10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

  þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Rexahn Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Commission File No.: 001-34079

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

15245 Shady Grove Road, Suite 455

Rockville, MD 20850

(Address of principal executive offices, including zip code)

Telephone: (240) 268-5300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 95,345,656 shares of common stock outstanding as of May 9, 2012.

1

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements
	1)	Condensed Balance Sheet at March 31, 2012 (unaudited) and December 31, 2011	3
	2)	Condensed Statement of Operations (unaudited) for the three months ended March 31, 2012 and 2011 and cumulative from March 19, 2001 (inception) to March 31, 2012	4
	3)	Condensed Statement of Comprehensive Loss (unaudited) for the three months ended March 31, 2012 and 2011 and cumulative from March 19, 2001 (inception) to March 31, 2012	5
	4)	Condensed Statement of Cash Flows (unaudited) for the three months ended March 31, 2012 and 2011 and cumulative from March 19, 2001 (inception) to March 31, 2012	6
	5)	Notes to Condensed Financial Statements (unaudited)	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3	Quantitative and Qualitative Disclosures About Market Risk		43
Item 4	Controls and Procedures		43
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		44
Item 1A	Risk Factors		44
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3	Defaults Upon Senior Securities		44
Item 4	Mine Safety Disclosures		44
Item 5	Other Information		44
Item 6	Exhibits		44
SIGNATURES			45

2

PART I  Financial Information

Item 1     Financial Statements

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Condensed Balance Sheet

	March 31, 2012		December 31, 2011
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	8,101,112	$	9,861,488
Marketable securities (note 3)		1,950,000		1,950,000
Prepaid expenses and other current assets (note 4)		287,252		333,171
Note receivable (note 5)		11,676		18,682
Total Current Assets		10,350,040		12,163,341
Restricted Cash Equivalents (note 17)		1,275,631		1,431,765
Equipment, Net (note 6)		83,821		94,542
Total Assets	$	11,709,492	$	13,689,648

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses (note 7)	$	1,020,011		$	1,185,405
Deferred Research and Development Arrangement (note 8)		806,250			825,000
Other Liabilities (note 9)		95,135			104,388
Warrant Liabilities (note 14)		1,130,586			868,725
Total Liabilities		3,051,982			2,983,518
Commitments and Contingencies (note 17)
Stockholders’ Equity (note 12):
Preferred stock, par value $0.0001, 100,000,000 authorized shares, none issued and outstanding		-			-
Common stock, par value $0.0001, 500,000,000 authorized shares, 95,359,861 issued and 95,345,656 outstanding		9,536			9,536
Additional paid-in capital		67,900,791			67,809,617
Accumulated deficit during the development stage		(59,224,407	)		(57,084,613	)
Treasury stock, 14,205 shares, at cost		(28,410	)		(28,410	)
Total Stockholders’ Equity		8,657,510			10,706,130
Total Liabilities and Stockholders’ Equity	$	11,709,492		$	13,689,648

See the notes accompanying the condensed financial statements.

3

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Condensed Statement of Operations

(Unaudited)

								Cumulative
								from March 19,
								2001
								(Inception) to
	For the Three Months Ended March 31,							March 31,
	2012				2011			2012
Revenues:
Research		$	-		$	-		$	-
Expenses:
General and administrative			728,172			1,109,172			28,075,167
Research and development			1,042,700			2,717,527			32,928,303
Patent fees			102,589			72,514			2,203,594
Depreciation and amortization			10,721			14,127			651,258
Total Expenses			1,884,182			3,913,340			63,858,322
Loss from Operations			(1,884,182	)		(3,913,340	)		(63,858,322	)
Other Income (Expense)
Realized loss on marketable securities         .			-			-			(13,301	)
Interest income			6,249			42,471			1,427,556
Interest expense			-			-			(301,147	)
Other income			-			-			56,047
Unrealized (loss) gain on fair value of warrants			(261,861	)		(467,625	)		3,414,244
Unrealized gain on fair value of put feature on common stock			-			-			2,315,539
Financing expense			-			(97,667	)		(640,023	)
Beneficial conversion feature			-			-			(1,625,000	)
Total Other Income (Expense)			(255,612	)		(522,821	)		4,633,915
Net Loss Before Provision for Income Taxes			(2,139,794	)		(4,436,161	)		(59,224,407	)
Provision for income taxes			-			-			-
Net Loss		$	(2,139,794	)	$	(4,436,161	)	$	(59,224,407	)
Net loss per share, basic and diluted		$	(0.02	)	$	(0.05	)
Weighted average number of shares outstanding, basic and diluted			95,345,656			86,251,682

See the notes accompanying the condensed financial statements.

4

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Condensed Statement of Comprehensive Loss

(Unaudited)

								Cumulative
								from March 19,
								2001
		For the Three Months Ended March 31,						(Inception) to March 31,
		2012			2011			2012
Net Loss	$	(2,139,794	)	$	(4,436,161	)	$	(59,224,407	)
Unrealized loss on available-for-sale securities		-			(1,360	)		-
Total Comprehensive Loss	$	(2,139,794	)	$	(4,437,521	)	$	(59,224,407	)

See the notes accompanying the condensed financial statements.

5

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Condensed Statement of Cash Flows

(Unaudited)

	For the Three Months Ended March 31,						Cumulative From March 19, 2001 (Inception) to March 31,
	2012			2011			2012
Cash Flows from Operating Activities:
Net loss	$	(2,139,794	)	$	(4,436,161	)	$	(59,224,407	)
Adjustments to reconcile net loss to net cash used in operating activities:
Beneficial conversion feature		-			-			1,625,000
Compensatory stock		-			-			2,129,877
Depreciation and amortization		10,721			14,127			651,258
Stock-based compensation		91,174			201,988			5,668,803
Amortization of deferred research and development arrangement		(18,750	)		(18,750	)		(693,750	)
Note receivable		7,006			7,007			(11,676	)
Realized losses on marketable securities		-			-			13,301
Unrealized loss (gain) on fair value of warrants		261,861			467,625			(3,414,244	)
Unrealized gain on fair value of put feature on common stock		-			-			(2,315,539	)
Financing expense		-			97,667			640,023
Amortization of deferred lease incentive		(5,000	)		(5,000	)		(55,000	)
Deferred lease expenses		(4,253	)		(112	)		50,135
Loss on impairment of intangible assets		-			-			286,132
Changes in assets and liabilities:
Prepaid expenses and other current assets		45,919			(18,473	)		(287,252	)
Research tax credit receivable		-			145,513			-
Accounts payable and accrued expenses		(165,394	)		1,118,734			1,020,011
Net Cash Used in Operating Activities		(1,916,510	)		(2,425,835	)		(53,917,328	)
Cash Flows from Investing Activities:
Restricted cash equivalents		156,134			(2,957,563	)		(1,275,631	)
Purchase of equipment		-			-			(564,995	)
Purchase of marketable securities		-			-			(21,123,960	)
Proceeds from sales of marketable securities		-			-			19,160,659
Payment of licensing fees		-			-			(356,216	)
Net Cash Provided by (Used In) Investing Activities		156,134			(2,957,563	)		(4,160,143	)
Cash Flows from Financing Activities:
Issuance of common stock and units, net of issuance costs		-			13,220,273			55,805,574
Proceeds from exercise of stock options		-			18,000			170,082
Proceeds from exercise of stock warrants		-			317,961			3,581,337
Proceeds from long-term debt		-			-			5,150,000
Proceeds from research contribution		-			-			1,500,000
Purchase of treasury stock		-			-			(28,410	)
Net Cash Provided by Financing Activities		-			13,556,234			66,178,583
Net (Decrease) Increase in Cash and Cash Equivalents		(1,760,376	)		8,172,836			8,101,112
Cash and Cash Equivalents – beginning of period		9,861,488			12,340,239			-
Cash and Cash Equivalents - end of period	$	8,101,112		$	20,513,075		$	8,101,112

See the notes accompanying the condensed financial statements.

6

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Condensed Statement of Cash Flows (continued)

(Unaudited)

	For the Three Months Ended March 31,				Cumulative From March 19, 2001 (Inception) to March 31,
	2012		2011		2012
Supplemental Cash Flow Information
Interest paid	$	-	$	-	$	301,147
Non-cash financing and investing activities:
Warrants issued	$	-	$	2,924,333	$	11,054,427
Put feature on common stock issued	$	-	$	-	$	4,954,738
Dilutive issuances of common stock	$	-	$	-	$	2,639,199
Warrant liability extinguishment from exercise of warrants	$	-	$	243,868	$	6,180,660
Leasehold improvement incentive	$	-	$	-	$	100,000
Settlement of lawsuit	$	-	$	-	$	43,953

See the notes accompanying the condensed financial statements.

7

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

1. Operations and Organization

Operations

Rexahn Pharmaceuticals, Inc. (the “Company”, “Rexahn Pharmaceuticals”), a Delaware corporation, is a development stage biopharmaceutical company dedicated to the discovery, development and commercialization of innovative treatments for cancer. In addition, we have two central nervous system (“CNS”) candidates, Serdaxin and Zoraxel, that are in clinical stages and the Company is exploring options for further development.    The Company had an accumulated deficit of $59,224,407 at March 31, 2012 and anticipates incurring losses through the remainder of fiscal 2012 and beyond.  The Company has not yet generated commercial sales revenue and has been able to fund its operating losses to date through the sale of its common stock, warrants exercisable for common stock, units, issuance of long-term debt, and proceeds from reimbursed research and development costs.  Management has the capability of managing the Company’s operations within existing cash available by focusing on select research and development activities, and selecting projects in conjunction with potential financings and milestones.

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of March 31, 2012 and December 31, 2011 and the results of operations and cash flows for the three months ended March 31, 2012 and 2011 have been included.  Operating results for the three month period ended March 31, 2012 are not necessarily indicative of results that may be expected for any other interim period or the full fiscal year ending December 31, 2012. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 Form 10-K”).  Information included in the condensed balance sheet as of December 31, 2011 has been derived from the Company’s audited financial statements for the year ended December 31, 2011 included in the 2011 Form 10-K.

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.

Reclassification

The Company has reclassified previously reported amortization of Rexgene’s research and development arrangement, as disclosed in Note 8, “Deferred Research and Development Arrangement”, from revenue to a reduction of research and development expenses in the statement of operations.  The reclassification had no effect on the Company’s balance sheets, net loss, or cash flows from operating activities.

8

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

2.  Recent Accounting Pronouncements Affecting the Company

    Fair Value Measurements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update  2011-04 to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”) which amends the disclosure requirements for fair value instruments.  The new disclosures required include  disclosure regarding the sensitivity of the fair value measurement to changes in unobservable inputs, and the interrelationships between those unobservable inputs.  The guidance is effective for the Company for fiscal years and interim periods beginning on or after December 15, 2011.  The Company adopted this guidance for the quarter ended March 31, 2012.

    Comprehensive Income

In June 2011, the FASB issued authoritative guidance for presentation and disclosure of comprehensive income in the financial statements.  Under the new guidance, a Company may no longer present the components of other comprehensive income as part of the statement of changes in the Statement of Stockholder’s Equity, and instead must present the components of comprehensive income either in the Statement of Operations or in a separate statement immediately following the Statement of Operations.  In addition, reclassification adjustments between comprehensive income and net income must be disclosed on the financial statements.  This guidance is effective for the Company for fiscal years and interim periods beginning on or after December 15, 2011.  The Company adopted this guidance for the quarter ended March 31, 2012

3. Marketable Securities

Cost and fair value of the Company’s marketable securities are as follows:

	Cost		Gross Unrealized		Fair
Securities available-for-sale	Basis		Gains/Losses		Value
March 31, 2012:
State and municipal obligations	$	1,950,000	$	-	$	1,950,000
December 31, 2011:
State and municipal obligations	$	1,950,000	$	-	$	1,950,000

Amortized cost and fair value at March 31, 2012 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because the Company may redeem certain securities at par.

	Cost		Fair
Maturity	Basis		Value
10 years or more	$	1,950,000	$	1,950,000

9

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

4.  Prepaid Expenses and Other Current Assets

	March 31,		December 31,
	2012		2011
Deposits on contracts	$	109,717	$	163,317
Other assets		177,535		169,854
	$	287,252	$	333,171

Deposits on contracts consist of deposits on research and development contracts for services that had not been incurred as of the balance sheet date.  Other assets include prepaid general and administrative expenses, such as insurance, rent, and investor relations services.

5.  Note Receivable

On June 16, 2010, Amarex, LLC (“Amarex”) executed a note payable to the Company in settlement of a contract dispute.  The Company settled the case with Amarex for $100,000 less a balance owed of $43,953.  The principal sum of the note was $56,047, and is included in other income in the Company’s statement of operations.  Monthly payments of $2,335 began on September 1, 2010 and will continue until August 1, 2012 at which time the balance is expected to be paid in full.  The note does not bear interest. Pursuant to the note, Amarex shall pay a late charge of five percent (5%) of any past due installment payments if any installment payment is not paid within 10 days of its due date.  As of March 31, 2012, all payments were made as scheduled.

As of March 31, 2012, the principal amortization of the note is shown below:

	Expected
Principal Amortization	Payment
Within 1 year	$	11,676

6.  Equipment, Net

	March 31,			December 31,
	2012			2011
Furniture and fixtures	$	34,200		$	34,200
Office equipment		81,074			81,074
Lab and computer equipment		430,261			430,261
Leasehold improvements		119,841			119,841
Total fixed assets		665,376			665,376
Less: Accumulated depreciation		(581,555	)		(570,834	)
Net carrying amount	$	83,821		$	94,542

Depreciation expense was $10,721 and $14,127 for the three months ended March 31, 2012 and 2011, respectively.

