metastasis, and
resistance.2 HIF-1αplays a vital role in angiogenesis
and is overexpressed in many human cancers, including renal cell carcinoma,
ovarian, pancreatic, and prostate cancers. HIF-1αoverexpression is
correlated with tumor growth, metastasis and patient mortality.3







1
            Pipeline
      Insight: Cancer Overview, September 2007
  (Datamonitor).


2
            Seton-Rogers
      S.  Akt-1 wears many hats. Nature Reviews – Cancer, June 2007;
      7.


3
            Konac
      E et al. An investigation of relationships between hypoxia-inducible
      factor-1 alpha gene polymorphisms and ovarian, cervical and endometrial
      cancers. Cancers Detect Prev.
      2007;31(2):102-9.





1
 Index





·
            Cancer
      Nanomedicines.  Innovative cancer nanomedicines offer
      significant advantages and treatment benefits, including: improved quality
      of life for cancer patients through improved target drug delivery, reduced
      side effects, and greater treatment
  effectiveness.





ArchexinTM,
RX-0201-nano and other Rexahn targeted cancer drugs have the potential to
address key market needs by delivering:





(1)           New treatments for relapsed and
refractory cancers. Targeting key signal molecules responsible for
cancer relapse with new potent anticancer drugs could significantly
improve cancer treatment outcomes, and inhibit and down-regulate cancer
signaling molecules.





(2)           Cancer treatments that address drug
resistance. Both Akt and
HIF-1α are closely involved in cancer resistance. The activation of
Akt is a main mechanism for drug resistance of EGFR tyrosine kinase inhibitors
(TKIs). TKIs are currently considered a major advance in cancer treatment,
but once the drug resistance to the TKIs occurs, those drugs are not effective
anymore. Therefore, need for a drug like ArchexinTM that
inhibits activated Akt is in high demand.4 HIF-1αis a key mechanism of
radiation resistance. Treatment with radiation is sometimes a cure method
in cancer treatment, therefore, resistance; therefore, direct inhibition of
HIF-1 may address radiation resistance and lead to better treatment
outcomes.





(3)           Less toxic and more effective cancer
drugs. Increased selectivity for a growing range of cancer molecular
targets offers the opportunity to commercialize more effective and less toxic
cancer treatments.5





We
currently have a number of drug candidates in clinical development. Our lead
anti-cancer drug candidate, ArchexinTM, which we previously referred to as
RX-0201, completed Phase I clinical trials in 2006 and is currently in Phase II
clinical trials for patients with renal cell carcinoma (RCC), an abnormal growth
of cells lining the tubules of the kidney.  ArchexinTM received "orphan
drug" designation from the U.S. Food and Drug Administration, or FDA, for five
cancer indications (RCC, glioblastoma, ovarian cancer, stomach cancer and
pancreatic cancer).  The FDA orphan drug program is intended to
stimulate research, development and approval of products that treat rare
diseases.  With orphan drug designation, sponsor companies benefit
from an expedited FDA review or approval process, seven years of marketing
exclusivity after approval and tax incentives for clinical
research.





Rexahn is
currently developing SerdaxinTM for
treatment of depression, and ZoraxelTM for
treatment of sexual dysfunction. ZoraxelTM is in
Phase II clinical trials in male erectile dysfunction and is a dual enhancer of
serotonin and dopamine that are key brain neurotransmitters important for sexual
function such as sexual arousal, erection and ejaculation. Phase II clinical
trials for SerdaxinTM are
also planned in 2008. Further, Rexahn leverages its proprietary nanomedicine
research and multi-target aimed ligands platform to strengthen its pre-clinical
pipeline, and develop cancer drugs that offer greater therapeutic benefits and
quality of life for patients.









4
            Arteaga
      CL. HER3 and mutant EGFR meet MET. Nature Medicine, June 2007; 13 (6):
      675-7.


5
            Cancer,
      2007 (Datamonitor).





2
 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
Food and Drug Administration, or FDA, reviewer, and National Cancer Institute,
or NCI, research scientist, helped guide the company's 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
Background





Overview





Our
research and development focuses on three therapeutic areas that affect the
lives of many people—cancer, CNS and mood disorders, and sexual
dysfunction.  All of 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 American Cancer Society's Cancer Facts & Figures 2008, cancer is
the second leading cause of death among Americans and is responsible for one of
every four deaths in the United States.  In 2008, more than
565,650 Americans are expected to die of cancer and approximately 1,437,180 new
cases are expected to be diagnosed.  These estimates do not include
non-invasive cancer (except urinary bladder) or more than 1 million cases
of basal and squamous cell skin cancers expected to be diagnosed in
2008.





Worldwide,
it is predicted that the number of new cancer cases diagnosed will rise to 16
million annually in 2020 from 11 million in 2002, with cancer-related deaths
reaching 10 million in 2020 versus 6.7 million in 2002.6 Cancer
drug sales in 2005 were estimated to be $42 billion worldwide. Global sales of
cancer drugs are predicted to grow to $60 billion by 2010, driven mainly by
commercialization of molecular targeted therapies.7





According
to the World Health Organization (WHO), 154 million cases of depression are
reported worldwide annually. Antidepressant drugs are the largest segment of
global CNS therapeutics sales, forecasted at $18 billion for 2008.8  There
are 45 million estimated prevalent cases of major depressive disorder (MDD) in
the US, with prevalence rates ranging from 7% to 15%.9 In
2006, US revenues for antidepressants accounted for 77% of global total sales.
Among the various drug classes of antidepressants, the selective serotonin
re-uptake inhibitors/ serotonin-norepinephrine
reuptake inhibitors or SSRI/SNRI drugs generated approximately 59% of
MDD-specific revenues while non-SSRI/SNRIs accounted for 41%.10 Market
opportunities include new depression drugs that reduce the time to therapeutic
onset, have new mechanisms of action for better efficacy and significantly
reduced adverse reactions, and address the needs of an aging elderly population
with concomitant neurodegenerative illnesses.







6
            Cancer,
      2007 (Datamonitor).


7
            Pipeline
      Insight: Cancer Overview Emerging Therapeutic and Market Opportunities,
      July 2006 (Datamonitor).


8
            The
      Lifestyle Drugs Outlook to 2008.


9
            Pipeline
      Insight: Depression, March 2007
(Datamonitor).


10
            Commercial
      Insight: Depression, June 2007
(Datamonitor).





3
 Index





There are
150 million estimated men with erectile dysfunction or ED worldwide. In the
year 2025, it is estimated that 322 million men worldwide will suffer from some
degree of sexual dysfunction.11 Current
worldwide sales for all ED drugs are about $3 billion.12  ED
is estimated to affect up to 30 million men in the United States13, with
52% of men between the ages of 40 and 70 reporting difficulty with erectile
function.1 About
30% of patients are refractory to PDE-5 inhibitors such as Viagra® and Cialis®,
providing significant market opportunity for new class of ED drugs.





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.  In certain cancer tumor types, radiotherapy cure rates are
as high as for surgery and can be used when surgery would be unable to remove
the tumor completely or is deemed inappropriate.  Cytotoxic cancer
drugs destroy cancer cells by interfering with various stages of the cell
division process.  Chemotherapy is used as a primary treatment for
leukemia, other blood cancers, and inoperable or metastatic solid cancer
tumors.  However, many current 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 Therapies


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





·
            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
      for patients with
chemotherapeutics.





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







11
            Ayta
      et al. The likely worldwide increase in erectile dysfunction between 1995
      and 2025. BJU Int. 1999; 84:50-56.


12
            Pharmaventures,
      PharmaDeals May 2005: 16-17.


13
            Benet
      and Melman. The epidemiology of erectile dysfunction. Urol Clin North Am
      1995; 22:699–709.


14
            Feldman,
      et al. Impotence and its medical and psychosocial correlates: Results of
      the Massachusetts Male Aging Study. J. Urol. 1994;
    151:54–61.





4
 Index





Current
Renal Cell Carcinoma Treatments





There are
two main treatment approaches for RCC. First, for earlier stages I-III, radical
or nephron-sparing surgery is used to remove part, or all, of the kidney for
tumor resection. Second, the typical treatment approach for advanced, stage IV
RCC involves immunotherapy using the cytokines interleukin-2 (IL-2) and
interferon-alpha (IFN-alpha). Cytokines have limited efficacy and significant
toxicities. Only 4% to 6% of all RCC tumors respond completely to
immunotherapy.  From 2006 and onward, immunotherapy has been giving
way to the advent of new RCC treatment using molecular targeted therapeutics
such as Nexavar and Sutent.





Unmet
Needs in RCC Treatment





The lead
indication for ArchexinTM is
renal cell carcinoma (RCC). RCC incidence is increasing by 3% annually.15 Among
the most difficult cancers to treat, RCC has an estimated 208,000 incident cases
worldwide and 40,000 U.S. cases. More than 102,000 die from RCC annually
according to the Kidney Cancer Association (2005). 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-III patients
relapse following treatment or surgical resection. Once metastatic disease
develops, five-year survival is low and ranges from 0% to 20%.16 There
remain high unmet needs in RCC such as the need for adjuvant therapy
following surgery, drug resistance, and less toxic and more effective
drugs.





ArchexinTM:  First-in-classanti-cancer Akt
Inhibitor





ArchexinTM is
a first-in-class, potent inhibitor of the Akt-1 protein kinase in cancer cells.
ArchexinTM is in
Phase II trials for treatment of renal cell carcinoma (RCC) and has US 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, whereas other targeted drugs may only inhibit inactivated Akt
and be vulnerable to development of drug resistance.





Role of Akt in Cancer. 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.





How ArchexinTMInhibits the 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.





Clinical
Development.  The Phase II clinical study of ArchexinTM is a
multicenter trial in patients with relapsed or refractory RCC.  In
this trial, ArchexinTM is
administered by continuous infusion for up to 6 cycles of therapy. ArchexinTM has
demonstrated excellent tolerability and minimal side effects in the Phase I
clinical trial. The dose-limiting toxicity of ArchexinTM was
grade 3 (G3) fatigue at the dose of 315 mg/m2/day. No
significant hematological abnormalities were observed.










15
            McLaughlin
      and Lipworth, 2000; Datamonitor.


16
            Mekhail
      et al, 2005.





5
 Index








We have
been granted a U.S. patent for our Akt inhibitor compounds, including ArchexinTM.
Our composition of matter patent covers broad claims for the nucleotide
sequences of the anti-sense 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.





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 Depression





High
unmet needs for treating Major Depressive Disorder (MDD) include17:





·
            Faster onset of action.
      Current anti-depressants take four to six weeks to relieve depression
      symptoms. The delay in onset of anti-depressant 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 anti-depressants, 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.18  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.