10

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

7. Accounts Payable and Accrued Expenses

	March 31,		December 31,
	2012		2011
Trade payables	$	414,927	$	555,613
Accrued expenses		49,218		50,401
Accrued research and development contract costs		420,851		449,775
Payroll liabilities		135,015		129,616
	$	1,020,011	$	1,185,405

8.  Deferred Research and Development Arrangement

In 2003, the Company entered into a collaborative research agreement with Rexgene Biotech Co., Ltd. (“Rexgene”), a 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, Archexin, in Asia.  This agreement provides Rexgene with exclusive rights to license, sublicense, make, have made, use, sell and import Archexin in Asia.  In accordance with the agreement, Rexgene paid the Company a one-time fee of $1,500,000 in 2003.  The agreement terminates at the later of 20 years or the term of the patent.  The amortization reduces research and development expenses for the periods presented.

The Company is using 20 years as its basis for recognition and accordingly $18,750 reduced research and development expenses for the three months ended March 31, 2012 and 2011, respectively.  The remaining $806,250 and $825,000 at March 31, 2012 and December 31, 2011, respectively, is reflected as deferred research and development arrangement on the balance sheet.  The contribution is being used in the cooperative funding of the costs of development of Archexin. Royalties of 3% of net sales of licensed products will become payable to the Company on a quarterly basis once commercial sales of Archexin begin in Asia.  The product is still under development and commercial sales in Asia are not expected to begin until at least 2013.  Under the terms of the agreement, Rexgene does notreceive royalties on Company net sales outside of Asia.

9. Other Liabilities

Deferred Lease Incentive

On June 29, 2009, the Company entered into a five year office lease agreement as disclosed in Note 17.  The lessor agreed to grant a leasehold improvement allowance of $100,000 to the Company to be used for the construction cost of improvements to the leased property, which included architectural and engineering fees, government agency plan check, permit and other fees, sales and use taxes, testing and inspection costs, and telephone and data cabling and wiring in the premises.  The Company accounts for the benefit of the leasehold improvement allowance as a reduction of rental expense over the five-year term of the office lease.

11

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

9.  Other Liabilities(cont’d)

The following table sets forth the deferred lease incentive:

	March 31,			December 31,
	2012			2011
Deferred lease incentive	$	100,000		$	100,000
Less accumulated amortization		(55,000	)		(50,000	)
Balance	$	45,000		$	50,000

Deferred Office Lease Expense

The office lease agreement, disclosed above, requires an initial annual base rent with annual increases over the next five years.  The Company recognizes rental expense on a straight-line basis over the term of the lease, which resulted in a deferred rent liability of $50,135 and $54,388 as of March 31, 2012 and December 31, 2011, respectively.

10. Comprehensive Loss

The Company did not have an accumulated other comprehensive loss as of March 31, 2012 and December 31, 2011.  The total comprehensive loss for the three months ended March 31, 2012 and 2011 was $2,139,794 and $4,437,521, respectively.

11. Net Loss per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding and excluding any potential dilution.  Diluted loss per common share is also computed by dividing net loss by the weighted average number of common shares outstanding, but also reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that would then share in earnings, and such calculation excludes common shares in treasury.   Basic and diluted loss per common share are identical for all periods presented as potentially dilutive securities of the Company have been excluded from the calculation of the diluted net loss per common share because the inclusion of such securities would be anti-dilutive.  As of March 31, 2012 and December 31, 2011, there were stock options and warrants to acquire 16,356,937 and 16,322,937 shares of our common stock, respectively, which were the potentially dilutive securities of the Company.

12

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock

The following transactions occurred from March 19, 2001 (inception) to March 31, 2012:

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

b) On August 10, 2001, the Company issued:

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

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

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

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

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

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

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

f) In July 2003, the stockholders described in b) (iii) and e) transferred an aggregate of 1,268,332 shares of common stock to a voting trust.  The trust allows for the unified voting of the stock by the trustees.

The appointed trustees are senior management of the Company who, together with their existing shares, control a majority of the voting power of the Company.

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

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

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

j) On August 8, 2005, the Company issued, in a transaction exempt from registration under the Securities Act of 1993, as amended, 4,175,000 shares of common stock at a purchase price of $2.00 per share.

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

13

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

l) On December 2, 2005, the holders of a convertible note that was issued on August 8, 2005 and, represented $1,300,000 aggregate principal amount, exercised their option to convert the entire principal amount of the note into the Company’s common stock.  Based on a $2.00 per share conversion price, the holders received an aggregate of 650,000 shares.

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

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

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

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

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

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

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

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

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

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

14

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

w) On December 18, 2007, the Company issued 4,857,159 units at a price $1.40 per share for total gross proceeds of $6,800,023.  Investors also were issued one warrant for every five shares purchased.  One warrant will entitle the holder to purchase an additional share of common stock at a purchase price of $1.80 at any time over a period of three years from the date of the closing. The Company has recorded the warrants as liabilities at fair value as disclosed in Note 14.  Private placement closing costs of $139,675 were recorded as a reduction of the issuance proceeds.  Private placements costs also consist of 107,144 warrants, valued at $138,326, and were recorded as a financing expense. The Company extended anti-dilutive protection to the investors. The anti-dilution protection provision is structured in a way that is designed to protect a holder’s position from being diluted and contains a price protection based on a mathematical calculation, and is recorded as a liability at fair value, as disclosed in Note 15.   The Company revalues these liabilities each reporting period, with the unrealized gain (loss) recorded as other income (expense).

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

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

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

15

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

y) On March 20, 2008, the Company issued 642,858 units consisting of one share of the Company’s common stock and one warrant for every five common shares purchased in a private placement at a price of $1.40 per unit for total gross proceeds of $900,001.  One warrant will entitle the holder to purchase an additional share of common stock at a price of $1.80 at any time over a period of three years from the date of the private placement, and is recorded as a liability at fair value.  The Company extended anti-dilution protection to investors, and the provision is structured in a way that is designed to protect the holder’s position from being diluted and contains a price based on a mathematical computation.

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

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

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

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

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

16

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

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

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

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

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

The closing costs included 142,857 warrants valued at $122,257 and were recorded as a financing         expense.  All warrants issued from this purchase agreement are recorded as liabilities at fair value.

The Company incurred a derivative loss upon issuance of these warrants, as the fair value of the warrants at inception was greater than the proceeds received from the investor.  The derivative loss was combined with unrealized gains (losses) for the year ended December 31, 2009.

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

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

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

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

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

17

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

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

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

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

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

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

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

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

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

18

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

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

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

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

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

an) In May 2010, warrant holders exercised 890,051 cashless warrants to obtain shares of the Company’s common stock and the Company issued an aggregate of 547,674 shares.

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

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

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

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

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

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

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

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

19

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

12. Common Stock (cont’d)

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

aw) On March 31, 2011, the Company closed on a purchase agreement to issue 8,333,333 shares of common stock at a price of $1.20 per share to five institutional investors for gross proceeds of $10,000,000, which includes $706,124 of cash stock issuance costs.  The investors were also issued warrants to purchase 3,333,333 shares of common stock at a purchase price of $1.50 per share, exercisable on or after six months after the closing date until the five-year anniversary of the initial exercise date, and were recorded as liabilities at fair value. The closing costs included 208,333 warrants valued at $97,667 and were recorded as a financing expense.

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

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

ax) In September 2011, an option holder exercised options to purchase shares of the Company’s common stock for cash of $22,040 and the Company issued 28,000 shares.

ay) In October, 2011, an option holder exercised options to purchase shares of the Company’s common stock for cash of $19,200 and the Company issued 80,000 shares.

20

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

13. 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 five and ten years from the date of grant.

For grants to non-employee consultants of the Company after September 12, 2005, the vesting period is between one to three 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.  At March 31, 2012, 8,639,000 shares of common stock 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

The Company’s results of operations for the three months ended March 31, 2012 and 2011 include stock-based employee compensation expense totaling $59,815 and $150,246 respectively. Such amounts have been included in the statement of operations in general and administrative and research and development expenses.  No income tax benefit has been recognized in the statement of operations for stock-based compensation arrangements as the Company has provided for a 100% valuation allowance on its deferred tax assets.

Employee stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite vesting service period for the entire portion of the award.

Accounting for Non-Employee Awards

Stock compensation expenses related to non-employee options were $31,359 and $51,742 for the three months ended March 31, 2012 and 2011, respectively.  Such amounts have been included in the statement of operations in general and administrative and research and development expenses.

21

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

13. Stock-Based Compensation (cont'd)

Summary of Stock Compensation Expense Recognized

Total stock-based compensation recognized by the Company in the three months ended March 31, 2012 and 2011, and the period from inception (March 19, 2001) to March 31, 2012, is as follows:

	Three Months Ended March 31,				Cumulative from March 19, 2001 (Inception) to  March 31, 2012
	2012		2011
Statement of operations line item: General and administrative:
Payroll	$	39,317	$	126,202	$	2,534,717
Consulting and other professional fees		23,222		35,649		809,745
Research and development:
Payroll		20,498		24,044		992,547
Consulting and other professional fees		8,137		16,093		1,331,794
Total	$	91,174	$	201,988	$	5,668,803

Summary of Stock Option Transactions

There were 75,000 stock options granted at an exercise price of $0.48 with a fair value of $26,835 during the three months ended March 31, 2012.  There were 130,000 stock options granted at an exercise price of $1.84 with a fair value of $180,326 during the three months ended March 31, 2011.

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model.  The Company took into consideration guidance under ASC 718, “Compensation-Stock Compensation” and Staff Accounting Bulletin (“SAB”) 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.

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

	Three Months Ended March 31,
	2012			2011
Black-Scholes weighted average assumptions
Expected dividend yield		0	%		0	%
Expected volatility		101	%		101	%
Risk free interest rate		0.89	%		2.29	%
Expected term (in years)	5 years			5 years

22

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

13.  Stock-Based Compensation(cont’d)

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

	2012					2011
	Number of  Options			Weighted Avg. Exercise Price		Number of Options			Weighted Avg. Exercise Prices
Outstanding at January 1		7,646,795		$	1.05		8,076,795		$	1.02
Granted		75,000			0.48		130,000			1.84
Exercised		-			-		(75,000	)		0.24
Cancelled		(41,000	)		1.54		(89,000	)		1.16
Outstanding at March 31		7,680,795		$	1.04		8,042,795		$	1.03

The following table summarizes information about stock options outstanding as of March 31, 2012 and December 31, 2011.

	Number of Options		Weighted Avg. Exercise Prices		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at March 31, 2012		7,680,795	$	1.04	4.6 years	$	184,231
Exercisable at March 31, 2012		7,055,795	$	1.03	4.2 years	$	180,481
Outstanding at December 31, 2011		7,646,795	$	1.05	4.8 years	$	83,611
Exercisable at December 31, 2011		6,911,795	$	1.02	4.4 years	$	83,611

There were no options exercised in the three months ended March 31, 2012.  The total intrinsic value of the options exercised was $94,250 for the three months ended March 31, 2011. The weighted average fair value of the options vested was $0.95 and $0.79 for the three months ended March 31, 2012 and 2011, respectively.

A summary of the Company’s unvested shares as of March 31, 2012 and changes during the three months ended March 31, 2012 is presented below:

	2012
	Number of  Options			Weighted Average Fair Value at Grant  Date
Unvested at January 1, 2012		735,000		$	0.92
Granted		75,000		$	0.36
Vested		(144,000	)	$	0.95
Cancelled		(41,000	)	$	1.15
Unvested at March 31, 2012		625,000		$	0.83

23

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

13.  Stock-Based Compensation (cont’d)

As of March 31, 2012 and December 31, 2011, there was $316,217 and $397,593 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 1.5 years and 1.6 years, respectively.

14. Warrants

As of March 31, 2012, warrants to purchase 8,676,142 shares were outstanding, having exercise prices ranging from $1.00 to $1.90 and expiration dates ranging from August 8, 2013 to September 30, 2016.

	2012				2011
	Number of warrants		Weighted average exercise price		Number of warrants			Weighted average  exercise price
Balance, January 1		8,676,142	$	1.53		5,624,583		$	1.48
Issued during the period		-		-		3,541,666		$	1.50
Exercised during the period		-		-		(333,959	)	$	(0.95	)
Expired during the period		-		-		(156,148	)	$	(0.82	)
Balance, March 31		8,676,142	$	1.53		8,676,142		$	1.53

At March 31, 2012 and December 31, 2011, the average remaining contractual life of the outstanding warrants was 3.1 and 3.2 years, respectively.

The warrants, which were issued to investors in the December 2007, March 2008, May 2009, October 2009, June 2010, and March 2011 offerings,contain a provision for net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer, or share exchange).   If a fundamental transaction occurs in which the consideration issued consists principally of cash or stock in a non-public company, then the warrant holder has the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant.  Due to this contingent redemption provision, the warrants require liability classification in accordance with ASC 480, “Distinguishing Liabilities from Equity,” (“ASC 480”) and are recorded at fair value.  In addition, the warrants issued in the May 2009, October 2009, June 2010 and March, 2011 offerings contain a cashless exercise provision that is exercisable only in the event that a registration statement is not effective, which provision may not be operative if an effective registration statement is not available because of an exemption under the U.S. Securities laws may not be available to issue unregistered shares.  As a result, net cash settlement may be required.

ASC 820 provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition.  Fair values for warrants are determined using the Binomial Lattice (“Lattice”) valuation technique. The Lattice model provides for dynamic assumptions regarding volatility and risk-free interest rates within the total period to maturity. Accordingly, within the contractual term, the Company provided multiple date intervals over which multiple volatilities and risk free interest rates were used. These intervals allow the Lattice model to project outcomes along specific paths which consider volatilities and risk free rates that would be more likely in an early exercise scenario.

Significant assumptions are determined as follows:

Trading market values—published trading market values;

Exercise price—Stated exercise price;

Term—remaining contractual term of the warrant;

Volatility—Historical trading volatility for periods consistent with the remaining terms;

Risk-free rate—Yields on zero coupon government securities with remaining terms consistent with the remaining terms of the warrants.

24

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

14. Warrants (cont'd)

Due to the fundamental transaction provision, which could provide for early redemption of the warrants, the model also considered the probability the Company would enter into a fundamental transaction during the remaining term of the warrant. Since the Company is still in its development stage and is not yet achieving positive cash flow, management believes a fundamental transaction occurring over the term of the warrant is unlikely and therefore estimates the probability of entering into a fundamental transaction to be 5%.  For valuation purposes, the Company also assumed that if such a transaction did occur, it was more likely to occur towards the end of the term of the warrants.

The warrants issued in December 2007 and March 2008 are not only subject to traditional anti-dilution protection, such as stock splits and dividends, but they are also subject to down-round anti-dilution protection. Accordingly, if the Company sells common stock or common stock indexed financial instruments below the stated exercise price, the exercise price related to these warrants will adjust to that lower amount.  The Lattice model used to value the warrants with down-round anti-dilution protection provides for multiple, probability-weighted scenarios at the stated exercise price and at five additional decrements/scenarios on each valuation date in order to encompass the value of the anti-dilution provisions in the estimate of fair value of the warrants. Calculations were performed at the stated exercise price and at five additional decrements/scenarios on each valuation date. The calculations provide for multiple, probability-weighted scenarios reflecting decrements that result from declines in the market prices. Decrements are predicated on the trading market prices in decreasing ranges below the contractual exercise price. For each valuation date, multiple Binomial Lattice calculations were performed which were probability weighted by considering both the Company’s (i) historical market pricing trends, and (ii) an outlook for whether or not the Company may need to issue equity or equity-indexed instruments in the future with a price less than the current exercise price.

The significant unobservable inputs used in the fair value measurement of the warrants include management’s estimate of the probability that a fundamental transaction may occur in the future.  Significant increases (decreases) in the probability of occurrence would result in a significantly higher (lower) fair value measurement.

The following table summarizes the fair value of the warrants as of the respective balance sheet or transaction dates:

	Fair Value as of:
Warrant Issuance:	March 31,  2012		December 31, 2011		Transaction Date
December 18, 2007 financing	$	-	$	-	$	1,392,476
March 20, 2008 financing		-		-		190,917
June 5, 2009 financing:
Series I warrants		-		-		707,111
Series II warrants		-		-		1,315,626
Series III warrants		104,378		89,756		1,306,200
Warrants to placement agent		10,558		8,893		122,257
October 23, 2009 financing:
Warrants to institutional investors		171,352		129,221		1,012,934
Warrants to placement agent		1,442		714		101,693
June 30, 2010 financing
Warrants to institutional investors		107,600		89,800		1,800,800
Warrants to placement agent		2,340		2,320		180,080
March 31, 2011 financing:
Warrants to institutional investors		728,333		544,000		2,826,666
Warrants to placement agent		4,583		4,021		97,667
Total:	$	1,130,586	$	868,725	$	11,054,427

25

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

14. Warrants(cont’d)

The following table summarizes the number of shares indexed to the warrants as of the respective balance sheet or transaction dates:

	Number of Shares indexed as of:
Warrant Issuance	March 31,  2012		December 31, 2011		Transaction Date
December 18, 2007 financing		-		-		1,078,579
March 20, 2008 financing		-		-		128,572
June 5, 2009 financing:
Series I warrants		-		-		2,222,222
Series II warrants		-		-		1,866,666
Series III warrants		1,555,555		1,555,555		1,555,555
Warrants to placement agent		132,143		132,143		142,857
October 23, 2009 financing:
Warrants to institutional investors		1,228,333		1,228,333		2,125,334
Warrants to placement agent		18,445		18,445		245,932
June 30, 2010 financing
Warrants to institutional investors		2,000,000		2,000,000		2,000,000
Warrants to placement agent		200,000		200,000		200,000
March 31, 2011 financing:
Warrants to institutional investors		3,333,333		3,333,333		3,333,333
Warrants to placement agent		208,333		208,333		208,333
Total:		8,676,142		8,676,142		15,107,383

The assumptions used in calculating the fair values of the warrants are as follows:

December 18, 2007 financing:	March 31,  2012		December 31, 2011		Transaction Date
Trading market prices	$	-	$	-	$	1.75
Estimated future volatility		-		-		143	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		3.27	%
Equivalent volatility		-		-		106	%
Equivalent risk-free rate		-		-		3.26	%
Estimated additional shares to be issued upon dilutive event		-		-		98,838

March 20, 2008 financing:	March 31,  2012		December 31,  2011		Transaction Date
Trading market prices	$	-	$	-	$	2.14
Estimated future volatility		-		-		142	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		1.95	%
Equivalent volatility		-		-		97	%
Equivalent risk-free rate		-		-		1.31	%
Estimated additional shares to be issued upon dilutive event		-		-		7,479

26

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

14. Warrants(cont’d)

June 5, 2009 financing:	March 31,  2012			December 31,  2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	1.14
Estimated future volatility		100	%		98-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.47	%		0.38	%		0.63-4.31	%
Equivalent volatility		69	%		80-81	%		103-117	%
Equivalent risk-free rate		0.19	%		0.14	%		0.20-1.44	%

October 23, 2009 financing:	March 31,  2012			December 31,  2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	0.69
Estimated future volatility		100	%		98-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.19-0.87	%		0.38	%		2.63-3.80	%
Equivalent volatility		71-74	%		72-81	%		98-99	%
Equivalent risk-free rate		0.14-0.21	%		0.08-0.16	%		0.93-1.16	%

June 30, 2010 financing:	March 31,  2012			December 31, 2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	1.43
Estimated future volatility		100	%		86-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.19-0.47	%		0.38-0.58	%		1.78	%
Equivalent volatility		63-70	%		72-79	%		98	%
Equivalent risk-free rate		0.10-0.19	%		0.08-0.14	%		0.59	%

March 31, 2011 financing:	March 31,  2012			December 31, 2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	1.18
Estimated future volatility		89-100	%		87-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.19-1.84	%		0.38-1.54	%		1.32-3.64	%
Equivalent volatility		63-82	%		72-90	%		79-96	%
Equivalent risk-free rate		0.10-0.38	%		0.08-0.28	%		0.39-1.09	%

27

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

14. Warrants(cont’d)

Changes in the fair value of the warrant liabilities, carried at fair value, as reported as “unrealized (loss) gain on fair value of warrants” in the statement of operations:

	Three Months Ended  March 31, 2012			Three Months  Ended  March 31, 2011			Cumulative  from  March 19, 2001 (Inception) to  March 31, 2012
December 18, 2007 financing	$	-		$	-		$	50,722
March 20, 2008 financing		-			92,704			160,063
June 5, 2009 financing:
Series I warrants		-			-			707,111
Series II warrants		-			-			(2,191,175	)
Series III warrants		(14,622	)		(191,644	)		1,201,822
Warrants to placement agent		(1,665	)		(15,513	)		97,319
Derivative loss at inception		-			-			(328,937	)
October 23, 2009 financing:
Warrants to institutional investors		(42,131	)		(242,718	)		(207,658	)
Warrants to placement agent		(728	)		(112,654	)		(137,380	)
June 30, 2010 financing
Warrants to institutional investors		(17,800	)		2,000			1,693,200
Warrants to placement agent		(20	)		200			177,740
March 31, 2011 financing:
Warrants to institutional investors		(184,333	)		-			2,098,333
Warrants to placement agent		(562	)		-			93,084
Total:	$	(261,861	)	$	(467,625	)	$	3,414,244

15. Put feature on Common Stock

The Anti-dilution provision extended in the December 2007 and March 2008 financings is a financial instrument separate and apart from the share. It is a freestanding written put (a put on the Company’s common stock).  As an enterprise value put, the contracts’ value moves inversely with the value of the underlying common stock which, under ASC 480, is not consistent with the general concepts or criterion for equity classified financial instruments. Accordingly, the written put was required to be classified as a liability under ASC 480 and recorded at fair value each reporting period, while the common stock achieved equity classification. Changes in the fair value of the anti-dilution make-whole provision are reported as “unrealized gain (loss) on fair value of put feature on common stock.”

28

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

15. Put feature on Common Stock(cont’d)

The anti-dilution make-whole provisions associated with the common stock, were valued using a probability-weighting of put values provided by the Lattice model.  Additional value would result from the put upon an increase in the exercise price or upon decrease of the trading market price in the future. Since the exercise price is based on the actual sales price of the stock issued, it is not subject to adjustment unless there is an actual dilutive event. Therefore, the mechanism for determining the value of the put was to adjust the stock price input into the Lattice model based on the Company’s estimated future stock price.  A Random Walk Brownian Motion Stochastic Process (“Brownian”) technique was used to estimate the market price at several points in the future (e.g. at inception, 6 months, 12 months, 18 months and 24 months) over the term of the put to determine if the stock price will be expected to decrease over the related interval of time. Brownian is a continuous stochastic process that is widely used in financing for modeling random behavior that evolves over time, and a stochastic process is a sequence of events or paths generated by probabilistic laws. At each interval, the Brownian technique was run and the simulation returned the mean stock price (the “expected stock price”).

Expected stock prices returned from the stochastic model were then input into the Lattice model to provide a put value at each of the expected prices and these values were probability weighted to determine the overall fair value of the anti-dilution make-whole provision. The term was based on the remaining term of the put (two years at inception) and the inputs for volatility and interest rate were based on projected volatility and interest rate in the future over the remaining term.

The following table summarizes the fair value of the Anti-dilution provision recorded at fair value as liabilities:

Fair Values:	March 31,  2012		December 31,  2011		Transaction Date
December 18, 2007 financing	$	-	$	-	$	4,401,169
March 20, 2008 financing		-		-		553,569
Total:	$	-	$	-	$	4,954,738

The following table summarizes the number of shares indexed to the Anti-dilution provision at the respective balance sheet or transaction dates:

Number of Shares indexed:	March 31, 2012		December 31, 2011		Transaction Date
December 18, 2007 financing		-		-		4,857,159
March 20, 2008 financing		-		-		642,858
Total:		-		-		5,500,017

The following table reflects the fair values of the common stock anti-dilution make-whole provisions recorded as liabilities and significant assumptions used in the valuation:

December 18, 2007 financing:	March 31, 2012		December 31,  2011		Transaction  Date
Trading market prices	$	-	$	-	$	1.75
Estimated future stock price		-		-	$	0.98-$1.75
Estimated future volatility		-		-		143	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		3.14	%

29

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

15. Put feature on Common Stock(cont’d)

March 20, 2008 financing:	March 31, 2012		December 31,  2011		Transaction Date
Trading market prices	$	-	$	-	$	2.14
Estimated future stock price		-		-	$	1.36-$2.10
Estimated future volatility		-		-		142	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		1.85	%

Since the Anti-dilution provisions expired on December 18, 2009 and March 20, 2010, there is no liability as of March 31, 2012, or no changes in the fair value for the three months ended March 31, 2012 and 2011.

Changes in the fair value of the Anti-dilution provision, carried at fair value, as reported as “unrealized gain on fair value of put feature on common stock” in the statement of operations:

		Three Months Ended  March 31, 2012		Three Months  Ended March 31, 2011		Cumulative from March 19, 2001 (Inception) to March 31,  2012
December 18, 2007 financing	$	-	$	-	$	2,148,418
March 20, 2008 financing		-		-		167,121
Total:	$	-	$	-	$	2,315,539

16. Income Taxes

No provision for Federal and state income taxes was required for the three months ended March 31, 2012 and 2011 due to the Company’s operating losses and increased deferred tax asset valuation allowance.  At March 31, 2012 and December 31, 2011, the Company has unused net operating loss carry-forwards of approximately $57,150,000 and $55,394,000 which expire at various dates between 2021 and 2031.  Some of this amount may be subject to annual limitations under certain provisions of the Internal Revenue Code related to “changes in ownership.”

As of March 31, 2012 and December 31, 2011, 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.

30

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

16. Income Taxes(cont’d)

Deferred tax assets and valuation allowances consist of:

	March 31,			December 31,
	2012			2011
Net Operating Loss Carryforwards	$	22,288,500		$	21,603,700
Stock option expense		1,789,000			1,753,400
Book tax differences on assets and liabilities		354,000			348,600
Valuation Allowance		(24,431,500	)		(23,705,700	)
Net Deferred Tax Assets	$	-		$	-

The Company files income tax returns in the U.S. Federal and Maryland state jurisdictions.  Tax years for fiscal 2008 through 2011 are open and potentially subject to examination by the Federal and Maryland state taxing authorities.

17. Commitments and Contingencies

a) The Company has contracted with various vendors to provide research and development services. The terms of these agreements usually require an initial fee and monthly or periodic payments over the term of the agreement, ranging from 2 months to 36 months. The costs to be incurred are estimated and are subject to revision. As of March 31, 2012, the total estimated cost to be incurred under these agreements was approximately $19,500,806 and the Company had made payments totaling $15,966,257 under the terms of the agreements.  All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements.

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

c) On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology (“KRICT”) to acquire the rights to all intellectual properties related to Quinoxaline-Piperazine derivatives that were synthesized under a Joint Research Agreement.  The initial license fee was $100,000, all of which was paid as of December 31, 2009.  The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of the first commercial product arising out of or in connection with the use of KRICT’s intellectual properties.  As of March 31, 2012, the milestone has not occurred.

31

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

17. Commitments and Contingencies (cont’d)

d) On June 29, 2009, the Company signed a five year commercial lease agreement for 5,466 square feet of office space in Rockville, Maryland commencing on June 29, 2009.  The lease agreement requires annual base rent with increases over the next five years.  Under the lease agreement, the Company pays its allocable portion of real estate taxes and common area operating charges. Rent paid under the Company’s lease during the three months ended March 31, 2012 and 2011 was $39,219 and $35,078, respectively.