17
            Depression,
      June 2007; Stakeholder Insight: Major Depressive Disorder (MDD), March
      2006 (Datamonitor).




18
            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).




6
 Index





SerdaxinTM:
Antidepressant Drug





SerdaxinTM
is being developed to treat depression and mood disorders, and has proven and
well-established safety in humans. SerdaxinTM is a
dual enhancer of serotonin and dopamine levels in the brain. It has a non-SSRI
mechanism, and may effectively treat negative mood state and loss of positive
mood state, and mixture of both mood states as well.  The SSRI class
of antidepressants is suggested to be effective in treating the negative mood
state, but not effective for the mood disorder resulting from loss of positive
mood state. The loss of positive mood state may respond well to dopamine-based
drugs. Studies to date indicate that SerdaxinTM has no
motor impairment and cognition deficit of benzodiazepines, and no insomnia,
weight gain, nausea and sexual dysfunction – potentially resulting in greater
medication compliance.  Of the disadvantages linked to SSRIs, SNRIs,
and benzodiazepines, SerdaxinTM
addresses most of the highest unmet needs by providing potentially faster onset
of action, better and broader efficacy and fewer side effects.





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. Viagra® pioneered
the ED market, and generated blockbuster sales. Cialis® and Levitra® were
subsequently launched in 2003 as second-generation PDE-5 inhibitor
drugs.





The PDE-5
inhibitors are the standard of care in ED therapeutics. Viagra® has brand and
prescriber loyalty, and long-standing established clinical data. Cialis® has a
longer-lasting effect and is available in two formulations, a long acting and
daily dose. Levitra® has greater selectivity to act on erectile tissue.19 The
majority of ED drugs in the R&D pipeline work by a ‘me-too’ PDE-5
inhibitor mechanism of action, and are unlikely to establish a new standard of
care for the future.20
Dopamine agonists are in clinical trials for ED, but those drugs tend to have
side effects of nausea and vomiting. Generics will further impact competitive
dynamics starting 2012 with Viagra® patent expiry followed by Cialis® and
Levitra® in 2016 and 2018, respectively.21





Unmet
Needs in Sexual Dysfunction





Viagra®,
Cialis®, and Levitra® are about 45% to 70% effective with potential side effects
such as headaches, GI stomach upset, and cardiovascular issues.  PDE-5
inhibitors are designed for erectile function only, working by peripheral action
on the blood vessels and erectile tissue. 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.22 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). Beyond the PDE-5
inhibitors, there is currently no single class of ED drugs to dominate the
market.22





ZoraxelTM:
Erectile Dysfunction (ED) Drug





ZoraxelTM is
a CNS-based sexual dysfunction drug that has extensive and excellent safety in
humans. ZoraxelTM is a
dual serotonin and dopamine enhancer in the brain, where these neurotransmitters
play a key role in three phases (sexual motivation-arousal, erection and
release) of sexual activity. ZoraxelTM may be
the first ED drug to affect all three phases of the sexual activity. In
pre-clinical studies and animal models, ZoraxelTM
significantly improved sexual performance and suggested positive behavioral
effects on sexual motivation and arousal.









19
            Pharmaventures,
      2005.


20
            Erectile
      Dysfunction, 2006 (Datamonitor).


21
            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.


22
            Stakeholder
      Opinions: Erectile Dysfunction, December 2006
    (Datamonitor).





7
 Index





ZoraxelTM Phase II
trials for treatment of erectile dysfunction are in progress. The PDE-5
inhibitors are the standard of care in ED therapeutics and are designed for
erectile function only, working by peripheral action on the blood vessels and
erectile tissue. In contrast, ZoraxelTM, which
acts in the CNS affecting all three phases of sexual activity, including sexual
arousal and release, may be superior to PDE-5 inhibitors, and offer clinical
benefits over dopamine agonists.  ZoraxelTM appears
to be well-tolerated with excellent safety.





Market
Opportunity





There are
several favorable environmental factors for commercializing new cancer and CNS
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 U.S. Food and Drug
      Administration (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 CNS product, SerdaxinTM, is also expected to have
      expedited or shortened clinical development timelines because its active
      pharmaceutical ingredient, or API, has 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.





·
            Adopt
      orphan drug approach to reduce time to
market.





·
            Strengthen
      our development efforts and pipeline through strategic alliances and
      partnerships.





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·
            Maximize
      advanced nanotechnology for developing innovative
      nano-medicines.





Further,
we plan to expand our R&D pipeline and introduce more new 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 unique and differentiated
drugs to treat a broad range of diseases.  In addition, we will use
our technology platforms to screen and identify compounds that could be
promising lead product candidates to advance into research and clinical
testing.





Target
Signal Transduction Molecules with Multiple Drug Candidates





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





Establish
Partnerships with Large Pharmaceutical Companies





We seek
to establish partnerships with large pharmaceutical companies in order to reduce
drug development costs, expand the disease treatment indications, and leverage
greater commercial and market opportunities.  We plan to market
products for which we obtain regulatory approval either directly or through
co-promotion arrangements or other licensing, distribution, or alliance
arrangements 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.  In addition, the FDA
sometimes provides orphan research grants to aid in the costs of developing an
orphan drug.  Once the drug candidate has received orphan drug
approval, the sponsor may conduct larger, more extensive clinical trials seeking
approval for other, more widespread diseases.





We plan
to develop drug candidates initially for orphan category cancers in order to
reduce the time-to-market.  This would enable us to either license
these drugs for further development in multiple indications by major
pharmaceutical companies or conduct the registration trials
ourselves.





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, and as a result of this licensing agreement, have advanced
SerdaxinTM and ZoraxelTM into clinical trials planned for 2008.





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 Index





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





Commercializing
drugs requires regulatory, clinical development, and marketing skill sets that
our management team possesses.  Our regulatory knowledge comes from
team members who have either been regulatory reviewers at the FDA or regulatory
consultants who have prepared and filed regulatory documents in the U.S. and
worldwide.  Our management team also possesses clinical development
experience in oncology and several other therapeutic areas, 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 or clinic ready drugs in development, and several more
pre-clinical drugs, including the following:





Clinical
Stage Pipeline





(1)
            ArchexinTM:
      First-in-class anti-cancer Akt
inhibitor





(2)
            SerdaxinTM:
      Antidepressant Drug





(3)
            ZoraxelTM:
      Erectile Dysfunction (ED) drug





Pre-clinical
Pipeline





(4)
            RX-0201-Nano:
      Nanoliposomal anti-cancer Akt-1
inhibitor





(5)
            RX-0047-Nano:
      Nanoliposomal anti-cancer HIF-1 alpha
inhibitor





(6)
            Nano-polymer
      Anticancer Drugs: HPMA-docetaxel and
  HPMA-gemcitabine





We have
discussed our clinical stage pipeline in detail above.





Pre-clinical
Pipeline





Our
pre-clinical pipeline includes:





(1)
RX-0201-Nano: Nanoliposomal anti-cancer 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. Phase I trials are planned
for 2009.





(2) RX-0047-Nano:Nanoliposomal anti-cancer 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 expression of mRNA and protein
of HIF-1α. HIF-1αis
over-expressed in a broad range of human cancers, and associated with increased
cancer mortality and resistance. In pre-clinical studies, RX-0047 significantly
downregulated expression of HIF-1α mRNA and
protein. At nanomolar concentrations, RX-0047 inhibited proliferation of cancer
cells from human solid tumors and growth of implanted tumors in xenograft animal
models, and reversed resistance in radiation-resistant cancer cells. RX-0047
inhibited growth of solid tumors in lung as well as prostate cancer xenograft
models, and significantly blocked metastasis in a lung metastatic model.
RX-0047-Nano is expected to provide significant clinical benefits including
targeted higher cellular uptake, extended circulation time, reduced drug-related
toxicity, and improved efficacy. Phase I trials are planned for
2009.





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





A major
problem with many cancer drugs is their lack of tumor specificity and
dose-limiting toxicity. Nano-polymer conjugated drugs may deliver drugs more
precisely to tumor tissues with less toxic effects. Rexahn’s HPMA-docetaxel and
HPMA-gemcitabine are expected to achieve the anticancer effects of docetaxel and
gemcitabine, respectively, at much lower dose levels with significantly fewer
side effects. Phase I trials may be initiated in 2009.





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, among
other things, on product efficacy, safety, reliability, price, launch timing and
execution, and patent position.  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.





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.





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 Index





Competition
for ArchexinTM in Treating RCC





Prior to
2006 there were few, if any, FDA-approved drugs for treatment of RCC. There are
currently no approved RCC adjuvant therapies. RCC treatments include surgery or
nephrectomy, and cytokines, immunotherapy, and cytotoxic drugs. Newer drugs for
RCC include multi-targeted kinase inhibitors (TKIs) and angiogenesis inhibitors,
such as: Nexavar (Bayer/Onyx), Sutent (Pfizer), Torisel (Wyeth), and Avastin
(Roche/Genentech).1  These targeted
drugs are gaining market uptake as front line and second line therapies;
however, they have shown only limited extended survival benefit and may have
side effects such as skin rash, diarrhea, and hypertension. Cytotoxic drugs
usually target, in a non-specific way, all rapidly dividing cells including
normal and healthy or non-cancerous cells such as those found in the blood,
hair, and the lining of the gastrointestinal tract. Chemotherapy or cytotoxic
drugs can damage these healthy cells leading to serious and debilitating side
effects such as nausea, anemia, neutropenia, hair loss, fatigue,
thrombocytopenia, neuropathic pain, nerve pain, infection and even
treatment-related cancers.  Rexahn is developing ArchexinTM to
establish a new standard of care in treating RCC and many other solid tumors.
ArchexinTM has
demonstrated potential for greater efficacy and safety, with minimal drug
toxicity and side effects, and can be an important addition to current cancer
treatments.





Competition
for SerdaxinTM in Treating Depression





The
market for branded antidepressant drugs is facing fierce generic competition and
saturation of product reformulations. SSRI/SNRI drugs are the standard of care
for treatment of depression. Leading brands include Effexor (Wyeth) and Lexapro
(Forest/Lundbeck) with 2008 sales forecasts of $1.75 billion and $1.85 billion,
respectively, for the 7 major markets (US, Japan, and the 5 EU major country
markets).24 As
generic antidepressants continue entering the market, the patent protected
brands and new market entrants will need to be highly differentiated from
established generic drugs.  Of the pipeline antidepressant drugs in
clinical development, SerdaxinTM could
face competition from the anticipated launch(es) for agomelatine starting in
2009 (EU) and 2010 (US). Novartis/Servier is commercializing agomelatine as an
orally available once-daily treatment. It is a melatonergic antidepressant that
has a response rate in clinical trials similar to SSRIs.  Another
antidepression drug in clinical trials is Sanofi-Aventis’
Saredutant. Saredutant is a NK2 receptor
antagonist and would be anticipated to launch in the US and EU in 2010.23 The
most common side effects of SSRI antidepressant drug class include weight gain,
dry mouth, insomnia, sexual dysfunction, diarrhea, nausea, and sleepiness.
Despite its shortcomings, the SSRI class of drugs is the most widely used to
treat depression.  However, we believe that SerdaxinTM may be a market
leader and first in class antidepressant.  SerdaxinTM has
extensive and well-established safety in humans, and may possess greater
efficacy and better tolerability compared with existing
antidepressants.





Competition
for ZoraxelTM in Treating ED





The PDE-5
inhibitors are the standard of care in ED therapeutics.  The majority
of ED drugs in the R&D pipeline work by a ‘me-too’ PDE-5 inhibitor
mechanism of action, and are unlikely to establish a new standard of care.25
Dopamine agonists are in clinical trials for ED, but those drugs tend to have
side effects of nausea and vomiting.









23
            Cancer,
      2007 (Datamonitor).


24
            Depression,
      June 2007; MDD, March 2006
(Datamonitor).


25
            Erectile Dysfunction, 2006
      (Datamonitor).




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 Index





Beyond
the PDE-5 inhibitors, there is currently no single class of ED drugs to dominate
the pipeline. There
are niche and larger market opportunities for ZoraxelTM.  ZoraxelTM works
in the CNS by potentially affecting all three phases of sexual activity,
including sexual arousal and release. ZoraxelTM may be
superior to PDE-5 inhibitors, offer clinical benefits over dopamine agonists,
and provide a first in class ED drug that is well-tolerated with excellent
safety.





Government
Regulation





Regulation
by governmental authorities in the United States and in other countries
constitutes a significant consideration in our product development,
manufacturing and marketing strategies.  We expect that all of our
drug candidates will require regulatory approval by appropriate governmental
agencies prior to commercialization and will be subjected to rigorous
pre-clinical, clinical, and post-approval testing, as well as to other approval
processes by the FDA and by similar health authorities in foreign
countries.  U.S. federal regulations control the ongoing safety,
manufacture, storage, labeling, record keeping, and marketing of all
biopharmaceutical products intended for therapeutic purposes.  We
believe that we are in compliance in all material respects with currently
applicable rules and regulations.





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





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





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





In
Phase II, the drug is administered to groups of patients (up to a total of
500) to determine its 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.





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.





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 Index





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 market leaders, and establish new standards of care. We plan to 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.





While
Rexahn may build an in-house sales force for detailing specialty physician
markets, the company would seek pharmaceutical or commercialization partners to
market drug(s) to larger primary care physician audiences. There are inherent
risks and advantages to establishing in-house sales force and commercial
functions. The company would consider investment return metrics such as time to
breakeven, internal rate of return, return on capital, etc.





Rexahn
also could seek to expand from its clinical-stage capabilities into a fully
integrated biopharmaceutical company by using the following business models, or
combination thereof:  Fully-integrated pharma company (FIPCO) with its
own sales force; Specialty sales force focused on niche markets, deployed in
combination with contract sales force and/or co-promotion efforts with
pharmaceutical partners; or Sales force with specific geographic rights or
indications carved out. Strategic plans for pricing, branding, customer
segmentation and targeting, product positioning, reimbursement strategies,
channel strategies, sales force sizing; and logistics and supply chain planning,
would be driven, in part, by business considerations as set forth above, capital
requirements, and commercial opportunity and forecasts.





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 Index





Research
and Development





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.





For the
year ending December 31, 2007, we spent $1,527,294 on research and development
activities, which included payroll of $488,200, studies of $252,709, consulting
of $251,637, and stock compensation of $534,748.  For the year ending
December 31, 2006, we spent $3,325,423 on research and development activities,
which included payroll of $684,689, studies of $2,053,303, consulting of
$172,307, and stock compensation of $414,844.





Multi-Target
Ligands Platform





Rexahn
has developed a unique multi-target aimed ligands (MuTAL) platform. Because
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.  Our approach is to control multiple targets important for
cancer proliferation with a single agent. In doing so, Rexahn utilizes a
proprietary, genomics-based integrated computational modeling system to discover
potentially important biological protein targets that control multiple genes or
signaling events involved in cancer.





Nanomedicine
Delivery System





We are
developing unique nanomedicine delivery systems that may increase the
availability of a drug at the disease site, minimize adverse reactions, and/or
provide longer duration of action of a drug in the body. Rexahn has been awarded
grants from Maryland Industrial Partnerships (MIPS). We are currently testing
multiple nanoliposomal- and nanopolymer-based delivery technologies, and
collaborating with the Center for Nanomedicine of the University of Maryland to
develop nano-medicines.





Manufacturing





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





Intellectual
Property





Proprietary
protection for our drug candidates, processes and know-how is important to our
business.  We plan to aggressively prosecute and defend our patents
and proprietary technology.  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.  Our policy is to file patent applications to protect
technology, inventions, and improvements that are considered important to the
development of our business.  We also rely upon trade secrets,
know-how, continuing technological innovation and licensing opportunities to
develop and maintain our competitive position.





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 Index





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.





Collaboration
and License Arrangements





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





Korean Research Institute 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.





Ewha Womans University
("Ewha").  On March 1, 2004, we entered into an agreement with
Ewha to collaborate with and sponsor Ewha's research in the area of carbocyclic
nucleoside, which relates to our anticancer drug discovery
efforts.  Intellectual property made or developed in the course of
this agreement is or will be owned by us.  In March 1, 2006, we
entered into another research program with Ewha.





Amarex, LLC
("Amarex").  On January 6, 2006, we contracted with Amarex to
conduct Phase II clinical studies of ArchexinTM.





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.





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.





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 Index





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.





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





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 15 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.





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 Index





RISK
FACTORS





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





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





To date,
we have generated no product revenues.  Until we receive approval from
the FDA and other regulatory authorities for our drug candidates, we cannot sell
our drugs and will not have product revenues.  Therefore, for the
foreseeable future, we will have to fund all of our operations and capital
expenditures from the net proceeds of equity or debt offerings we may make, cash
on hand, licensing fees and grants.  Over the next 12 months we expect
to spend approximately $1 million on clinical development for Phase II
clinical trials of ArchexinTM.  Based
on our current plans and our capital resources, we believe that our cash and
cash equivalents will be sufficient to enable us to meet our planned operating
needs for at least the next 12 months, including the clinical trials of
ArchexinTM.  We
plan to initiate Phase II clinical trials of SerdaxinTM
and ZoraxelTM beginning in 2008
at an additional cost of up to approximately $1 million.





However,
changes may occur that would consume our existing capital at a faster rate than
projected, including but not limited to, the progress of our research and
development efforts, the cost and timing of regulatory approvals and the costs
of protecting our intellectual property rights.  We may
seek additional financing to implement and fund other drug candidate
development, clinical trial and research and development efforts, including
Phase I clinical trials for other new drug candidates, as well as other research
and development projects, which together with the current operating plan for the
next year, could aggregate up to $6 million through the first quarter 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, 2007 and 2006 was $24,994,331 and $20,690,326,
respectively.  For the years ended December 31, 2007 and 2006, we
had net losses of $4,304,005 and $6,486,003, respectively, primarily as a result
of expenses incurred through a combination of research and development
activities related to the various technologies under our control and expenses
supporting those activities.  Even if we succeed in developing and
commercializing one or more of our drug candidates, we expect to incur
substantial losses for the foreseeable future and may never become
profitable.  We also expect to continue to incur significant operating
and capital expenditures and anticipate that our expenses will increase
substantially in the foreseeable future, based on the following
considerations:





18
 Index





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





·
            efforts
      to seek regulatory approvals for our drug
  candidates;





·
            implementing
      additional internal systems and
infrastructure;





·
            licensing
      in additional technologies to develop;
and





·
            hiring
      additional personnel.





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





We
have a limited operating history.





We are a
development-stage company with 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.





19
 Index





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





Our
drug candidates are in early stages of clinical trials.





Our drug
candidates are in an early stage of development and require extensive clinical
testing, which are very expensive, time-consuming and difficult to
design.  In 2007, ArchexinTM, an oncology drug
candidate, entered Phase II clinical trials. We plan to initiate Phase II
clinical trials of SerdaxinTM and ZoraxelTM, neuroscience and sexual dysfunction
drug candidates, beginning in 2008.





Clinical
trials are very expensive, time-consuming and difficult to design and
implement.





Human
clinical trials are very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory
requirements.  The clinical trial process is also time
consuming.  We estimate that clinical trials of our current drug
candidates will take at least three years to complete.  Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials.  The commencement
and completion of clinical trials may be delayed by several factors, including,
but not limited to:





·
            unforeseen
      safety issues;





·
            determination
      of dosing issues;





·
            lack
      of effectiveness during clinical
trials;





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





·
            slower
      than expected rates of patient
recruitment;





·
            inability
      to monitor patients adequately during or after
  treatment;





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





·
            lack
      of sufficient funding to finance the clinical
  trials.





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





20
 Index





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





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





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





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





·
            awareness
      of the drug's availability and
benefits;





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





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





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





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





·
            the
      price at which we sell our
products.





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





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





We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our pre-clinical and clinical trials 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.  If outside collaborators fail to devote sufficient time
and resources to our drug-development programs, or if their performance is
substandard, the approval of our FDA applications, if any, and our introduction
of new drugs, if any, may be delayed.  The risk of completion or delay
of these studies is not within our direct control and a program delay may occur
due to circumstances outside our control.  A delay in any of
these programs may not necessarily have a direct impact on our daily
operations.  However, to the extent that a delay results in additional
cost to us, a higher than expected expense may result. These collaborators may
also have relationships with other commercial entities, some of whom may compete
with us.  If our collaborators assist our competitors at our expense,
our competitive position would be harmed.





21
 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.





22
 Index





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





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





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





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





We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, 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 staffs and facilities, longer drug development history in obtaining
regulatory approvals and greater manufacturing and marketing capabilities than
we do.  These organizations also compete with us to attract
qualified personnel, parties for acquisitions, joint ventures or other
collaborations.