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

2012		119,617
2013		162,805
2014		82,408
Total	$	364,830

In connection with the lease agreement, the Company issued a letter of credit of $100,000 in favor of the lessor.  The Company has restricted cash equivalents of the same amount for the letter of credit.  On August 2, 2010, and July 1, 2011 the letter of credit was amended and reduced to $50,000 and $37,500, respectively.

e) On September 21, 2009, the Company closed on a securities purchase agreement with Teva Pharmaceutical Industries Limited (“Teva”), under which Teva purchased 3,102,837 shares of our common stock for $3.5 million. Contemporaneous with the execution and delivery of this agreement, the parties executed a research and exclusive license option agreement (“RELO”) pursuant to which the Company agreed to use $2,000,000 from the gross proceeds of the issuance and sale of shares to Teva to fund a research and development program for the development of RX-3117.  On January 19, 2011, the Company entered into a second amendment to the securities purchase agreement (the “Second Amendment”) in which Teva purchased 2,334,515 shares of the common stock of the Company for gross proceeds of $3,950,000, which the Company agreed to use for the further development of RX-3117.  Currently, the Company has proceeds remaining of $1,238,131 and has included this amount in restricted cash equivalents.  The Company will be eligible to receive royalties on net sales of RX-3117 worldwide.

f) The Company has a 401(k) plan established for its employees.  The Company elected to match 100% of the first 3% of the employee’s compensation plus 50% of an additional 2% of the employee’s deferral. Expense related to this matching contribution aggregated $18,465 and $16,129 for the three months ended March 31, 2012, and 2011, respectively.

g) On June 28, 2010, the Company signed a one year renewal to use lab space commencing on July 1, 2010.  The lease requires monthly rental payments of $4,554.  Rent paid under the Company’s lease during the three months ended March 31, 2012 and 2011 was $13,662.  On June 22, 2011, the Company extended the agreement for another year with monthly rental payments of $4,554.

h) On August 31, 2011, the Company entered into an agreement with a consultant for advisory services pertaining to the securing of grants or other funding sources for the Company.  Per the terms of the agreement, the consultant will be compensated in shares of restricted common stock calculated by a formula of the funding received by the Company. As of March 31, 2012, the Company has not received funding or issued stock resulting from this agreement

32

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

18.  Fair Value Measurements

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs.  ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels are described below:

Level 1 Inputs   — Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs   — Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs   — Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

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

Fair Value Measurements at March 31, 2012
	Total		Level 1		Level 2		Level 3
Assets:
Restricted Cash equivalents	$	1,275,631	$	1,238,131	$	37,500	$	-
Marketable Securities		1,950,000		1,950,000		-		-
Total Assets:	$	3,225,631	$	3,188,131	$	37,500	$	-
Liabilities:
Warrant Liabilities	$	1,130,586		-		-	$	1,130,586

Fair Value Measurements at December 31, 2011
	Total		Level 1		Level 2		Level 3
Assets:
Restricted Cash equivalents	$	1,431,765	$	1,394,265	$	37,500	$	-
Marketable Securities		1,950,000		1,950,000		-		-
Total Assets:	$	3,381,765		3,344,265	$	37,500	$	-
Liabilities:
Warrant Liabilities	$	868,725		-		-	$	868,725

33

REXAHN PHARMACEUTICALS, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

18.  Fair Value Measurements (cont’d)

As of March 31, 2012 and December 31, 2011, the Company’s restricted cash equivalents are comprised of the following:

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

b) Certificate of deposit valued based upon the underlying terms of a letter of credit, as disclosed in Note 17, and classified within level 2 of the fair value hierarchy.

Marketable securities consist of state authority and municipal security fund bonds which are valued at fair value and classified within level 1 of the fair value hierarchy.

The fair value methodology for the warrant liabilities is disclosed in Note 14.

The carrying amounts reported in the financial statements for cash and cash equivalents (Level 1), note receivable (Level 2), 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.

The following table sets forth a reconciliation of changes in the three months ended March 31, 2012 and 2011 in the fair value of the liabilities classified as level 3 in the fair value hierarchy:

	Warrant Liabilities		Total Level 3 Liabilities
Balance at January 1, 2012	$	868,725	$	868,725
Additions		-		-
Unrealized losses		261,861		261,861
Unrealized gains on expiration		-		-
Transfers out of level 3		-		-
Balance at March 31, 2012	$	1,130,586	$	1,130,586

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

Additions consist of the fair value of warrant liabilities upon issuance.  Transfers out of Level 3 for warrant liabilities consist of warrant exercises.  The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstance that caused the transfer. There were no significant transfers in and out of Levels 1 and 2 for the three months ended March 31, 2012 and 2011.

34

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

OVERVIEW

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with the unaudited condensed financial statements and notes thereto set forth in Item 1 of this Quarterly Report.  This Quarterly Report contains statements accompanied by such phrases as “believe,” “estimate,” “expect,” “anticipate,” “may,” “intend” and other similar expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.  We caution that forward-looking statements are based largely on our expectations, and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control.  Actual results, performance or achievements may differ materially from those contemplated, expressed, or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

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

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

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

· demand for and market acceptance of our drug candidates;

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

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

· Other risks and uncertainties, including those detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

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 of 1995 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.

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 (“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.

35

Reclassification

The Company has reclassified previously reported amortization of Rexgene Biotech research and development arrangement disclosed in Note 8 in the Notes to the Condensed Financial Statements, from revenue to a reduction of research and development expenses (“R&D expenses”) in the accompanying statements of operations. The reclassification had no effect on the Company’s balance sheets, net loss, or cash flows from operating activities.

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-04 to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”) which amends the disclosure requirements for fair value instruments.  The new disclosures required include disclosure regarding the sensitivity of the fair value measurement to changes in unobservable inputs, and the interrelationships between those unobservable inputs.  The guidance is effective for the Company for fiscal years and interim periods beginning on or after December 15, 2011.  The Company adopted this guidance for the quarter ended March 31, 2012.

In June 2011, the FASB issued authoritative guidance which for presentation and disclosure of comprehensive income in the financial statements.  Under the new guidance, a Company may no longer present the components of other comprehensive income as part of the statement of changes in the Statement of Stockholder’s Equity, and instead must present the components of comprehensive income either in the Statement of Operations or in a separate statement immediately following the Statement of Operations.  In addition, reclassification adjustments between comprehensive income and net income must be disclosed on the financial statements.  This guidance is effective for the Company for fiscal years and interim periods beginning on or after December 15, 2011.    The Company adopted this guidance for the quarter ended March 31, 2012.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2012 and 2011:

Total Revenues

The Company had no revenues for the three months ended March 31, 2012 and 2011.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related personnel and stock option compensation expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including business development, investor relations and general legal activities.

General and administrative expenses decreased $381,000, or 34.4%, to $728,172 for the three months ended March 31, 2012 from $1,109,172 for the three months ended March 31, 2011.  The decrease is attributed to approximately $190,000 of professional fees incurred during the three months ended March 31, 2011 for the restatement of our 2009 financial statements, which was not applicable during the three months ended March 31, 2012.  In addition, general and administrative stock based compensation decreased approximately $100,000 during the three months ended March 31, 2012 compared to the three months ended March 31, 2011 due to a large amount of options vested during the year ended December 31, 2011.  In addition, investor relations expenses decreased approximately $60,000 during the three months ended March 31, 2012 due to reduced investor relations activities.

36

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.  See the discussion under “Research and Development Projects” below for additional information about expected future research and development expenses.

Research and development expenses decreased $1,674,827 or 61.6%, to $1,042,700 for the three months ended March 31, 2012 from $2,717,527 for the three months ended March 31, 2011.  The decrease is primarily attributable to the Phase IIb clinical study of Serdaxin, which incurred approximately $1.5 million during the three months ended March 31, 2011.  As this study was completed in 2011, only minimal costs were incurred in 2012. During the three months ended March 31, 2012, we incurred approximately $590,000 in costs associated with our oncology pipeline, specifically RX-3117 and RX-5902.

Patent Fees

Our patent fees increased $30,075, or 41.5%, to $102,589 for the three months ended March 31, 2012 from $72,514 for the three months ended March 31, 2011.  The increase was primarily due to increased legal costs to respond to inquiries on pending patent applications in the three months ended March 31, 2012.

Depreciation and Amortization

Depreciation and amortization expenses decreased $3,406, or 24.1%, to $10,721 for the three months ended March 31, 2012 from $14,127 for the three months ended March 31, 2011.  The decrease is due to fully depreciated assets for the three months ended March 31, 2012 which were still being depreciated for the three months ended March 31, 2011.

Interest Income

Interest income decreased $36,222, or 85.2%, to $6,249 for the three months ended March 31, 2012 from $42,471 for the three months ended March 31, 2011.  The decrease is primarily due to a decrease in interest rates and interest-bearing investments for the three months ended March 31, 2012.

Unrealized (Loss) Gain on Fair Value of Warrants

Our warrants are recorded as liabilities at fair value, and are valued using a lattice model.  Changes in the fair value of warrants are recorded as an unrealized gain or loss in our statement of operations.  For the three months ended March 31, 2012 and 2011, respectively, we recorded unrealized losses on the fair value of our warrants of $261,861 and $467,625, respectively.  Estimating fair values of warrants requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the warrant with related changes to external and internal market factors.  In addition, option-based techniques are highly volatile and sensitive to the trading market price of the Company’s common stock and the resulting estimated volatility of the common stock.

Net Loss

As a result of the above, the net loss for the three months ended March 31, 2012 was $2,139,794, or $0.02 per share, compared to a net loss of $4,436,161, or $0.05 per share, for the three months ended March 31, 2011.

37

Research and Development Projects

Research and development expenses are expensed as incurred.  Research and development expenses consist primarily of salaries and related personnel costs, costs to acquire pharmaceutical products and product rights for development and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials.  Costs incurred in obtaining the license rights to technology in the research and development stage and that have no alternative future uses are expensed as incurred.  Our research and development programs are related to our four clinical stage lead drug candidates, Archexin, Serdaxin, Zoraxel, and RX-3117, and pre-clinical stage drug candidates, RX-5902, RX-0201-Nano, RX-0047-Nano and Nano-polymer Anticancer Drugs.  Each of our lead drug candidates is in various stages of completion as described below.  As we expand our clinical studies, we will enter into additional development agreements.  Significant additional expenditures will be required if we complete our clinical trials, start new trials, apply for regulatory approvals, continue development of our technologies, expand our operations and bring our products to market.  The eventual total cost of each clinical trial is dependent on a number of uncertainties such as trial design, the length of the trial, the number of clinical sites and the number of patients.  The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive and uncertain.  Because the successful development of our most advanced drug candidates, Archexin, Serdaxin and Zoraxel, 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, or the findings are not positive, 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.

Archexin®

Archexin is a 20 nucleotide single stranded DNA anti-sense molecule, which is a first-in-class inhibitor of the protein kinase Akt.  Akt plays critical roles in cancer cell proliferation, survival, angiogenesis, metastasis, and drug resistance.  Archexin received "orphan drug" designation from the U.S. Food and Drug Administration, or FDA, for five cancer indications (renal cell carcinoma, or RCC, glioblastoma, ovarian cancer, stomach cancer and pancreatic cancer).  The FDA orphan drug program provides seven years of marketing exclusivity after approval and tax incentives for clinical research. In October 2006, we announced the conclusion of the Phase I clinical trial of Archexin, our leading oncology drug candidate.  The Phase I clinical trial of Archexin, which took place at Georgetown University and the University of Alabama, was an open-label, dose-escalation study with 14 day continuous infusion in 17 patients with solid tumors. The Phase I trial was intended primarily to assess the safety and tolerability of Archexin in patients with advanced cancer. The trial results showed that the dose limiting toxicity of Archexin occurring at 315 mg/m2 dose in the form of fatigue. No other serious adverse events such as hematological toxicities were observed in this Phase I study. In the Phase I study stable disease was observed in two out of the 17 patients. Archexin is currently being studied in a Phase II clinical trial for the treatment of pancreatic cancer with enrollment completed in September, 2011, with results are currently anticipated in the third quarter of 2012.  The Archexin Phase IIa trial is a single-arm, open-label study and is being conducted globally in the United States and India. Archexin will be administered in combination with gemcitabine in patients with advanced pancreatic cancer to assess safety and preliminary efficacy, maximum tolerated dose, and overall survival.  We own one issued U.S. patent for Archexin.

The costs incurred for the Phase I clinical trial were approximately $1,500,000.  As of March 31, 2012, we have spent approximately $6,560,000 for the development of Archexin and we estimate that the Phase IIa trials for pancreatic cancer patients will be completed in the third quarter of 2012 and will require approximately an additional $200,000 to complete.

We are planning a Phase II clinical trial for Archexin for the treatment of ovarian cancer, expected to begin in the second half of 2012.  As of March 31, 2012, we have not incurred any costs related to this trial.  We estimate that the costs of this Phase II trial for Archexin would be approximately $900,000.

Serdaxin® (RX-10100)

Serdaxin is an extended release formulation of clavulanic acid, which is an ingredient present in antibiotics approved by the FDA.  We developed Serdaxin for the treatment of depression and neurodegenerative disorders.  From January to September, 2011, we conducted a randomized, double-blind, placebo-controlled study compared two doses of Serdaxin, 0.5 mg and 5 mg, to placebo over an 8-week treatment period for major depressive disorder (“MDD”) patients.  On November 4, 2011, we released results that the study showed Serdaxin did not demonstrate efficacy compared to a placebo group as measured by the Montgomery-Asberg Depression Rating Scale (“MADRS”).  All groups showed an approximate 14 point improvement in the protocol defined primary endpoint of MADRS, and had a substantial number of patients who demonstrated a meaningful clinical improvement from baseline.  The study showed that Serdaxin was safe and well tolerated.  At this point, we have not made any determinations of Serdaxin’s future paths and have not allocated resources to the further development of Serdaxin for treatment for MDD.