23
 Index





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





Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.  We have filed U.S. and PCT patent applications
for anti-Akt compounds, including 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 anti-sense compounds that target
and inhibit the expression of Akt in human tissues or cells.  The
patent also covers the method of using the compounds to induce cytotoxicity in
cancer cells.  We have also filed three U.S. provisional patent
applications for new anti-cancer quinazoline compounds, new anti-cancer
nucleoside products and a drug target, cenexin, a polo-box binding
protein.  In December 2004, we also filed two Korean patent
applications for new anti-cancer piperazine compounds.  Through our
licensing agreement with Revaax, we hold exclusive rights to five patents and 14
patent applications, with respect to certain chemical structures related to
antibiotics, but without antibiotic efficacy.  However, we cannot
predict:





·
            the
      degree and range of protection any patents will afford us against
      competitors, including whether third parties will find ways to invalidate
      or otherwise circumvent our licensed
patents;





·
            if
      and when patents will issue;





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





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





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





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





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





24
 Index





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





·
            redesign
      our products or processes to avoid
infringement;





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





·
            pay
      damages; or





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





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





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





Our
license agreement with Revaax is subject to termination by Revaax if we
materially breach our obligations under the agreement, including breaches with
respect to certain installment payments and royalty payments, if such breaches
are not cured within a 60-day period.  The agreement also provides
that it may be terminated if we become involved in a bankruptcy, insolvency or
similar proceeding.  If this license agreement is terminated, we will
lose all of our rights to develop and commercialize the licensed compounds,
including 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 and advance compounds in oncology and other
therapeutic areas that are strategic and have value creating potential to take
advantage of our development know-how.  We are actively pursuing
additional drug candidates to acquire for development.  Such
additional drug candidates could significantly increase our capital requirements
and place further strain on the time of our existing personnel, which may delay
or otherwise adversely affect the development of our existing drug
candidates.  Alternatively, we may be required to hire more employees,
further increasing the size of our organization and related
expenses.  If we are unable to manage our growth effectively, we may
not efficiently use our resources, which may delay the development of our drug
candidates and negatively impact our business, results of operations and
financial condition.





We
may not be able to attract and retain qualified personnel necessary for the
development and commercialization of our drug candidates.  Our success
may be negatively impacted if key personnel leave.





Attracting
and retaining qualified personnel will be critical to our future
success.  We compete for qualified individuals with numerous
biopharmaceutical companies, universities and other research
institutions.  Competition for such individuals is intense, and we
cannot assure you that we will be successful.





25
 Index





The loss
of the technical knowledge and management and industry expertise of any of our
key personnel, especially Dr. Chang H. Ahn, our Chairman and
Chief Executive Officer and regulatory expert, could result in delays in product
development and diversion of management resources, which could adversely affect
our operating results.  We do not have "key person" life insurance
policies for any of our officers.





We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.





The
testing and marketing of medical products entail an inherent risk of product
liability.  If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our products.  Our inability to obtain sufficient
product liability insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with
collaborators.  Although we currently carry clinical trial insurance
and product liability insurance we, or any collaborators, may not be able to
maintain such insurance at a reasonable cost.  Even if our agreements
with any future collaborators entitles us to indemnification against losses,
such indemnification may not be available or adequate should any claim
arise.





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, 2007 and 2006 was $24,994,331 and $20,690,326,
respectively.  For the years ended December 31, 2007 and 2006, we
had net losses of $4,304,005 and $6,486,003, respectively, primarily as a result
of expenses incurred through a combination of research and development
activities related to the various technologies under our control and expenses
supporting those activities.  Until we receive approval from the
FDA and other regulatory authorities for our drug candidates, we cannot
sell our drugs and will not have product revenues.





The
market price of our common stock may fluctuate significantly.





The
market price of our common stock may fluctuate significantly in response to
factors, some of which are beyond our control, such as:





·
            the
      announcement of new products or product enhancements by us or our
      competitors;





·
            developments
      concerning intellectual property rights and regulatory
      approvals;





·
            variations
      in our and our competitors' results of
  operations;





·
            changes
      in earnings estimates or recommendations by securities analysts;
      and





·
            developments
      in the biotechnology industry.





Further,
the stock market, in general, and the market for biotechnology companies, in
particular, have experienced extreme price and volume
fluctuations.  Continued market fluctuations could result in extreme
volatility in the price of our common stock, which could cause a decline in the
value of our common stock.  You should also be aware that price
volatility might be worse if the trading volume of our common stock is
low.  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.





26
 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 550,000 shares) during a three-month
period.  Non-affiliates may sell restricted securities after six
months without any limits on volume.





Trading
of our common stock is limited.





Trading
of our common stock is currently conducted on the National Association of
Securities Dealers' Over-the-Counter Bulletin Board ("OTC-BB").  The
liquidity of our securities has been limited, not only in terms of the number of
securities that can be bought and sold at a given price, but also through delays
in the timing of transactions and reduction in security analysts' and the
media's coverage of us.





These
factors may result in lower prices for our common stock than might otherwise be
obtained and could also result in a larger spread between the bid and asked
prices for our common stock.  Currently, there are approximately 600
holders of record of our common stock.





Because
our common stock may be a "penny stock," it may be more difficult for you to
sell shares of our common stock, and the market price of our common stock may be
adversely affected.





Our
common stock may be a "penny stock" if, among other things, the stock price is
below $5.00 per share, we are not listed on a national securities exchange
or approved for quotation on the Nasdaq Stock Market, or we have not met certain
net tangible asset or average revenue requirements.  Broker-dealers
who sell penny stocks must provide purchasers of these stocks with a
standardized risk-disclosure document prepared by the SEC.  This
document provides information about penny stocks and the nature and level of
risks involved in investing in the penny-stock market.  A broker must
also give a purchaser, orally or in writing, bid and offer quotations and
information regarding broker and salesperson compensation, make a written
determination that the penny stock is a suitable investment for the purchaser,
and obtain the purchaser's written agreement to the
purchase.  Broker-dealers must also provide customers that hold penny
stock in their accounts with such broker-dealer a monthly statement containing
price and market information relating to the penny stock.  If a penny
stock is sold in violation of the penny stock rules, purchasers may be able to
cancel their purchase and get their money back.  If applicable, the
penny stock rules may make it difficult for investors to sell their shares of
our stock.  Because of the rules and restrictions applicable to a
penny stock, there is less trading in penny stocks and the market price of our
common stock may be adversely affected.  Also, many brokers choose not
to participate in penny stock transactions.  Accordingly, purchasers
may not always be able to resell shares of our common stock publicly at times
and prices that they feel are appropriate.





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 do not own any real property.




27
 Index




Item3.  Legal
Proceedings.


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





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





None.





28
 Index





PART
II







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





As of
March 28, 2008, 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 28, 2008, we have 55,935,649 shares of
common stock outstanding and approximately 600 stockholders of record of
common stock.  As of March 28, 2008, no shares of preferred stock
are outstanding.





Our
common stock is traded on the Over the Counter Bulletin Board (the "OTC-BB")
under the ticker symbol "RXHN."  Prior to May 13, 2005, the
Company common stock was traded on the OTC-BB under the ticker symbol "CPRD"
since November 2004.  The quarterly reported high and low bid and
asked prices for our common stock are shown below for the eight fiscal quarters
ended December 31, 2007.  The prices presented are bid and ask
prices, which reflect inter-dealer prices and do not include retail mark-ups and
mark-downs or any commission.  The prices may not necessarily reflect
actual transactions.





Period
            
            High
            
            
            Low2006First
      Quarter
            
            $
            2.50
            
            
            $
            1.11Second
      Quarter
            
            $
            2.00
            
            
            $
            1.15Third
      Quarter
            
            $
            5.00
            
            
            $
            1.50Fourth
      Quarter
            
            $
            3.05
            
            
            $
            1.012007First
      Quarter
            
            $
            1.85
            
            
            $
            1.10Second
      Quarter
            
            $
            2.52
            
            
            $
            1.25Third
      Quarter
            
            $
            2.20
            
            
            $
            1.01Fourth
      Quarter
            
            $
            2.45
            
            
            $
            1.05





In
January of 2008, we applied for listing on the American Stock
Exchange.  On March 7, 2008, we received an acknowledgement from
the American Stock Exchange that our application was received.  There
is no guarantee that our application for listing on the American Stock Exchange
will be approved.





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 Small Business Issuer and Affiliated
Purchasers





There
were no repurchases of equity securities in 2007.





29
 Index





Equity
Compensation Plan Information





The
following table provides information, as of December 31, 2007, 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,
      warrantsand 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
            
            
            6,045,795
            
            
            $
            0.97
            
            
            
            10,954,205Equity
      compensation plans not approved by stockholders
            
            ──
            
            
            ──
            
            
            ──Total
            
            
            6,045,795
            
            
            $
            0.97
            
            
            
            10,954,205





Item6.  Management's Discussion and Analysis or
Plan of Operation





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





Overview





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





Our
efforts and resources have been focused primarily on acquiring and developing
our pharmaceutical technologies, raising capital and recruiting
personnel.  We are a development stage company and have no product
sales to date and we will not receive any product sales until we receive
approval from the FDA or equivalent foreign regulatory bodies to begin selling
our pharmaceutical candidates.  Our major sources of working capital
have been proceeds from various private financings, primarily private sales of
common stock and debt securities, and collaboration agreements with our
strategic investors.





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 Index





Critical
Accounting Policies





A
"critical accounting policy" is one which is both important to the portrayal of
our financial condition and results and requires our management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain.  Our accounting policies are in accordance with United
States generally accepted accounting principles, or GAAP, and their basis of
application is consistent with that of the previous year.





Use
of Estimates





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





Stock-Based
Compensation





Effective
January 1, 2006, the 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 SFAS No. 123(R) and
certain SEC rules and regulations and provides interpretations with respect to
the valuation of share-based payments for public companies.  See Note
7 to the Financial Statements in Item 7 of this Annual Report for further
details.





Recently
Issued Accounting Standards





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





On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (FIN 48). There was
no impact on the Company’s consolidated financial position, results of
operations or cash flows at December 31, 2007 and for the year then ended
as a result of implementing FIN 48. At the adoption date of January 1, 2007
and at December 31, 2007, the Company did not have any unrecognized tax
benefits. The Company’s practice is to recognize interest and/or penalties
related to income tax matters in income tax expense. As of January 1, 2007
and December 31, 2007, the Company had no accrued interest or penalties.
The Company currently has no federal or state tax examinations in progress nor
has it had any federal or state tax examinations since its inception. As a
result of the Company’s net operating loss carryforwards, all of its tax years
are subject to federal and state tax examination.





31
 Index





In
September 2006, the staff of the SEC issued Staff Accounting Bulletin ("SAB")
No. 108, which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 became effective in fiscal year
end December 31, 2007. Adoption of SAB 108 did not have a material impact on the
Company's financial position, results of operations or cash flows.





In
December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2") which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5, "Accounting
for Contingencies." Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning after December 15, 2006, and did not have a material impact on the
Company's financial position, results of operations or cash flows.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. SFAS
No. 157 is effective for fiscal years beginning after November 15, 2007,
and all interim periods within those fiscal years. In December 2007, the FASB
released a proposed FASB Staff Position (FSP FAS 157-b - Effective Date of FASB
Statement No. 157) which, if adopted as proposed, would delay the effective
date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). We do not believe
that adoption of this statement would have a material impact on our financial
statements.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair
value.  Unrealized gains and losses on items for which the fair value
option has been elected are required to be reported in earnings at each
reporting date.  SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, the provisions of which are required to be applied
prospectively. The Company expects to adopt SFAS No. 159 in the first quarter of
Fiscal 2008 and is still evaluating the effect, if any, on its financial
position or results of operations.





In June
2007, the EITF Issue 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 diversity which exists with respect to the accounting for the
non-refundable portion of a payment made by a research and development entity
for future research and development activities. Under EITF 07-03, an entity
would 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 and interim periods within those years. The Company is
currently evaluating the potential impact from adopting EITF 07-03 on the
financial position or results of operations.





32
 Index





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
2007), Business Combinations, which replaces SFAS No 141. The statement retains
the purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective
for 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 SFAS 141R is not currently expected to have
a material effect of the Company's Financial position, results of operations, or
cash flows.





In
December 2007, the FASB issued SFAS No. 160.  “Noncontrolling
Interests in Consolidated Financial Statements-and Amendment of ARB No.
51.”  SFAS 160 establishes accounting and reporting standards
pertaining to ownership interests in subsidiaries held by parties other than the
parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of any retained noncontrolling equity investment when a subsidiary is
deconsolidated.  This statement also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008.  The adoption of SFAS 160 is not currently expected to have a
material effect on the Company’s financial position, results of operations, or
cash flows.





In March 2008, the Financial Accounting
Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The company is currently evaluating the impact of adopting SFAS. No.
161 on its financial statements.





Results
of Operations





Comparison
of the Year Ended December 31, 2007 and the Year Ended December 31,
2006





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 $1,125,000 is reflected as deferred revenue on the
balance sheet as of December 31, 2007.  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.





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 Index





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 $323,341, or 10.6%, from $3,051,493 in
fiscal 2006 to $2,728,152 in fiscal 2007.  The decrease was due
primarily to a decrease in professional fees and expenses.  Lower
general and administrative expenses during fiscal 2007 were also attributable
to lower stock compensation expense.





Research
and Development Expenses





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





Research
and development expenses decreased $1,798,129, or 54.1%, from $3,325,423 in
fiscal 2006 to $1,527,294 in fiscal 2007.  The decrease was due
primarily to the fact that we paid a $1.8 million fee for drug manufacturing in
2006.  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 decreased $104,561, or 35.9%, from $291,174 in fiscal 2006 to
$186,613 in fiscal 2007.  The decrease was primarily due to the fact
that we filed fewer new patent applications in 2007 as compared to
2006.





Depreciation
and Amortization





Depreciation
expense decreased $59,440, or 47.7%, from $124,510 in fiscal 2006 to $65,070 in
fiscal 2007.  The decrease was due primarily to fewer unamortized
balances in 2007 when compared to 2006.





Interest
Expense





Our
interest expense decreased $99,651, or 100%, from $99,651 in fiscal 2006 to $0
in fiscal 2007.  The decrease was due primarily to conversion of
$3,850,000 principal amount of the Company's convertible notes into common stock
in May 2006.





Interest
Income





In fiscal
2007, we recorded $128,124 of interest income from the investment of our cash
and cash equivalents and other short-term investments, compared to $331,248
recorded in fiscal 2006.  The decrease of $203,124, or 61.3%, was
primarily due to lower cash and cash equivalent balances and lower interest
rates during fiscal 2007.





34
 Index





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.  We have allocated direct and indirect costs to each
program based on certain assumptions and our review of the status of each
program, payroll-related expenses and other overhead costs based on estimated
usage by each program.  Each of our lead drug candidates is in various
stages of completion as described below.  As we expand our clinical
studies, we will enter into additional development
agreements.  Significant additional expenditures will be required if
we complete our clinical trials, start new trials, apply for regulatory
approvals, continue development of our technologies, expand our operations and
bring our products to market.  The eventual total cost of each
clinical trial is dependent on a number of uncertainties such as trial design,
the length of the trial, the number of clinical sites and the number of
patients.  The process of obtaining and maintaining regulatory
approvals for new therapeutic products is lengthy, expensive and
uncertain.  Because the successful development of our most advanced
drug candidates, 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.





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





The Phase
Iclinical 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.





As the
main purpose of the clinical trial was to establish the safety of ArchexinTM, 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 2009 and will require
approximately $5,000,000.  InJanuary 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.  Inthe
future, we plan to apply ArchexinTM to the treatment
of other orphan indications and other cancers.





35
 Index





SerdaxinTM





SerdaxinTM is
being developed to treat depression and mood disorders, and has proven and
well-established safety in humans.  Through December 31, 2007,
the costs incurred for development of these compounds to date have been
approximately $400,000.  SerdaxinTM is scheduled to
enter Phase II trials in the second half of 2008. We currently estimate
that these studies will require $3,000,000.





ZoraxelTM





ZoraxelTM is a
CNS-based sexual dysfunction drug that has extensive and excellent safety in
humans. Through December 31, 2007, the costs incurred for development of
these compounds to date have been approximately $500,000. ZoraxelTM is scheduled to
enter Phase II trials in the first half of 2008. We currently estimate that
these studies will require approximately $4,000,000.





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, 2007,
the costs incurred for development of these compounds to date have been
approximately $1,000,000.  The estimated cost to complete pre-clinical
toxicology and Phase I clinical trials is estimated to be approximately
$1,500,000 per each compound for a total of $4,500,000.  These
compounds may be entered into these Phase I clinical trials in
2009.





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.





Liquidity
and CapitalResources





Cash used
in operating activities was $3,394,839 in fiscal 2007 compared to $5,843,198 in
fiscal 2006.  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.  Fiscal 2006 operating cash flows reflect our loss from
continuing operations of $6,486,003, offset by net non-cash charges of
$1,083,466 and a net decrease in cash components of working capital of
$440,661.  Non-cash charges consisted of depreciation and amortization
of $124,510, stock option compensation expense of $1,033,956 and amortization of
deferred revenue of $75,000.  The decrease in working capital
primarily consists of a $12,249 decrease in accounts payable and accrued
expenses and an increase of $428,412 to prepaid and other assets.





36
 Index





No cash
was used in investing activities in fiscal 2007.  Cash used in
investing activities of $52,952 in fiscal 2006 consisted of capital expenditures
for the purchase of equipment.





Cash used
in financing activities of $6,720,350 in fiscal 2007 consists of proceeds from
the issuance of common stock for cash of $6,800,023 offset by share
issuance costs of $139,674 and upon the exercise of stock options of
$60,000.  Cash used in financing activities of $186,415 in fiscal 2006
consists of principal payments on long-term debt of $172,813 and the purchase of
treasury stock in the amount of $28,410, offset by proceeds of $14,808 from the
issuance of common stock upon the exercise of stock options.





For the
years ended December 31, 2007 and 2006, we experienced net losses of
$4,304,005 and $6,486,003, respectively.  Our accumulated deficit as
of December 31, 2007 and 2006 was $24,994,331 and $20,690,326,
respectively.





We have
financed our operations since inception primarily through equity and convertible
debt financings and interest income from investments of cash and cash
equivalents.  During fiscal 2007, we had a net increase in cash and
cash equivalents of $3,325,511.  This increase primarily resulted from
the cash provided by financing activities of $6,720,350, offset by cash used in
operating activities of $3,394,839.





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.





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.





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, but Georgetown
University has not yet billed the Company for the services.  We expect
to make a payment under the agreement in 2008.





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





37
 Index





Minimum
future rental payments under this lease are as follows:





For the years ended
December 31


2008
            
            $
            222,6552009
            
            
            112,973$
            335,628





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 $540,346 towards the cost of the study as of
December 31, 2007. In 2007, we added additional services to the
Phase II clinical studies.   The costs of these services
totals $106,220, of which $87,603 was paid in 2007.





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, 2007.  The balance will be paid
when the final report is accepted, which is expected to be in
2008.  Since 2003, additional services were added to the
study .  These services were contracted for $193,331, of which
$186,619 was paid in 2007.  The balance will be paid in
2008.





On
April 3, 2006, we contracted with UPM Pharmaceuticals, Inc. to develop
several release formulations for SerdaxinTM and ZoraxelTM.  In
accordance with the agreement, the estimated contract duration was seven months
for an estimated cost of $433,925, of which $112,937 was paid as of
December 31, 2007.  The service costs were payable based upon a
payment schedule related to certain milestones.  During 2007,
additional services were added to the project.  The cost of the
additional services is $42,050, of which $27,450 was paid as of December 31,
2007.





On
February 1, 2007, we entered into research agreement with University of Maryland
Baltimore Biotechnology Institute to identify new JNK inhibitors using their NMR
technology.  The total amount to be paid under this contract is
$17,000, of which $10,000 was paid in 2007.  The balance will be paid
in 2008.





On May
18, 2007, we contracted with Lab Connect to provide sample management and
central laboratory services for Phase II clinical studies for ArchexinTM clinical
trials.  The total contract amount is estimated to be $197,220,
of which $54,444 was paid in 2007.  The balance will be paid as
services are performed over the next 32 months.





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





Current
and Future Financing Needs





We have
incurred negative cash flow from operations since we started our
business.  We have spent, and expect to continue to spend, substantial
amounts in connection with implementing our business strategy, including our
planned product development efforts, our clinical trials, and our research and
development efforts.  Based on our current plans and our capital
resources, we believe that our cash and cash equivalents will be sufficient to
enable us to meet our minimum planned operating needs for at least the next
12 months, which would entail focusing our resources on Phase II clinical
trials of ArchexinTM, SerdaxinTM and ZoraxelTM.  Over
the next 12 months we expect to spend a minimum of approximately $1 million
on clinical development for Phase II clinical trials of ArchexinTM (including our
commitments described under "Contractual Commitments" of this Item 6),
$3 million on general corporate expenses, and approximately $223,000 on
facilities rent.  We plan to initiate Phase II clinical trials of
SerdaxinTM and ZoraxelTM beginning in 2008 at an additional cost of up to
approximately $1 million for the next 12 months.  We may seek
additional financing to implement and fund other drug candidate development,
clinical trial and research and development efforts to the maximum extent of our
operating plan, including in-vivo animal and pre-clinical studies, Phase II
clinical trials for new product candidates, as well as other research and
development projects, which together with the minimum operating plan for the
next 12 months, could aggregate up to $6 million through the first
quarter of 2009.