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Through March 31, 2012, the pre-clinical and clinical costs incurred for development of Serdaxin to date have been approximately $9,700,000.  We estimate the Phase IIb trial has approximately $100,000 of remaining costs that will be paid in of the second quarter of 2012.

Zoraxel™ (RX-10100)

Zoraxel is an immediate release formulation of clavulanic acid, the same active ingredient found in our product candidate Serdaxin. The Phase IIa proof of concept, completed with positive results, was a randomized, double blind, placebo controlled and dose ranging (5 mg, 10 mg, 15 mg) study of 39 erectile dysfunction patients (ages of 18 to 65) treated with Zoraxel. The Phase IIb study is designed to assess Zoraxel’s efficacy in approximately 150 male subjects, ages 18 to 70, with ED. The double blind, randomized, placebo-controlled, 12-week study will include IIEF as the primary endpoint following treatment with Zoraxel at 25 and 50 mg doses.  However, given the recently reported results of the Serdaxin Phase IIb clinical trial and that Zoraxel and Serdaxin share a common ingredient, we are currently evaluating how to proceed with the Phase IIb study for Zoraxel.

Through March 31, 2012, the costs incurred for development of Zoraxel to date have been approximately $1,245,000.  We currently estimate that these Phase IIb studies would require approximately $2,300,000 throughout 2012 and 2013, but we have not allocated additional resources to the development of Zoraxel at this time.

RX-3117

On September 21, 2009, we closed on a securities purchase agreement with Teva Pharmaceutical Industries Limited (“Teva”), for the development of our novel anti-cancer compound, RX-3117.  RX-3117 is a small molecule, new chemical entity nucleoside compound that has an anti-metabolite mechanism of action, and has therapeutic potential in a broad range of cancers including colon, lung, and pancreatic cancer.  The investment by TEVA is restricted to supporting the research and development program for the development of RX-3117.  We will be eligible to receive royalties on net sales of RX-3117 worldwide.  This compound entered into an exploratory Phase I clinical study during the first quarter of 2012.  We estimate that the costs of the exploratory Phase I clinical study will be approximately $550,000.

Pre-clinical Pipeline

RX-5902 may enter Phase I clinical trials during the second half of 2012.  RX-1792, RX-8243, RX-0201-Nano, RX-0047-Nano and RX-21101 are in a pre-clinical stage of development.   Through March 31, 2012, the costs incurred for development of these compounds to date have been approximately $2,935,000.  The estimated cost to complete pre-clinical toxicology and Phase I clinical trials is estimated to be approximately $1,500,000 per each compound.

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

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

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LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities was $1,916,510 for the three months ended March 31, 2012 compared to cash used in operating activities of $2,425,835 for the same period ended March 31, 2011.  The decrease in cash used in operating activities for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 is primarily due to the costs on the Serdaxin Phase IIb clinical trial during the three months ended March 31, 2011.  The operating cash flows during the three months ended March 31, 2012 reflect our net loss of $2,139,794 and a net increase in cash components of working capital and non-cash charges totaling $223,284.

Cash provided by investing activities was $156,134 for the three months ended March 31, 2012 consisted of a decrease of restricted cash equivalents.  Cash used in investing activities was $2,957,563 during the three months ended March 31, 2011.

There were no cash flows from financing activities for the three months ended March 31, 2012.  During the same period in 2011, cash provided by financing activities was $13,556,234, which consisted of proceeds of $317,961 from the exercise of stock warrants, $18,000 from the exercise of stock options, $3,926,397 from the issuance of common stock to Teva, net of issuance costs, and $9,293,876 from the issuance of 8,333,333 shares of common stock to institutional investors, net of issuance costs.  The institutional investors were also issued warrants to purchase 3,333,333 shares of common stock.

For the three months ended March 31, 2012, we experienced a net loss of $2,139,794.  Our accumulated deficit as of March 31, 2012 was $59,224,407.

We have not yet generated commercial sales revenue and have been able to fund our operating losses to date through the sale of our common stock, convertible debt financings, interest income from investments of cash and cash equivalents and proceeds from reimbursed research and development costs.  During the three months ended March 31, 2012, we had a net decrease in cash and cash equivalents of $1,760,376.  Total cash as of March 31, 2012 was $8,101,112 compared to $9,861,488 as of December 31, 2011.  Total cash, restricted cash, and marketable securities were $11,326,743, which we believe will be sufficient to cover our cash flow requirements through March 31, 2013.Although we expect to have to pursue additional financing, there can be no assurance that we will be able to secure financing when needed or obtain such financing on terms satisfactory to us, if at all, or that any additional funding we do obtain will be sufficient to meet our needs in the long term.  If we are not able to secure additional financing, we may not be able to fund the research and development.

CONTRACTUAL OBLIGATIONS

We have contracted with various vendors to provide research and development services.  The terms of these agreements usually require an initiation fee and monthly or periodic payments over the term of the agreement, ranging from two months to 36 months.  The costs to be incurred are estimated and are subject to revision.  As of March 31, 2012, the total contract value of these agreements was approximately $19,500,806 and we have made payments totaling $15,966,257 under the terms of the agreements.  All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements.

We and three of our key executives maintain Amended and Restated Employment in order to provide the key executives with: (i) an automatic one year renewal upon the expiration of the initial three year term and upon each consecutive year term unless such employment with the Company is terminated earlier by the Company or the executives; (ii) an annual base salary adjustment for inflation as determined by the Consumer Price Index subject to review by the Company’s Compensation Committee; (iii) an increase in the Company provided life insurance coverage from an amount equal to two times the executive’s annual base salary to an amount equal to four times the executive’s annual base salary; and (iv) a one-time cash payment, subject to applicable withholding requirements under applicable state and federal law, in an amount equal to the executive’s increased income tax costs as a result of payments made to the executive by the Company under the change of control provisions of the Amended and Restated Employment Agreement. Other than these changes, the new contracts have substantially similar terms to the executives’ prior employment agreements.  The agreements result in annual commitments of $350,000, $250,000 and $200,000, respectively.

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On May 21, 2009, the Company entered into a one year agreement to use lab space commencing on July 1, 2009.  The Company agreed to pay monthly payments of $4,554 from October 1, 2009 to June 30, 2010.  The agreement has been renewed for a one year term commencing on July 1, 2011 with the same payment schedule.

On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology (“KRICT”) to acquire the rights to all intellectual properties related to Quinoxaline-Piperazine derivatives that were synthesized under a Joint Research Agreement. The initial license fee was $100,000, all of which was paid as of June 30, 2010.  The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of the first commercial product arising out of or in connection with the use of KRICT’s intellectual properties.

On September 21, 2009, we closed on a securities purchase agreement with Teva, pursuant to which Teva purchased 3,102,837 shares of our common stock for $3.5 million.  Contemporaneous with the execution and delivery of this agreement, the parties executed a research and exclusive license option agreement for the development of the anti-cancer compound, RX-3117.  .  Pursuant to the terms of the agreement, Teva has the option to make an additional investment in Rexahn common stock for the purpose of supporting the research and development program for the anti-cancer compound RX-3117, and we will be eligible to receive additional development, regulatory and sales milestone payments.On January 19, 2011, we entered into a second amendment to the securities purchase agreement (the “Second Amendment”).  The Second Amendment amends the securities purchase agreement to change the aggregate purchase price to be paid by Teva for a second investment in Rexahn common stock, which aggregate amount shall equal the sum of (i) the estimated amount that is required to complete theresearch and development program for RX-3117 plus (ii) $450,000 for expenses.   Pursuant to the terms of the Second Amendment, Teva purchased 2,334,515 shares of Rexahn Common stock in a private offering for $3.95 million.  In addition, the Second Amendment provided for a possible third investment in Rexahn common stock by Teva in the amount of $750,000, which investment may be made by Teva, in its sole discretion, upon the satisfactory completion by Rexahn of an exploratory Phase I clinical study of the compound RX-3117.

On June 29, 2009, the Company signed a five year lease for 5,466 square feet of office space in Rockville, Maryland commencing on June 29, 2009.  The lease requires annual base rents of $76,524 with increases over the next five years. Under the leasing agreement, the Company pays its allocable portion of real estate taxes and common area operating charges.  Rent paid under the Company’s lease during the three months ended March 31, 2012 was $39,219.

In connection with the lease agreement, the Company issued a letter of credit of $100,000 in favor of the lessor.  The Company has restricted cash equivalents of the same amount for the letter of credit.  On August 2, 2010 and July 1, 2011, the letter of credit was reduced to $50,000 and $37,500, respectively.

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.  Total cash, including restricted cash, and marketable securities, was $11,326,743 as of March 31, 2012.  Based on our current plans and our capital resources, we believe that our cash, restricted cash, and marketable securities will be sufficient to enable us to meet our minimum planned operating needs over the next twelve monthswhich would entail focusing our resources on Phase II clinical trials of Archexin and the further development of our preclinical pipeline. Over the next twelve months, we expect to spend a minimum of approximately $0.8 million on clinical development for Phase II clinical trials of Archexin, and approximately $0.1 million will be paid to close out the Serdaxin MDD Phase IIb clinical trial.  These figures include our commitments described earlier under “Contractual Obligations” in Item 2 of Form 10-Q.   We also expect to pay $3.7 million on the development of RX-3117 and our preclinical pipeline, $4.2 million on general corporate expenses, and approximately $220,000 on facilities rent.  We will need to seek additional financing to implement and fund 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.  If we are not able to secure additional financing, we may not be able to implement and fund the research and development.

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

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· the progress of our product development activities;

· the number and scope of our product development programs;

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

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

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

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

· the costs and timing of regulatory approvals.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For the three months ended March 31, 2012, we are exposed to the following market risks:

Interest Rate Risk

We invest our cash in a variety of financial instruments.  At March 31, 2012, our cash was invested primarily in short term bank deposits and municipal obligations, all of which were denominated in U.S. dollars.  Due to the conservative nature of these investments, which primarily bear interest at fixed rates, we do not believe we have material exposure to interest rate risk.  At March 31, 2012, we had no debt instruments on our balance sheet.

Foreign Currency Risk

We are exposed to risks associated with foreign currency transactions on contracts with vendors associated outside of the United States.  Accordingly changes in the value of the U.S. dollar, relative to other currencies, may have an impact on our financial statements and earnings.  The number and dollar amount of contracts denominated in foreign currency is immaterial; therefore, we believe we do not have material exposure to foreign currency risk.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) along with the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based on that evaluation, the CEO along with the CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

The Company’s management, including the CEO and CFO, does not expect that the Company’s disclosure controls and internal controls will prevent all errors and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II. Other Information

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

There were no material changes to the risk factors as previously disclosed under item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit No	Description	Location
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) / 15d-14(a)
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) / 15d-14(a)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from Rexahn Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q, formatted in Extensible Business Reporting Language (“XBRL”): i) Condensed Balance Sheet, ii) Condensed Statement of Operations, iii) Condensed Statement of Comprehensive Loss, iv) Condensed Statement of Cash Flows and (v) Notes to the Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		REXAHN PHARMACEUTICALS, INC.
		(Registrant)
	By:	/s/ Chang H. Ahn
Date: May 9, 2012		Chang H. Ahn
		Chairman and Chief Executive Officer (principal executive officer)
	By:	/s/ Tae Heum Jeong
Date: May 9, 2012		Tae Heum Jeong
		Chief Financial Officer and Secretary (principal financial and accounting officer)

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INDEX TO EXHIBITS

Quarterly Report on Form 10-Q

Dated March 31, 2012

Exhibit No	Description	Location
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) / 15d-14(a)	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) / 15d-14(a)	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith

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EX-31.1

Exhibit 31.1

CERTIFICATION

Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended

I, Chang H. Ahn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rexahn Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  May 9, 2012

/s/ Chang H. Ahn

Chang H. Ahn

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended

I, Tae Heum Jeong, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rexahn Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  May 9, 2012

/s/ Tae Heum Jeong

Tae Heum Jeong

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350

SECTION 1350 CERTIFICATION*

In connection with the Quarterly Report of Rexahn Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chang H. Ahn, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: May 9, 2012	By:	/s/ Chang H. Ahn
		Chang H. Ahn,
		Chief Executive Officer

* This Certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section.  This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350

SECTION 1350 CERTIFICATION*

In connection with the Quarterly Report of Rexahn Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tae Heum Jeong, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: May 9, 2012	By:	/s/ Tae Heum Jeong
		Tae Heum Jeong,
		Chief Financial Officer

* This Certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

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Marketable Securities

3 Months Ended

Mar. 31, 2012

Marketable Securities

Marketable Securities

3. Marketable Securities

Cost and fair value of the Company's marketable securities are as follows:

	Cost		Gross Unrealized		Fair
Securities available-for-sale	Basis		Gains/Losses		Value
March 31, 2012:
State and municipal obligations	$	1,950,000	$	-	$	1,950,000
December 31, 2011:
State and municipal obligations	$	1,950,000	$	-	$	1,950,000

Amortized cost and fair value at March 31, 2012 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because the Company may redeem certain securities at par.

	Cost		Fair
Maturity	Basis		Value
10 years or more	$	1,950,000	$	1,950,000

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary of Significant Accounting Policies

Recent Accounting Pronouncements Affecting the Company

2.  Recent Accounting Pronouncements Affecting the Company

    Fair Value Measurements

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update  2011-04 to Accounting Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures" ("ASC 820") which amends the disclosure requirements for fair value instruments.  The new disclosures required include  disclosure regarding the sensitivity of the fair value measurement to changes in unobservable inputs, and the interrelationships between those unobservable inputs.  The guidance is effective for the Company for fiscal years and interim periods beginning on or after December 15, 2011.  The Company adopted this guidance for the quarter ended March 31, 2012.