38
 Index





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





·
            the
      progress of our product development
activities;





·
            the
      number and scope of our product development
  programs;





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





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





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





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





·
            the
      costs and timing of regulatory
approvals.





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.





39
 Index





Item7.  Financial Statements





Report of Independent
Registered Public Accounting Firm





Board of
Directors and Stockholders of


Rexahn
Pharmaceuticals, Inc.


Rockville,
Maryland





We have
audited the accompanying balance sheets of Rexahn Pharmaceuticals, Inc. (a
development stage company) as of December 31, 2007 and 2006 and the related
statements of operations, stockholders’ equity (deficit) and cash flows for the
years ended December 31, 2007 and 2006 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 audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits 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 a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Rexahn Pharmaceuticals, Inc. at
December 31, 2007 and 2006 and the results of its operations and its cash flows
for the years 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/LazarLevine&FelixLLPLazar Levine
      & Felix LLP


New York,
New York


March 24,
2008





40
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Balance
Sheets




December 31,
              2007
            
            
            December 31,
              2006ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            7,359,571
            
            
            $
            4,034,060Prepaid
      expenses and other
            
            
            717,205
            
            
            
            483,186Total
      Current Assets
            
            
            8,076,776
            
            
            
            4,517,246Equipment, Net(note
      3)
            
            
            102,951
            
            
            
            149,993Intangible Assets, Net(note 4)
            
            
            303,943
            
            
            
            321,971Total
      Assets
            
            $
            8,483,670
            
            
            $
            4,989,210LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
            
            $
            606,832
            
            
            $
            575,363Total
      Current Liabilities
            
            
            606,832
            
            
            
            575,363Deferred Revenue(note
      5)
            
            
            1,125,000
            
            
            
            1,200,000Total
      Liabilities
            
            
            1,731,832
            
            
            
            1,775,363Commitment and Contingencies(note 9)Stockholders' Equity(note 6):Preferred
      stock, par value $0.0001, 100,000,000 authorized shares, none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock, par value $0.0001, 500,000,000 authorized shares, 55,306,996 (2006
      – 50,322,337) issued and 55,292,791 (2006 – 50,308,132)
      outstanding
            
            
            5,530
            
            
            
            5,032Additional
      paid-in capital
            
            
            31,769,049
            
            
            
            23,927,551Accumulated
      deficit during the development stage
            
            
            (24,994,331
            )
            
            
            (20,690,326
            )Treasury
      stock, 14,205 (2006 – 14,205) shares, at cost
            
            
            (28,410
            )
            
            
            (28,410
            )Total
      Stockholders' Equity
            
            
            6,751,838
            
            
            
            3,213,847Total
      Liabilities and Stockholders' Equity
            
            $
            8,483,670
            
            
            $
            4,989,210






See the
notes accompanying the financial statements





41
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Statements
of Operations





Years Ended December 31,
            
            
            Cumulative from March 19, 2001 (Inception) to
      December 31,20072007
            
            
            2006Revenue:Research
            
            $
            75,000
            
            
            $
            75,000
            
            
            $
            375,000Expenses:General
      and administrative
            
            
            2,728,152
            
            
            
            3,051,493
            
            
            
            12,338,734Research
      and development
            
            
            1,527,294
            
            
            
            3,325,423
            
            
            
            10,802,337Patent
      fees
            
            
            186,613
            
            
            
            291,174
            
            
            
            705,473Depreciation
      and amortization
            
            
            65,070
            
            
            
            124,510
            
            
            
            447,461Total
      Expenses
            
            
            4,507,129
            
            
            
            6,792,600
            
            
            
            24,294,005Loss
      from Operations
            
            
            (4,432,129
            )
            
            
            (6,717,600
            )
            
            
            (23,919,005
            )Other
      (Income) ExpenseInterest  income
            
            
            (128,124
            )
            
            
            (331,248
            )
            
            
            (850,821
            )Interest
      expense
            
            
            -
            
            
            
            99,651
            
            
            
            301,147Beneficial
      conversion feature
            
            
            -
            
            
            
            -
            
            
            
            1,625,000(128,124
            )
            
            
            (231,597
            )
            
            
            1,075,326Net
      Loss
            
            $
            (4,304,005
            )
            
            $
            (6,486,003
            )
            
            $
            (24,994,331
            )Net
      loss per share, basic and diluted
            
            $
            (0.09
            )
            
            $
            (0.13
            )Weighted
      average number of shares  outstanding basic and
      diluted
            
            
            50,332,642
            
            
            
            48,865,988






See the
notes accompanying the financial statements


42
 Index







REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Statements
of Changes in Stockholders' Equity (Deficit)


Period
from March 19, 2001 (Inception) to December 31, 2007





AccumulatedDeficit
            
            
            
            
            
            TotalCommon Stock
            
            
            Additional
            
            
            During
      the
            
            
            Treasury
      Stock
            
            
            AmountNumber of shares
            
            
            Amount
            
            
            Paid
      in Capital
            
            
            Development Stage
            
            
            No.
      of Shares
            
            
            Amount
            
            
            Equity(Deficit)Opening
      balance, March 19, 2001
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            $
            -Common
      shares issued
            
            
            7,126,666
            
            
            
            71,266
            
            
            
            4,448,702
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,519,968Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (625,109
            )
            
            
            -
            
            
            
            -
            
            
            
            (625,109
            )Balance,
      December 31, 2001
            
            
            7,126,666
            
            
            
            71,266
            
            
            
            4,448,702
            
            
            
            (625,109
            )
            
            
            -
            
            
            
            -
            
            
            
            3,894,859Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,181,157
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,181,157
            )Balance,
      December 31, 2002
            
            
            7,126,666
            
            
            
            71,266
            
            
            
            4,448,702
            
            
            
            (1,806,266
            )
            
            
            -
            
            
            
            -
            
            
            
            2,713,702Common
      shares issued
            
            
            500,000
            
            
            
            5,000
            
            
            
            1,995,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,000,000Stock
      option compensation
            
            
            -
            
            
            
            -
            
            
            
            538,074
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            538,074Net
      loss
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            (2,775,075
            )
            
            
            -
            
            
            
            -
            
            
            
            (2,775,075
            )Balance,
      December 31, 2003
            
            
            7,626,666
            
            
            
            76,266
            
            
            
            6,981,776
            
            
            
            (4,581,341
            )
            
            
            -
            
            
            
            -
            
            
            
            2,476,701Common
      shares issued
            
            
            1,500
            
            
            
            15
            
            
            
            1,785
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,800Stock
      option compensation
            
            
            -
            
            
            
            -
            
            
            
            230,770
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            30,770Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,273,442
            )
            
            
            -
            
            
            
            -
            
            
            
            (3,273,442
            )Balance,
      December 31, 2004
            
            
            7,628,166
            
            
            
            76,281
            
            
            
            7,214,331
            
            
            
            (7,854,783
            )
            
            
            -
            
            
            
            -
            
            
            
            (564,171
            )Stock
      split (5 for 1)
            
            
            30,512,664
            
            
            
            (72,467
            )
            
            
            72,467
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      shares issued in connection with merger
            
            
            3,397,802
            
            
            
            340
            
            
            
            (340
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock issued for cash
            
            
            4,175,000
            
            
            
            417
            
            
            
            8,349,565
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,349,982Common
      shares issued on conversion of convertible debt
            
            
            650,000
            
            
            
            65
            
            
            
            1,299,935
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,300,000






See the
notes accompanying the financial statements


43
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Statements
of Changes in Stockholders' Equity (Deficit)


Period
from March 19, 2001 (Inception) to December 31, 2007





AccumulatedDeficit
            
            
            
            
            
            TotalCommon Stock
            
            
            Additional
            
            
            During
      the
            
            
            Treasury Stock
            
            
            AmountNumber of shares
            
            
            Amount
            
            
            Paid
      in Capital
            
            
            Development Stage
            
            
            No.
      of Shares
            
            
            Amount
            
            
            Equity(Deficit)Exercise
      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
            )Balance,
      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
            )Balance,
      December 31, 2006
            
            
            50,322,337
            
            
            $
            5,032
            
            
            $
            23,927,551
            
            
            $
            (20,690,326
            )
            
            
            14,205
            
            
            $
            (28,410
            )
            
            $
            3,213,847Common
      stock issued for cash, net of costs
            
            
            4,857,159
            
            
            
            486
            
            
            
            6,659,864
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            6,660,350Exercise
      of stock options
            
            
            127,500
            
            
            
            12
            
            
            
            59,988
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            60,000Stock
      option compensation
            
            
            -
            
            
            
            -
            
            
            
            1,121,646
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            1,121,646Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            (4,304,005
            )
            
            
            
            
            
            
            
            
            
            
            (4,304,005
            )Balance,
      December 31, 2007
            
            
            55,306,696
            
            
            $
            5,530
            
            
            $
            31,769,049
            
            
            $
            (24,994,331
            )
            
            
            14,205
            
            
            $
            (28,410
            )
            
            $
            6,751,838






See the
notes accompanying the financial statements


44
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Statements
of Cash Flows





Years Ended
    December 31,
            
            
            Cumulative from March 19, 2001 (Inception) to
      December 31, 20072007
            
            
            2006Cash
      Flows from Operating Activities:Net
      loss
            
            $
            (4,304,005
            )
            
            $
            (6,486,003
            )
            
            $
            (24,994,331
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Beneficial
      conversion feature
            
            
            -
            
            
            
            -
            
            
            
            1,625,000Compensatory
      stock
            
            
            -
            
            
            
            -
            
            
            
            21,877Depreciation
      and amortization
            
            
            65,070
            
            
            
            124,510
            
            
            
            447,842Stock
      option compensation expense
            
            
            1,121,646
            
            
            
            1,033,956
            
            
            
            3,372,150Amortization
      of deferred revenue
            
            
            (75,000
            )
            
            
            (75,000
            )
            
            
            (375,000
            )Changes
      in assets and liabilities:Prepaid
      expenses and other
            
            
            (234,019
            )
            
            
            (428,412
            )
            
            
            (717,205
            )Accounts
      payable and accrued expenses
            
            
            31,469
            
            
            
            (12,249
            )
            
            
            606,832Net
      Cash Used in Operating Activities
            
            
            (3,394,839
            )
            
            
            (5,843,198
            )
            
            
            (20,012,835
            )Cash
      Flows from Investing Activities:Purchase
      of equipment
            
            
            -
            
            
            
            (52,952
            )
            
            
            (498,520
            )Net
      Cash Used in Investing Activities
            
            
            -
            
            
            
            (52,952
            )
            
            
            (498,520
            )Cash
      Flows from Financing Activities:Issuance
      of common stock
            
            
            6,720,350
            
            
            
            14,808
            
            
            
            21,605,552Proceeds
      from long-term debt
            
            
            -
            
            
            
            -
            
            
            
            5,150,000Proceeds
      from research contribution
            
            
            -
            
            
            
            -
            
            
            
            1,500,000Payment
      of licensing fees
            
            
            -
            
            
            
            (172,813
            )
            
            
            (356,216
            )Principal
      payments on long-term debt
            
            
            -
            
            
            
            (28,410
            )
            
            
            (28,410
            )Net
      Cash Provided by (Used in) Financing Activities
            
            
            6,720,350
            
            
            
            (186,415
            )
            
            
            27,870,926Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            
            3,325,511
            
            
            
            (6,082,565
            )
            
            
            7,359,571Cash
      and Cash Equivalents - beginning of period
            
            
            4,034,060
            
            
            
            (10,116,625
            )
            
            
            -Cash
      and Cash Equivalents - end of period
            
            $
            7,359,571
            
            
            $
            4,034,060
            
            
            $
            7,359,571Supplemental
      Cash Flow InformationInterest
      paid
            
            $
            8,235
            
            
            $
            280,535
            
            
            $
            301,147Non-cash
      financing and investing activities:Issuance
      of warrants
            
            $
            1,194,283
            
            
            $
            -
            
            
            $
            1,194,283







See the
notes accompanying the financial statements





45
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








1.
            Operations
      and Organization





Operations
and Organization





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





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 is 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.