    Comprehensive Income

In June 2011, the FASB issued authoritative guidance for presentation and disclosure of comprehensive income in the financial statements.  Under the new guidance, a Company may no longer present the components of other comprehensive income as part of the statement of changes in the Statement of Stockholder's Equity, and instead must present the components of comprehensive income either in the Statement of Operations or in a separate statement immediately following the Statement of Operations.  In addition, reclassification adjustments between comprehensive income and net income must be disclosed on the financial statements.  This guidance is effective for the Company for fiscal years and interim periods beginning on or after December 15, 2011.  The Company adopted this guidance for the quarter ended March 31, 2012

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Balance Sheet (USD $)	Mar. 31, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 8,101,112	$ 9,861,488
Marketable securities (note 3)	1,950,000	1,950,000
Prepaid expenses and other current assets (note 4)	287,252	333,171
Note receivable (note 5)	11,676	18,682
Total Current Assets	10,350,040	12,163,341
Restricted Cash Equivalents (note 17)	1,275,631	1,431,765
Equipment, Net (note 6)	83,821	94,542
Total Assets	11,709,492	13,689,648
Current Liabilities:
Accounts payable and accrued expenses (note 7)	1,020,011	1,185,405
Deferred Research and Development Arrangement (note 8)	806,250	825,000
Other Liabilities (note 9)	95,135	104,388
Warrant Liabilities (note 14)	1,130,586	868,725
Total Liabilities	3,051,982	2,983,518
Commitments and Contingencies (note 17)
Stockholders' Equity (note 12):
Preferred stock, par value $0.0001, 100,000,000 authorized shares, none issued and outstanding	0	0
Common stock, par value $0.0001, 500,000,000 authorized shares, 95,359,861 issued and 95,345,656 oustanding	9,536	9,536
Additional paid-in capital	67,900,791	67,809,617
Accumulated deficit during the development stage	(59,224,407)	(57,084,613)
Treasury stock, 14,205 shares, at cost	(28,410)	(28,410)
Total Stockholders' Equity	8,657,510	10,706,130
Total Liabilities and Stockholders' Equity	$ 11,709,492	$ 13,689,648

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Statement of Cash Flows (USD $)	3 Months Ended		132 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012
Cash Flows from Operating Activities:
Net loss	$ (2,139,794)	$ (4,436,161)	$ (59,224,407)
Adjustments to reconcile net loss to net cash used in operating activities:
Beneficial conversion feature	0	0	1,625,000
Compensatory stock	0	0	2,129,877
Depreciation and amortization	10,721	14,127	651,258
Stock based compensation	91,174	201,988	5,668,803
Amortization of deferred research and development arrangement	(18,750)	(18,750)	(693,750)
Note receivable	7,006	7,007	(11,676)
Realized losses on marketable securities	0	0	13,301
Unrealized loss (gain) on fair value of warrants	261,861	467,625	(3,414,244)
Unrealized gain on fair value of put feature on common stock	0	0	(2,315,539)
Financing expense	0	97,667	640,023
Amortization of deferred lease incentive	(5,000)	(5,000)	(55,000)
Deferred lease expenses	(4,253)	(112)	50,135
Loss on impairment of intangible assets	0	0	286,132
Changes in assets and liabilities:
Prepaid expenses and other current assets	45,919	(18,473)	(287,252)
Research tax credit receivable	0	145,513
Accounts payable and accrued expenses	(165,394)	1,118,734	1,020,011
Net Cash Used in Operating Activities	(1,916,510)	(2,425,835)	(53,917,328)
Cash Flows from Investing Activities:
Restricted cash equivalents	156,134	(2,957,563)	(1,275,631)
Purchase of equipment	0	0	(564,995)
Purchase of marketable securities	0	0	(21,123,960)
Proceeds from sales of marketable securities	0	0	19,160,659
Payment of licensing fees	0	0	(356,216)
Net Cash Provided By (Used in) Investing Activities	156,134	(2,957,563)	(4,160,143)
Cash Flows from Financing Activities:
Issuance of common stock and units, net of issuance costs	0	13,220,273	55,805,574
Proceeds from exercise of stock options	0	18,000	170,082
Proceeds from exercise of stock warrants	0	317,961	3,581,337
Proceeds from long-term debt	0	0	5,150,000
Proceeds from research contribution	0	0	1,500,000
Purchase of treasury stock	0	0	(28,410)
Net Cash Provided by Financing Activities	0	13,556,234	66,178,583
Net (Decrease) Increase in Cash and Cash Equivalents	(1,760,376)	8,172,836	8,101,112
Cash and Cash Equivalents - beginning of period	9,861,488	12,340,239	0
Cash and Cash Equivalents - end of period	8,101,112	20,513,075	8,101,112
Supplemental Cash Flow Information
Interest paid	0	0	301,147
Non-cash financing and investing activties:
Warrants issued	0	2,924,333	11,054,427
Put feature on common stock issued	0	0	4,954,738
Dilutive issuances of common stock	0	0	2,639,199
Warrant liability extinguishment from exercise of warrants	0	243,868	6,180,660
Leasehold improvement incentive	0	0	100,000
Settlement of lawsuit	$ 0	$ 0	$ 43,953

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes

Income Taxes

16. Income Taxes

No provision for Federal and state income taxes was required for the three months ended March 31, 2012 and 2011 due to the Company's operating losses and increased deferred tax asset valuation allowance.  At March 31, 2012 and December 31, 2011, the Company has unused net operating loss carry-forwards of approximately $57,150,000 and $55,394,000 which expire at various dates between 2021 and 2031.  Some of this amount may be subject to annual limitations under certain provisions of the Internal Revenue Code related to "changes in ownership."

As of March 31, 2012 and December 31, 2011, 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:

	March 31,			December 31,
	2012			2011
Net Operating Loss Carryforwards	$	22,288,500		$	21,603,700
Stock option expense		1,789,000			1,753,400
Book tax differences on assets and liabilities		354,000			348,600
Valuation Allowance		(24,431,500	)		(23,705,700	)
Net Deferred Tax Assets	$	-		$	-

The Company files income tax returns in the U.S. Federal and Maryland state jurisdictions.  Tax years for fiscal 2008 through 2011 are open and potentially subject to examination by the Federal and Maryland state taxing authorities.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measurements

Fair Value Measurement

18.  Fair Value Measurements

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs.  ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels are described below:

Level 1 Inputs   — Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs   — Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs   — Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

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

Fair Value Measurements at March 31, 2012
	Total		Level 1		Level 2		Level 3
Assets:
Restricted Cash equivalents	$	1,275,631	$	1,238,131	$	37,500	$	-
Marketable Securities		1,950,000		1,950,000		-		-
Total Assets:	$	3,225,631	$	3,188,131	$	37,500	$	-
Liabilities:
Warrant Liabilities	$	1,130,586		-		-	$	1,130,586

Fair Value Measurements at December 31, 2011
	Total		Level 1		Level 2		Level 3
Assets:
Restricted Cash equivalents	$	1,431,765	$	1,394,265	$	37,500	$	-
Marketable Securities		1,950,000		1,950,000		-		-
Total Assets:	$	3,381,765		3,344,265	$	37,500	$	-
Liabilities:
Warrant Liabilities	$	868,725		-		-	$	868,725

As of March 31, 2012 and December 31, 2011, the Company's restricted cash equivalents are comprised of the following:

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

b) Certificate of deposit valued based upon the underlying terms of a letter of credit, as disclosed in Note 17, and classified within level 2 of the fair value hierarchy.

Marketable securities consist of state authority and municipal security fund bonds which are valued at fair value and classified within level 1 of the fair value hierarchy.

The fair value methodology for the warrant liabilities is disclosed in Note 14.

The carrying amounts reported in the financial statements for cash and cash equivalents (Level 1), note receivable (Level 2), 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.

The following table sets forth a reconciliation of changes in the three months ended March 31, 2012 and 2011 in the fair value of the liabilities classified as level 3 in the fair value hierarchy:

	Warrant Liabilities		Total Level 3 Liabilities
Balance at January 1, 2012	$	868,725	$	868,725
Additions		-		-
Unrealized losses		261,861		261,861
Unrealized gains on expiration		-		-
Transfers out of level 3		-		-
Balance at March 31, 2012	$	1,130,586	$	1,130,586

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

Additions consist of the fair value of warrant liabilities upon issuance.  Transfers out of Level 3 for warrant liabilities consist of warrant exercises.  The Company's policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstance that caused the transfer. There were no significant transfers in and out of Levels 1 and 2 for the three months ended March 31, 2012 and 2011.

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Operations and Organization

3 Months Ended

Mar. 31, 2012

Operations and Organization

Operations and Organization

1. Operations and Organization

Operations

Rexahn Pharmaceuticals, Inc. (the "Company", "Rexahn Pharmaceuticals"), a Delaware corporation, is a development stage biopharmaceutical company dedicated to the discovery, development and commercialization of innovative treatments for cancer. In addition, we have two central nervous system ("CNS") candidates, Serdaxin and Zoraxel, that are in clinical stages and the Company is exploring options for further development.    The Company had an accumulated deficit of $59,224,407 at March 31, 2012 and anticipates incurring losses through the remainder of fiscal 2012 and beyond.  The Company has not yet generated commercial sales revenue and has been able to fund its operating losses to date through the sale of its common stock, warrants exercisable for common stock, units, issuance of long-term debt, and proceeds from reimbursed research and development costs.  Management has the capability of managing the Company's operations within existing cash available by focusing on select research and development activities, and selecting projects in conjunction with potential financings and milestones.

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial information.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of the Company's management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company's financial position as of March 31, 2012 and December 31, 2011 and the results of operations and cash flows for the three months ended March 31, 2012 and 2011 have been included.  Operating results for the three month period ended March 31, 2012 are not necessarily indicative of results that may be expected for any other interim period or the full fiscal year ending December 31, 2012. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 ("2011 Form 10-K").  Information included in the condensed balance sheet as of December 31, 2011 has been derived from the Company's audited financial statements for the year ended December 31, 2011 included in the 2011 Form 10-K.

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.

Reclassification

The Company has reclassified previously reported amortization of Rexgene's research and development arrangement, as disclosed in Note 8, "Deferred Research and Development Arrangement", from revenue to a reduction of research and development expenses in the statement of operations.  The reclassification had no effect on the Company's balance sheets, net loss, or cash flows from operating activities.

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Condensed Balance Sheet (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Balance Sheet
Preferred Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized	100,000,000	100,000,000
Preferred Stock, Shares Outstanding	0	0
Preferred Stock, Shares Issued	0	0
Common Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001
Common Stock, Shares Authorized	500,000,000	500,000,000
Common Stock, Shares, Issued	95,359,861	95,359,861
Common Stock, Shares, Outstanding	95,345,656	95,345,656
Treasury Stock, Shares	14,205	14,205

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Net Loss per Common Share

3 Months Ended

Mar. 31, 2012

Net Loss per Common Share

Net Loss per Common Share

11. Net Loss per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding and excluding any potential dilution.  Diluted loss per common share is also computed by dividing net loss by the weighted average number of common shares outstanding, but also reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that would then share in earnings, and such calculation excludes common shares in treasury.   Basic and diluted loss per common share are identical for all periods presented as potentially dilutive securities of the Company have been excluded from the calculation of the diluted net loss per common share because the inclusion of such securities would be anti-dilutive.  As of March 31, 2012 and December 31, 2011, there were stock options and warrants to acquire 16,356,937 and 16,322,937 shares of our common stock, respectively, which were the potentially dilutive securities of the Company.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 09, 2012
Document and Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Entity Registrant Name	REXAHN PHARMACEUTICALS, INC.
Entity Central Index Key	0001228627
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		95,345,656
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

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Common Stock

3 Months Ended

Mar. 31, 2012

Common Stock

Common Stock

12. Common Stock

The following transactions occurred from March 19, 2001 (inception) to March 31, 2012:

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

b) On August 10, 2001, the Company issued:

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

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

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

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

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

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

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

f) In July 2003, the stockholders described in b) (iii) and e) transferred an aggregate of 1,268,332 shares of common stock to a voting trust.  The trust allows for the unified voting of the stock by the trustees.

The appointed trustees are senior management of the Company who, together with their existing shares, control a majority of the voting power of the Company.

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

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

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

j) On August 8, 2005, the Company issued, in a transaction exempt from registration under the Securities Act of 1993, as amended, 4,175,000 shares of common stock at a purchase price of $2.00 per share.

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

l) On December 2, 2005, the holders of a convertible note that was issued on August 8, 2005 and, represented $1,300,000 aggregate principal amount, exercised their option to convert the entire principal amount of the note into the Company's common stock.  Based on a $2.00 per share conversion price, the holders received an aggregate of 650,000 shares.

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

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

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

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

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

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

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

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

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

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

w) On December 18, 2007, the Company issued 4,857,159 units at a price $1.40 per share for total gross proceeds of $6,800,023.  Investors also were issued one warrant for every five shares purchased.  One warrant will entitle the holder to purchase an additional share of common stock at a purchase price of $1.80 at any time over a period of three years from the date of the closing. The Company has recorded the warrants as liabilities at fair value as disclosed in Note 14.  Private placement closing costs of $139,675 were recorded as a reduction of the issuance proceeds.  Private placements costs also consist of 107,144 warrants, valued at $138,326, and were recorded as a financing expense. The Company extended anti-dilutive protection to the investors. The anti-dilution protection provision is structured in a way that is designed to protect a holder's position from being diluted and contains a price protection based on a mathematical calculation, and is recorded as a liability at fair value, as disclosed in Note 15.   The Company revalues these liabilities each reporting period, with the unrealized gain (loss) recorded as other income (expense).

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

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

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

y) On March 20, 2008, the Company issued 642,858 units consisting of one share of the Company's common stock and one warrant for every five common shares purchased in a private placement at a price of $1.40 per unit for total gross proceeds of $900,001.  One warrant will entitle the holder to purchase an additional share of common stock at a price of $1.80 at any time over a period of three years from the date of the private placement, and is recorded as a liability at fair value.  The Company extended anti-dilution protection to investors, and the provision is structured in a way that is designed to protect the holder's position from being diluted and contains a price based on a mathematical computation.

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

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

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

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

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

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

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

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

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

The closing costs included 142,857 warrants valued at $122,257 and were recorded as a financing         expense.  All warrants issued from this purchase agreement are recorded as liabilities at fair value.

The Company incurred a derivative loss upon issuance of these warrants, as the fair value of the warrants at inception was greater than the proceeds received from the investor.  The derivative loss was combined with unrealized gains (losses) for the year ended December 31, 2009.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

an) In May 2010, warrant holders exercised 890,051 cashless warrants to obtain shares of the Company's common stock and the Company issued an aggregate of 547,674 shares.

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

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

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

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

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

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

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

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

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

aw) On March 31, 2011, the Company closed on a purchase agreement to issue 8,333,333 shares of common stock at a price of $1.20 per share to five institutional investors for gross proceeds of $10,000,000, which includes $706,124 of cash stock issuance costs.  The investors were also issued warrants to purchase 3,333,333 shares of common stock at a purchase price of $1.50 per share, exercisable on or after six months after the closing date until the five-year anniversary of the initial exercise date, and were recorded as liabilities at fair value. The closing costs included 208,333 warrants valued at $97,667 and were recorded as a financing expense.

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

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

ax) In September 2011, an option holder exercised options to purchase shares of the Company's common stock for cash of $22,040 and the Company issued 28,000 shares.

ay) In October, 2011, an option holder exercised options to purchase shares of the Company's common stock for cash of $19,200 and the Company issued 80,000 shares.

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Statement of Operations (USD $)	3 Months Ended		132 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012
Revenues:
Research	$ 0	$ 0	$ 0
Expenses:
General and administrative	728,172	1,109,172	28,075,167
Research and development	1,042,700	2,717,527	32,928,303
Patent fees	102,589	72,514	2,203,594
Depreciation and amortization	10,721	14,127	651,258
Total Expenses	1,884,182	3,913,340	63,858,322
Loss from Operations	(1,884,182)	(3,913,340)	(63,858,322)
Other Income (Expense)
Realized loss on marketable securities	0	0	(13,301)
Interest income	6,249	42,471	1,427,556
Interest expense	0	0	(301,147)
Other income	0	0	56,047
Unrealized (loss) gain on fair value of warrants	(261,861)	(467,625)	3,414,244
Unrealized gain on fair value of put feature on common stock	0	0	2,315,539
Financing expense	0	(97,667)	(640,023)
Beneficial conversion feature	0	0	(1,625,000)
Total Other Income (Expense)	(255,612)	(522,821)	4,633,915
Net Loss Before Provision for Income Taxes	(2,139,794)	(4,436,161)	(59,224,407)
Provision for Income Taxes	0	0	0
Net Loss	$ (2,139,794)	$ (4,436,161)	$ (59,224,407)
Net loss per share, basic and diluted	$ (0.02)	$ (0.05)
Weighted Average number of shares outstanding, basic and diluted	95,345,656	86,251,682

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Equipment, Net

3 Months Ended

Mar. 31, 2012

Equipment, Net

Equipment, Net

6.  Equipment, Net

	March 31,			December 31,
	2012			2011
Furniture and fixtures	$	34,200		$	34,200
Office equipment		81,074			81,074
Lab and computer equipment		430,261			430,261
Leasehold improvements		119,841			119,841
Total fixed assets		665,376			665,376
Less: Accumulated depreciation		(581,555	)		(570,834	)
Net carrying amount	$	83,821		$	94,542

Depreciation expense was $10,721 and $14,127 for the three months ended March 31, 2012 and 2011, respectively.

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Note Receivable

3 Months Ended

Mar. 31, 2012

Note Receivable

Note Receivable

5.  Note Receivable

On June 16, 2010, Amarex, LLC ("Amarex") executed a note payable to the Company in settlement of a contract dispute.  The Company settled the case with Amarex for $100,000 less a balance owed of $43,953.  The principal sum of the note was $56,047, and is included in other income in the Company's statement of operations.  Monthly payments of $2,335 began on September 1, 2010 and will continue until August 1, 2012 at which time the balance is expected to be paid in full.  The note does not bear interest. Pursuant to the note, Amarex shall pay a late charge of five percent (5%) of any past due installment payments if any installment payment is not paid within 10 days of its due date.  As of March 31, 2012, all payments were made as scheduled.

As of March 31, 2012, the principal amortization of the note is shown below:

	Expected
Principal Amortization	Payment
Within 1 year	$	11,676

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies

Commitments and Contingencies

17. Commitments and Contingencies

a) The Company has contracted with various vendors to provide research and development services. The terms of these agreements usually require an initial fee and monthly or periodic payments over the term of the agreement, ranging from 2 months to 36 months. The costs to be incurred are estimated and are subject to revision. As of March 31, 2012, the total estimated cost to be incurred under these agreements was approximately $19,500,806 and the Company had made payments totaling $15,966,257 under the terms of the agreements.  All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements.

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

c) On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology ("KRICT") to acquire the rights to all intellectual properties related to Quinoxaline-Piperazine derivatives that were synthesized under a Joint Research Agreement.  The initial license fee was $100,000, all of which was paid as of December 31, 2009.  The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of the first commercial product arising out of or in connection with the use of KRICT's intellectual properties.  As of March 31, 2012, the milestone has not occurred.  

            d) On June 29, 2009, the Company signed a five year commercial lease agreement for 5,466 square feet of office space in Rockville, Maryland commencing on June 29, 2009.  The lease agreement requires annual base rent with increases over the next five years.  Under the lease agreement, the Company pays its allocable portion of real estate taxes and common area operating charges. Rent paid under the Company's lease during the three months ended March 31, 2012 and 2011 was $39,219 and $35,078, respectively.

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

2012		119,617
2013		162,805
2014		82,408
Total	$	364,830

In connection with the lease agreement, the Company issued a letter of credit of $100,000 in favor of the lessor.  The Company has restricted cash equivalents of the same amount for the letter of credit.  On August 2, 2010, and July 1, 2011 the letter of credit was amended and reduced to $50,000 and $37,500, respectively.

e) On September 21, 2009, the Company closed on a securities purchase agreement with Teva Pharmaceutical Industries Limited ("Teva"), under which Teva purchased 3,102,837 shares of our common stock for $3.5 million. Contemporaneous with the execution and delivery of this agreement, the parties executed a research and exclusive license option agreement ("RELO") pursuant to which the Company agreed to use $2,000,000 from the gross proceeds of the issuance and sale of shares to Teva to fund a research and development program for the development of RX-3117.  On January 19, 2011, the Company entered into a second amendment to the securities purchase agreement (the "Second Amendment") in which Teva purchased 2,334,515 shares of the common stock of the Company for gross proceeds of $3,950,000, which the Company agreed to use for the further development of RX-3117.  Currently, the Company has proceeds remaining of $1,238,131 and has included this amount in restricted cash equivalents.  The Company will be eligible to receive royalties on net sales of RX-3117 worldwide.

f) The Company has a 401(k) plan established for its employees.  The Company elected to match 100% of the first 3% of the employee's compensation plus 50% of an additional 2% of the employee's deferral. Expense related to this matching contribution aggregated $18,465 and $16,129 for the three months ended March 31, 2012, and 2011, respectively.

g) On June 28, 2010, the Company signed a one year renewal to use lab space commencing on July 1, 2010.  The lease requires monthly rental payments of $4,554.  Rent paid under the Company's lease during the three months ended March 31, 2012 and 2011 was $13,662.  On June 22, 2011, the Company extended the agreement for another year with monthly rental payments of $4,554.

h) On August 31, 2011, the Company entered into an agreement with a consultant for advisory services pertaining to the securing of grants or other funding sources for the Company.  Per the terms of the agreement, the consultant will be compensated in shares of restricted common stock calculated by a formula of the funding received by the Company. As of March 31, 2012, the Company has not received funding or issued stock resulting from this agreement

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

Stock-Based Compensation

Stock-Based Compensation

13. 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 five and ten years from the date of grant.

For grants to non-employee consultants of the Company after September 12, 2005, the vesting period is between one to three 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.  At March 31, 2012, 8,639,000 shares of common stock 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

The Company's results of operations for the three months ended March 31, 2012 and 2011 include stock-based employee compensation expense totaling $59,815 and $150,246 respectively. Such amounts have been included in the statement of operations in general and administrative and research and development expenses.  No income tax benefit has been recognized in the statement of operations for stock-based compensation arrangements as the Company has provided for a 100% valuation allowance on its deferred tax assets.

Employee stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite vesting service period for the entire portion of the award.

Accounting for Non-Employee Awards

Stock compensation expenses related to non-employee options were $31,359 and $51,742 for the three months ended March 31, 2012 and 2011, respectively.  Such amounts have been included in the statement of operations in general and administrative and research and development expenses.

Summary of Stock Compensation Expense Recognized

Total stock-based compensation recognized by the Company in the three months ended March 31, 2012 and 2011, and the period from inception (March 19, 2001) to March 31, 2012, is as follows:

	Three Months Ended March 31,				Cumulative from March 19, 2001 (Inception) to  March 31, 2012
	2012		2011
Statement of operations line item: General and administrative:
Payroll	$	39,317	$	126,202	$	2,534,717
Consulting and other professional fees		23,222		35,649		809,745
Research and development:
Payroll		20,498		24,044		992,547
Consulting and other professional fees		8,137		16,093		1,331,794
Total	$	91,174	$	201,988	$	5,668,803

Summary of Stock Option Transactions

There were 75,000 stock options granted at an exercise price of $0.48 with a fair value of $26,835 during the three months ended March 31, 2012.  There were 130,000 stock options granted at an exercise price of $1.84 with a fair value of $180,326 during the three months ended March 31, 2011.

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model.  The Company took into consideration guidance under ASC 718, "Compensation-Stock Compensation" and Staff Accounting Bulletin ("SAB") 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.

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

	Three Months Ended March 31,
	2012			2011
Black-Scholes weighted average assumptions
Expected dividend yield		0	%		0	%
Expected volatility		101	%		101	%
Risk free interest rate		0.89	%		2.29	%
Expected term (in years)	5 years			5 years

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

	2012					2011
	Number of  Options			Weighted Avg. Exercise Price		Number of Options			Weighted Avg. Exercise Prices
Outstanding at January 1		7,646,795		$	1.05		8,076,795		$	1.02
Granted		75,000			0.48		130,000			1.84
Exercised		-			-		(75,000	)		0.24
Cancelled		(41,000	)		1.54		(89,000	)		1.16
Outstanding at March 31		7,680,795		$	1.04		8,042,795		$	1.03

The following table summarizes information about stock options outstanding as of March 31, 2012 and December 31, 2011.

	Number of Options		Weighted Avg. Exercise Prices		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at March 31, 2012		7,680,795	$	1.04	4.6 years	$	184,231
Exercisable at March 31, 2012		7,055,795	$	1.03	4.2 years	$	180,481
Outstanding at December 31, 2011		7,646,795	$	1.05	4.8 years	$	83,611
Exercisable at December 31, 2011		6,911,795	$	1.02	4.4 years	$	83,611

There were no options exercised in the three months ended March 31, 2012.  The total intrinsic value of the options exercised was $94,250 for the three months ended March 31, 2011. The weighted average fair value of the options vested was $0.95 and $0.79 for the three months ended March 31, 2012 and 2011, respectively.

A summary of the Company's unvested shares as of March 31, 2012 and changes during the three months ended March 31, 2012 is presented below:

	2012
	Number of  Options			Weighted Average Fair Value at Grant  Date
Unvested at January 1, 2012		735,000		$	0.92
Granted		75,000		$	0.36
Vested		(144,000	)	$	0.95
Cancelled		(41,000	)	$	1.15
Unvested at March 31, 2012		625,000		$	0.83

As of March 31, 2012 and December 31, 2011, there was $316,217 and $397,593 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 1.5 years and 1.6 years, respectively.

                 

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Other Liabilities

3 Months Ended

Mar. 31, 2012

Other Liabilities

Other Liabilities

9. Other Liabilities

Deferred Lease Incentive

On June 29, 2009, the Company entered into a five year office lease agreement as disclosed in Note 17.  The lessor agreed to grant a leasehold improvement allowance of $100,000 to the Company to be used for the construction cost of improvements to the leased property, which included architectural and engineering fees, government agency plan check, permit and other fees, sales and use taxes, testing and inspection costs, and telephone and data cabling and wiring in the premises.  The Company accounts for the benefit of the leasehold improvement allowance as a reduction of rental expense over the five-year term of the office lease.

The following table sets forth the deferred lease incentive:

	March 31,			December 31,
	2012			2011
Deferred lease incentive	$	100,000		$	100,000
Less accumulated amortization		(55,000	)		(50,000	)
Balance	$	45,000		$	50,000

Deferred Office Lease Expense

The office lease agreement, disclosed above, requires an initial annual base rent with annual increases over the next five years.  The Company recognizes rental expense on a straight-line basis over the term of the lease, which resulted in a deferred rent liability of $50,135 and $54,388 as of March 31, 2012 and December 31, 2011, respectively.