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





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.





46
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








b)
              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
      equipment
            
            5-7
      years
            
            double
      declining balanceComputer
      equipment
            
            5
      years
            
            straight
      lineCylinders
      and designs
            
            3
      years
            
            straight
      line





c)
              Research
      and Development





Research
and development costs are expensed as incurred.  Research and
development expenses consist primarily of salaries and related personnel costs,
as well as stock compensation related to these 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.





d)
              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.





e)
              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.





f)
                Income
      Taxes





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





47
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (FIN 48). There was
no impact on the Company’s consolidated financial position, results of
operations or cash flows at December 31, 2007 and for the year then ended
as a result of implementing FIN 48. At the adoption date of January 1, 2007
and at December 31, 2007, the Company did not have any unrecognized tax
benefits. The Company’s practice is to recognize interest and/or penalties
related to income tax matters in income tax expense. As of January 1, 2007
and December 31, 2007, the Company had no accrued interest or penalties.
The Company currently has no federal or state tax examinations in progress
nor has it had any federal or state tax examinations since its inception.
As a result of the Company’s net operating loss carryforwards, all of its tax
years are subject to federal and state tax examination.





g)
              Net
      Loss Per Common Share:





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





For
purpose of computing diluted earnings per share, 3,283,800 common share
equivalents for the year ended, December 31, 2007 and 2,788,230 common share
equivalents for the year ended, December 31, 2006, were excluded from the
calculation of diluted earnings per share because their inclusion would have
been anti-dilutive as a result of the net loss applicable to these
periods.





h)
                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 SFAS No. 123(R) and
certain SEC rules and regulations and provides interpretations with respect to
the valuation of share-based payments for public companies.  See
footnote 7 for further details.





48
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








i)
                Impairment
      of Long-Lived Assets





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





j)
                Concentration
      of Credit Risk





SFAS No.
105, "Disclosure of Information About Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentration of Credit Risk",
requires disclosure of any significant off-balance sheet risk and credit risk
concentration.  The Company does not have significant off-balance
sheet risk or credit concentration.  The Company maintains cash and
short-term investments with major financial institutions.  From time
to time the Company has funds on deposit with commercial banks that exceed
federally insured limits ("FDIC") of $100,000.  Management does not
consider this to be a significant credit risk as these banks and financial
institutions are well-known. At December 31, 2007 the Company had a cash balance
of $7,259,571 in excess of FDIC limits.





k)
              Recent
      Accounting Pronouncements Affecting the
Company:





In
September 2006, the staff of the SEC issued Staff Accounting Bulletin ("SAB")
No. 108, which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 became effective in fiscal year
end December 31, 2007. Adoption of SAB 108 did not have a material impact on the
Company's financial position, results of operations or cash flows.





In
December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2") which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5, "Accounting
for Contingencies." Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning after December 15, 2006, and did not have a material impact on the
Company's financial position, results of operations or cash flows.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. SFAS
No. 157 is effective for fiscal years beginning after November 15, 2007,
and all interim periods within those fiscal years. In December 2007, the FASB
released a  FASB Staff Position (FSP FAS 157-b - Effective Date of
FASB Statement No. 157) which, delays the effective date of SFAS
No. 157 for all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). We do not believe that adoption of
this statement would have a material impact on our financial
statements.





49
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair
value.  Unrealized gains and losses on items for which the fair value
option has been elected are required to be reported in earnings at each
reporting date.  SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, the provisions of which are required to be applied
prospectively. The Company expects to adopt SFAS No. 159 in the first quarter of
Fiscal 2008 and is still evaluating the effect, if any, on its financial
position or results of operations.





In June
2007, the EITF Issue 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 diversity which exists with respect to the accounting for the
non-refundable portion of a payment made by a research and development entity
for future research and development activities. Under EITF 07-03, an entity
would 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 and interim periods within those years. The Company is
currently evaluating the potential impact from adopting EITF 07-03 on the
financial position or results of operations.





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
2007), Business Combinations, which replaces SFAS No 141. The statement retains
the purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective
for 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.





In
December 2007, the FASB issued SFAS No. 160.  “Noncontrolling
Interests in Consolidated Financial Statements-and Amendment of ARB No.
51.”  SFAS 160 establishes accounting and reporting standards
pertaining to ownership interests in subsidiaries held by parties other than the
parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of any retained noncontrolling equity investment when a subsidiary is
deconsolidated.  This statement also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008.  The adoption of SFAS 160 is not currently expected to have a
material effect on the Company’s financial position, results of operations, or
cash flows.





50
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








In March
2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No.
161, Disclosures about
Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The company is currently evaluating the impact of
adopting SFAS. No. 161 on its financial statements.





51
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








3.
            Equipment,
      Net





December 31,
            
            
            December 31,2007
            
            
            2006Furniture
      and fixtures
            
            $
            31,713
            
            
            $
            31,713Office
      equipment
            
            
            43,648
            
            
            
            43,648Lab
      and computer equipment
            
            
            423,159
            
            
            
            423,159498,520
            
            
            
            498,520Less:
      Accumulated depreciation
            
            
            395,569
            
            
            
            348,527Net
      carrying amount
            
            $
            102,951
            
            
            $
            149,993





Depreciation
expense was $47,042 and $106,591 for the years ended December 31, 2007 and 2006,
respectively.





4.
            Intangible
      Asset





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
$356,216was
determined by discounting the stream of future quarterly payments of $46,875 at
6%, the prevailing market rate for a debt instrument of comparable maturity and
credit quality.  The asset is amortized on a straightline basis over
an estimated useful life of 20 years.  The discount was accreted over
the term of the liability, calculated based on the Company's estimated effective
market interest rate of 6%.  During 2006 the outstanding balance was
paid.  Amortization expense was $18,028 and $17,919 for the years
ended December 31, 2007 and 2006, respectively. Management does not believe that
there is an impairment of intangible assets at December 31, 2007.





The
following table sets forth the intangible asset:





Revaax
      License, original cost
            
            $
            356,216Less:  Accumulated
      Amortization
            
            $
            (52,273
            )Balance
      - December 31, 2007
            
            $
            303,943





52
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








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





2008
            
            $
            17,8112009
            
            
            17,8112010
            
            
            17,8112011
            
            
            17,8112012
            
            
            17,811Thereafter
            
            
            214,888$
            303,943





5.
            Deferred
      Revenue





In 2003,
the Company entered into a collaborative research agreement with Rexgene Biotech
Co., Ltd. ("Rexgene"), a minority shareholder.  Rexgene is engaged in
the development of pharmaceutical products in Asia and has agreed to assist the
Company with the research, development and clinical trials necessary for
registration of the Company's drug candidate, RX-0201, in Asia.  This
agreement provides Rexgene with exclusive rights to license, sublicense, make,
have made, use, sell and import RX-0201 in Asia. A one-time contribution to the
joint development and research of RX-0201 of $1,500,000 was paid to the Company
in 2003 in accordance with the agreement.  The amount of revenue from
this contribution is being recognized as income over the term of the agreement
which terminates at the later of 20 years or the term of the patent on the
licensed product. The Company is using 20 years as its basis for recognition and
accordingly $75,000 was included in revenues for the years ended December 31,
2007 and 2006.  The remaining $1,125,000 at December 31, 2007
(2006-$1,200,000) is reflected as deferred revenue on the balance
sheet.  The Company adopted SAB No. 104, "Revenue Recognition
Nonrefundable Up-front Fees" with respect to the accounting for this
transaction. These fees are being used in the cooperative funding of the costs
of development of RX-0201.  Royalties of 3% of net sales of licensed
products will become payable to the Company on a quarterly basis once commercial
sales of RX-0201 begin. The product is still under development and commercial
sales are not expected to begin until 2009.





6.
            Stockholders’
      Equity Transactions





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





53
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








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





iv)
            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.





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.





54
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








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





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





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





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





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





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





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





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





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





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





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





w)
            On
      December 18, 2007, the Company issued 4,857,159 units in a private
      placement at a price $1.40 per share for total gross proceeds of
      $6,800,023.  Investors also were issued one warrant for every five
      shares purchased.  One warrant will entitle the holder to
      purchase an additional share of common stock at a purchase price of $1.80
      at any time over a period of three years from the date of the closing of
      the private placement.  The warrants have been valued at
      $1,103,164.  Private placement closing costs of $139,674,
      included warrants issued, valued at $91,199, were recorded as a reduction
      of the issuance proceeds.





55
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








Warrants
were valued using the Black-Scholes model, using the weighted average key
assumptions of volatility of 105%, a risk-free interest rate of 3.09% - 3.2%, a
term equivalent to the life of the warrant, and reinvestment of all dividends in
the Company of zero percent.





x)
            On
      December 27, 2007an 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.








7.
            Stock-Based
      Compensation





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





For
grants to non-employee directors and consultants of the Company after September
12, 2005, the vesting period is between 1 to 3 years, subject to the fulfillment
of certain conditions in the individual stock option grant agreements, or 100%
upon the occurrence of certain events specified in the individual stock option
grant agreements.  Options authorized for issuance under the Plan
total 17,000,000 after giving effect to an amendment to the Plan approved at the
Annual Meeting of the Stockholders of the Company on June 2, 2006 and
at December 31, 2007, 10,670,000options were available
for issuance.





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





Accounting
for Employee Awards





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





The
Company's results of operations for the years ended December 31, 2007 and 2006
include share-based employee compensation expense totaling $596,097 and
$656,169, 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 2007 is the estimated fair value of options
granted which are recognized on a straight-line basis over the requisite
service period for the entire portion of the award. The Company has not adjusted
the expense by estimated forfeitures, as required by SFAS No. 123R for employee
options, since the forfeiture rate based upon historical data was determined to
be immaterial.





56
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








Accounting
for Non-Employee Awards





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





Stock
compensation expense related to non-employee options was $525,549 for the year
ended December 31, 2007, respectively, and $377,787 for the year ended December
31, 2006.





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, 2007 and 2006, and the period from inception (March 19, 2001)
to December 31, 2007, all of which relates to stock options and warrants,
is as follows:





InceptionYears ended
    December 31,
            
            
            (March 19, 2001) to2007
            
            
            2006
            
            
            December 31, 2007Income
      statement line item:General
      and administrative:Payroll
            
            $
            408,731
            
            
            $
            517,427
            
            
            $
            1,096,728Consulting
      and other professional fees
            
            
            178,167
            
            
            
            164,413
            
            
            
            597,102Research
      and development:Payroll
            
            
            187,366
            
            
            
            138,742
            
            
            
            484,370Consulting
      and other professional fees
            
            
            347,382
            
            
            
            213,374
            
            
            
            1,183,014Total
            
            $
            1,121,646
            
            
            $
            1,033,956
            
            
            $
            3,361,214





There
were 525,000 stock options granted during the year ended December 31, 2007 with
a face value of $2,335,325. A total of 1,165,000 stock options were granted in
the same period last year. The fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model. During 2007, the Company
took into consideration guidance under SFAS No. 123(R) and SAB No. 107 when
reviewing and updating assumptions. The expected volatility is based upon
historical volatility of the Company's stock. The expected term is based upon
the simplified method as allowed under SAB 107.





57
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








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





Years
      EndedDecember
      31,2007
            
            
            2006Black-Scholes
      Weighted Average Assumptions:Expected
      dividend yield
            
            
            0
            
            
            
            0Expected
      volatility
            
            
            100
      - 105%
            
            
            
            100%Risk
      free interest rate
            
            
            2.76
      - 4.99%
            
            
            
            4.70
      - 5.00%Expected
      term (in years)
            
            0.05
      - 5 years
            
            
            1 -
      5 years





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





Years
      EndedDecember
      31,2007
            
            
            2006Weighted
      Avg.
            
            
            
            
            
            Weighted
      Avg.Number
            
            
            Exercise
            
            
            Number
            
            
            Exerciseof
      Options
            
            
            Prices
            
            
            of
      Options
            
            
            PricesOutstanding
      at January 1
            
            
            6,123,295
            
            
            $
            0.94
            
            
            
            5,770,000
            
            
            $
            0.84Granted
            
            
            525,000
            
            
            
            1.48
            
            
            
            1,165,000
            
            
            
            1.31Exercised
            
            
            (127,500
            )
            
            
            0.47
            
            
            
            (61,705
            )
            
            
            0.24Cancelled
            
            
            (475,000
            )
            
            
            1.29
            
            
            
            (750,000
            )
            
            
            0.80Outstanding
      at December 31
            
            
            6,045,795
            
            
            $
            0.97
            
            
            
            6,123,295
            
            
            $
            0.94








The
following table summarizes information about stock options outstanding as of
December 31, 2007 and 2006:





WeightedAverageNumber
            
            
            Weighted
            
            Remaining
            
            Aggregateof
            
            
            Avg.
      Exercise
            
            Contractual
            
            IntrinsicOptions
            
            
            Prices
            
            Term
            
            ValueOutstanding
      at December 31, 2007
            
            
            6,045,795
            
            
            $
            0.97
            
            6.9 years
            
            $
            8,029,932Exercisable
      at December 31, 2007
            
            
            3,877,795
            
            
            $
            0.87
            
            6.7 years
            
            $
            5,521,496





58
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








WeightedAverageNumber
            
            
            Weighted
            
            Remaining
            
            Aggregateof
            
            
            Avg.
      Exercise
            
            Contractual
            
            IntrinsicOptions
            
            
            Prices
            
            Term
            
            ValueOutstanding
      at December 31, 2006
            
            
            6,123,295
            
            
            $
            0.94
            
            8 years
            
            $
            8,472,670Exercisable
      at December 31, 2006
            
            
            3,035,628
            
            
            $
            0.85
            
            7.6 years
            
            $
            4,569,743





As of
December 31, 2007 and 2006, there was $1,410,269 and $2,242,525 of total
unrecognized compensation cost, respectively, related to all unvested stock
options, which is expected to be recognized over a weighted average vesting
period of 1.2 years and 1.8 years, respectively.





8.
            Income
      Taxes





No
provision for Federal or state income taxes was required for the years ended
December 31, 2007 or 2006, due to the Company’s operating losses.  At
December 31, 2007 and 2006, the Company has unused net operating loss
carry-forwards of approximately $ 24,994,000 and $20,838,000 which expire at
various dates through 2027.  Most of this amount is subject to annual
limitations under certain provisions of the Internal Revenue Code related to
“changes in ownership”.





As of
December 31, 2007 and 2006, 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:





2007
            
            
            2006Net
      operating loss carry-forwards
            
            $
            9,554,013
            
            
            $
            7,918,491Valuation
      allowance
            
            
            (9,554,013
            )
            
            $
            (7,918,491
            )Net
      deferred tax assets
            
            $
            -
            
            
            $
            -







We file
income tax returns in the U.S. federal and New York state
jurisdictions. Tax years for fiscal 2004 through 2006 are open and
potentially subject to examination by the federal and New York state taxing
authorities.





9.
            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
      up-front payment 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, 2007, the
      total value of these agreements was approximately $1,972,000 and the
      Company had made payments totaling $1,353,000 under the terms of the
      agreements as at December 31, 2007.  All of these agreements may
      be terminated by either party upon appropriate notice as stipulated in the
      respective agreements.





59
 Index





REXAHN
PHARMACEUTICALS, INC.


(A
Development Stage Company)


Notes to
Financial Statements


Years
Ended December 31, 2007 and 2006








b)
            The
      Company and two 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 and expires September 12, 2009. One
      agreement expires on September 12, 2010 and results in an annual
      commitment of $350,000.





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





Minimum
future rental payments under this lease as of December 31, 2007 are as
follows:





2008
            
            $
            222,6552009
            
            
            112,973$
            335,628





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





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





f)
            On
      May 30, 2007, the Company engaged Rodman and Renshaw, LLC (“Rodman”) to
      serve as the placement agent in connection with the proposed offer and
      placement of securities of the Company. Pursuant to the agreement, the
      Company shall pay Rodman a cash placement fee equal to 7% of the aggregate
      proposed offering.





10.
            Subsequent
      Events





a)
            During
      January 2008, 50,000 stock options were cancelled due to termination of
      employment of an employee.




60
 Index




b)
            On
      March 20, 2008, we entered into the following Securities Purchase
      Agreements:





·
            An
      agreement with Jungwoo Family Co., Ltd. whereby we agreed to issue to
      Jungwoo 285,715 shares of our common stock and a warrant to purchase
      57,143 shares of our common stock for total consideration of
      $400,000.





·
            An
      agreement with Super Bio Co. Ltd. whereby we agreed to issue to Super Bio
      357,143 shares of our common stock and a warrant to purchase 71,429 shares
      of our common stock for total consideration of
  $500,000.





After
payment of certain expenses, we expect to receive approximately $900,000 in net
proceeds upon closing of the above-described sales of our
securities.  We intend to use the proceeds of the sales for general
corporate purposes.





61
 Index





Item8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure





Not
applicable.





Item8A.  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.





Management’s Annual 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 of accounting
principles generally accepted in the United States.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.





Our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2007. Based on this evaluation,
our management, with the participation of the Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2007, our internal
control over financial reporting was effective.




This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





Changes in Internal Control Over
Financial Reporting.During the most recent quarter ended December 31,
2007, 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.





62
 Index




Item8B.  Other Information





None.





63
 Index





PART
III







Item9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act





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 9, is hereby incorporated by reference in this Item 9; 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.





Item10.  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 10, is hereby incorporated by reference in this
Item 10.





Item11. 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 11, is hereby incorporated by reference in this
Item 11.





Item12.  Certain Relationships and Related
Transactions; and Director Independence





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
12.





64
 Index




Item13.  Exhibits





Exhibit
              Number
            
            Exhibit Description3.1.
            
            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-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 herewith.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.




65
 Index




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.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.14.
            
            Code
      of Ethics and Business Conduct23.
            
            Consent
      of Lazar, Levine & Felix, LLP, independent registered public
      accounting firm.24.
            
            Power
      of Attorney31.1.
            
            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.




66
 Index




Item14.  Principal Accountant Fees and
Services







The
following table presents fees for professional audit services rendered by Lazar
Levine & Felix LLP for the audits of the Company's annual financial
statements for the years ended December 31, 2007 and 2006,
respectively.





2007
            
            
            2006Audit
      Fees
            
            $
            83,000
            1
            
            $
            77,500Audit-Related
      Fees
            
            
            —
            
            
            
            —Tax
      Fees
            
            
            —
            
            
            
            —All
      Other Fees
            
            
            —
            
            
            
            —





1Audit
Fees relate to the audit of the Company's financial statements and reviews of
certain financial statements included in the Company's quarterly reports on Form
10-QSB.  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.





67
 Index





SIGNATURES







In
accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the issuer has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on
this 31st day of March, 2008.





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 31st day of March, 2008 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/FreddieAnnHoffman*
            
            DirectorFreddie Ann Hoffman/s/DavidMcIntosh*
            
            DirectorDavid McIntosh/s/CharlesBeever*
            
            DirectorCharles Beever/s/KwangSooCheong*
            
            DirectorKwang Soo Cheong/s/ Y. Michele Kang*
            
            DirectorY.
      Michele Kang





*
      By:
            /s/TaeHeumJeongTae Heum Jeong,
      Attorney-in-Fact**





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





68
 Index





EXHIBIT INDEX





Exhibit
              Number
            
            Exhibit Description3.1.
            
            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-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 herewith.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.




Index




Exhibit
              Number
            
            Exhibit
      Description10.12
            
            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.14
            
            Code
      of Ethics and Business Conduct23.
            
            Consent
      of Lazar, Levine & Felix, LLP, independent registered public
      accounting firm.24.
            
            Power
      of Attorney31.1.
            
            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.