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Accounts Payable and Accrued Expenses

3 Months Ended

Mar. 31, 2012

Accounts Payable and Accrued Expenses

Accounts Payable and Accrued Expenses

7. Accounts Payable and Accrued Expenses

	March 31,		December 31,
	2012		2011
Trade payables	$	414,927	$	555,613
Accrued expenses		49,218		50,401
Accrued research and development contract costs		420,851		449,775
Payroll liabilities		135,015		129,616
	$	1,020,011	$	1,185,405

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Deferred Research and Development Arrangement

3 Months Ended

Mar. 31, 2012

Deferred Research and Development Arrangement [Abstract]

Deferred Research and Development Arrangement

8.  Deferred Research and Development Arrangement

In 2003, the Company entered into a collaborative research agreement with Rexgene Biotech Co., Ltd. ("Rexgene"), a 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, Archexin, in Asia.  This agreement provides Rexgene with exclusive rights to license, sublicense, make, have made, use, sell and import Archexin in Asia.  In accordance with the agreement, Rexgene paid the Company a one-time fee of $1,500,000 in 2003.  The agreement terminates at the later of 20 years or the term of the patent.  The amortization reduces research and development expenses for the periods presented.

The Company is using 20 years as its basis for recognition and accordingly $18,750 reduced research and development expenses for the three months ended March 31, 2012 and 2011, respectively.  The remaining $806,250 and $825,000 at March 31, 2012 and December 31, 2011, respectively, is reflected as deferred research and development arrangement on the balance sheet.  The contribution is being used in the cooperative funding of the costs of development of Archexin. Royalties of 3% of net sales of licensed products will become payable to the Company on a quarterly basis once commercial sales of Archexin begin in Asia.  The product is still under development and commercial sales in Asia are not expected to begin until at least 2013.  Under the terms of the agreement, Rexgene does notreceive royalties on Company net sales outside of Asia.

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Comprehensive Loss

3 Months Ended

Mar. 31, 2012

Comprehensive Loss

Comprehensive Loss

10. Comprehensive Loss

The Company did not have an accumulated other comprehensive loss as of March 31, 2012 and December 31, 2011.  The total comprehensive loss for the three months ended March 31, 2012 and 2011 was $2,139,794 and $4,437,521, respectively.

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Put Feature on Common Stock

3 Months Ended

Mar. 31, 2012

Put Feature on Common Stock

Put Feature on Common Stock

15. Put feature on Common Stock(cont'd)

The anti-dilution make-whole provisions associated with the common stock, were valued using a probability-weighting of put values provided by the Lattice model.  Additional value would result from the put upon an increase in the exercise price or upon decrease of the trading market price in the future. Since the exercise price is based on the actual sales price of the stock issued, it is not subject to adjustment unless there is an actual dilutive event. Therefore, the mechanism for determining the value of the put was to adjust the stock price input into the Lattice model based on the Company's estimated future stock price.  A Random Walk Brownian Motion Stochastic Process ("Brownian") technique was used to estimate the market price at several points in the future (e.g. at inception, 6 months, 12 months, 18 months and 24 months) over the term of the put to determine if the stock price will be expected to decrease over the related interval of time. Brownian is a continuous stochastic process that is widely used in financing for modeling random behavior that evolves over time, and a stochastic process is a sequence of events or paths generated by probabilistic laws. At each interval, the Brownian technique was run and the simulation returned the mean stock price (the "expected stock price").

Expected stock prices returned from the stochastic model were then input into the Lattice model to provide a put value at each of the expected prices and these values were probability weighted to determine the overall fair value of the anti-dilution make-whole provision. The term was based on the remaining term of the put (two years at inception) and the inputs for volatility and interest rate were based on projected volatility and interest rate in the future over the remaining term.

The following table summarizes the fair value of the Anti-dilution provision recorded at fair value as liabilities:

Fair Values:	March 31,  2012		December 31,  2011		Transaction Date
December 18, 2007 financing	$	-	$	-	$	4,401,169
March 20, 2008 financing		-		-		553,569
Total:	$	-	$	-	$	4,954,738

The following table summarizes the number of shares indexed to the Anti-dilution provision at the respective balance sheet or transaction dates:

Number of Shares indexed:	March 31, 2012		December 31, 2011		Transaction Date
December 18, 2007 financing		-		-		4,857,159
March 20, 2008 financing		-		-		642,858
Total:		-		-		5,500,017

The following table reflects the fair values of the common stock anti-dilution make-whole provisions recorded as liabilities and significant assumptions used in the valuation:

December 18, 2007 financing:	March 31, 2012		December 31,  2011		Transaction  Date
Trading market prices	$	-	$	-	$	1.75
Estimated future stock price		-		-	$	0.98-$1.75
Estimated future volatility		-		-		143	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		3.14	%

March 20, 2008 financing:	March 31, 2012		December 31,  2011		Transaction Date
Trading market prices	$	-	$	-	$	2.14
Estimated future stock price		-		-	$	1.36-$2.10
Estimated future volatility		-		-		142	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		1.85	%

Since the Anti-dilution provisions expired on December 18, 2009 and March 20, 2010, there is no liability as of March 31, 2012, or no changes in the fair value for the three months ended March 31, 2012 and 2011.

Changes in the fair value of the Anti-dilution provision, carried at fair value, as reported as "unrealized gain on fair value of put feature on common stock" in the statement of operations:

		Three Months Ended  March 31, 2012		Three Months  Ended March 31, 2011		Cumulative from March 19, 2001 (Inception) to March 31,  2012
December 18, 2007 financing	$	-	$	-	$	2,148,418
March 20, 2008 financing		-		-		167,121
Total:	$	-	$	-	$	2,315,539

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Condensed Statement of Comprehensive Losses (USD $)	3 Months Ended		132 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
Net loss	$ (2,139,794)	$ (4,436,161)	$ (59,224,407)
Unrealized loss on available-for-sale securities		(1,360)
Total Comprehensive Loss	$ (2,139,794)	$ (4,437,521)	$ (59,224,407)

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Prepaid Expenses and Other Current Assets

3 Months Ended

Mar. 31, 2012

Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets

4.  Prepaid Expenses and Other Current Assets

	March 31,		December 31,
	2012		2011
Deposits on contracts	$	109,717	$	163,317
Other assets		177,535		169,854
	$	287,252	$	333,171

Deposits on contracts consist of deposits on research and development contracts for services that had not been incurred as of the balance sheet date.  Other assets include prepaid general and administrative expenses, such as insurance, rent, and investor relations services.

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Warrants

3 Months Ended

Mar. 31, 2012

Warrants

Warrants

14. Warrants

As of March 31, 2012, warrants to purchase 8,676,142 shares were outstanding, having exercise prices ranging from $1.00 to $1.90 and expiration dates ranging from August 8, 2013 to September 30, 2016.

	2012				2011
	Number of warrants		Weighted average exercise price		Number of warrants			Weighted average  exercise price
Balance, January 1		8,676,142	$	1.53		5,624,583		$	1.48
Issued during the period		-		-		3,541,666		$	1.50
Exercised during the period		-		-		(333,959	)	$	(0.95	)
Expired during the period		-		-		(156,148	)	$	(0.82	)
Balance, March 31		8,676,142	$	1.53		8,676,142		$	1.53

At March 31, 2012 and December 31, 2011, the average remaining contractual life of the outstanding warrants was 3.1 and 3.2 years, respectively.

The warrants, which were issued to investors in the December 2007, March 2008, May 2009, October 2009, June 2010, and March 2011 offerings,contain a provision for net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer, or share exchange).   If a fundamental transaction occurs in which the consideration issued consists principally of cash or stock in a non-public company, then the warrant holder has the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant.  Due to this contingent redemption provision, the warrants require liability classification in accordance with ASC 480, "Distinguishing Liabilities from Equity," ("ASC 480") and are recorded at fair value.  In addition, the warrants issued in the May 2009, October 2009, June 2010 and March, 2011 offerings contain a cashless exercise provision that is exercisable only in the event that a registration statement is not effective, which provision may not be operative if an effective registration statement is not available because of an exemption under the U.S. Securities laws may not be available to issue unregistered shares.  As a result, net cash settlement may be required.

ASC 820 provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition.  Fair values for warrants are determined using the Binomial Lattice ("Lattice") valuation technique. The Lattice model provides for dynamic assumptions regarding volatility and risk-free interest rates within the total period to maturity. Accordingly, within the contractual term, the Company provided multiple date intervals over which multiple volatilities and risk free interest rates were used. These intervals allow the Lattice model to project outcomes along specific paths which consider volatilities and risk free rates that would be more likely in an early exercise scenario.

Significant assumptions are determined as follows:

Trading market values—published trading market values;

Exercise price—Stated exercise price;

Term—remaining contractual term of the warrant;

Volatility—Historical trading volatility for periods consistent with the remaining terms;

Risk-free rate—Yields on zero coupon government securities with remaining terms consistent with the remaining terms of the warrants.

Due to the fundamental transaction provision, which could provide for early redemption of the warrants, the model also considered the probability the Company would enter into a fundamental transaction during the remaining term of the warrant. Since the Company is still in its development stage and is not yet achieving positive cash flow, management believes a fundamental transaction occurring over the term of the warrant is unlikely and therefore estimates the probability of entering into a fundamental transaction to be 5%.  For valuation purposes, the Company also assumed that if such a transaction did occur, it was more likely to occur towards the end of the term of the warrants.

The warrants issued in December 2007 and March 2008 are not only subject to traditional anti-dilution protection, such as stock splits and dividends, but they are also subject to down-round anti-dilution protection. Accordingly, if the Company sells common stock or common stock indexed financial instruments below the stated exercise price, the exercise price related to these warrants will adjust to that lower amount.  The Lattice model used to value the warrants with down-round anti-dilution protection provides for multiple, probability-weighted scenarios at the stated exercise price and at five additional decrements/scenarios on each valuation date in order to encompass the value of the anti-dilution provisions in the estimate of fair value of the warrants. Calculations were performed at the stated exercise price and at five additional decrements/scenarios on each valuation date. The calculations provide for multiple, probability-weighted scenarios reflecting decrements that result from declines in the market prices. Decrements are predicated on the trading market prices in decreasing ranges below the contractual exercise price. For each valuation date, multiple Binomial Lattice calculations were performed which were probability weighted by considering both the Company's (i) historical market pricing trends, and (ii) an outlook for whether or not the Company may need to issue equity or equity-indexed instruments in the future with a price less than the current exercise price.

The significant unobservable inputs used in the fair value measurement of the warrants include management's estimate of the probability that a fundamental transaction may occur in the future.  Significant increases (decreases) in the probability of occurrence would result in a significantly higher (lower) fair value measurement.

The following table summarizes the fair value of the warrants as of the respective balance sheet or transaction dates:

	Fair Value as of:
Warrant Issuance:	March 31,  2012		December 31, 2011		Transaction Date
December 18, 2007 financing	$	-	$	-	$	1,392,476
March 20, 2008 financing		-		-		190,917
June 5, 2009 financing:
Series I warrants		-		-		707,111
Series II warrants		-		-		1,315,626
Series III warrants		104,378		89,756		1,306,200
Warrants to placement agent		10,558		8,893		122,257
October 23, 2009 financing:
Warrants to institutional investors		171,352		129,221		1,012,934
Warrants to placement agent		1,442		714		101,693
June 30, 2010 financing
Warrants to institutional investors		107,600		89,800		1,800,800
Warrants to placement agent		2,340		2,320		180,080
March 31, 2011 financing:
Warrants to institutional investors		728,333		544,000		2,826,666
Warrants to placement agent		4,583		4,021		97,667
Total:	$	1,130,586	$	868,725	$	11,054,427

The following table summarizes the number of shares indexed to the warrants as of the respective balance sheet or transaction dates:

	Number of Shares indexed as of:
Warrant Issuance	March 31,  2012		December 31, 2011		Transaction Date
December 18, 2007 financing		-		-		1,078,579
March 20, 2008 financing		-		-		128,572
June 5, 2009 financing:
Series I warrants		-		-		2,222,222
Series II warrants		-		-		1,866,666
Series III warrants		1,555,555		1,555,555		1,555,555
Warrants to placement agent		132,143		132,143		142,857
October 23, 2009 financing:
Warrants to institutional investors		1,228,333		1,228,333		2,125,334
Warrants to placement agent		18,445		18,445		245,932
June 30, 2010 financing
Warrants to institutional investors		2,000,000		2,000,000		2,000,000
Warrants to placement agent		200,000		200,000		200,000
March 31, 2011 financing:
Warrants to institutional investors		3,333,333		3,333,333		3,333,333
Warrants to placement agent		208,333		208,333		208,333
Total:		8,676,142		8,676,142		15,107,383

The assumptions used in calculating the fair values of the warrants are as follows:

December 18, 2007 financing:	March 31,  2012		December 31, 2011		Transaction Date
Trading market prices	$	-	$	-	$	1.75
Estimated future volatility		-		-		143	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		3.27	%
Equivalent volatility		-		-		106	%
Equivalent risk-free rate		-		-		3.26	%
Estimated additional shares to be issued upon dilutive event		-		-		98,838

March 20, 2008 financing:	March 31,  2012		December 31,  2011		Transaction Date
Trading market prices	$	-	$	-	$	2.14
Estimated future volatility		-		-		142	%
Dividend		-		-		-
Estimated future risk-free rate		-		-		1.95	%
Equivalent volatility		-		-		97	%
Equivalent risk-free rate		-		-		1.31	%
Estimated additional shares to be issued upon dilutive event		-		-		7,479

June 5, 2009 financing:	March 31,  2012			December 31,  2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	1.14
Estimated future volatility		100	%		98-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.47	%		0.38	%		0.63-4.31	%
Equivalent volatility		69	%		80-81	%		103-117	%
Equivalent risk-free rate		0.19	%		0.14	%		0.20-1.44	%

October 23, 2009 financing:	March 31,  2012			December 31,  2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	0.69
Estimated future volatility		100	%		98-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.19-0.87	%		0.38	%		2.63-3.80	%
Equivalent volatility		71-74	%		72-81	%		98-99	%
Equivalent risk-free rate		0.14-0.21	%		0.08-0.16	%		0.93-1.16	%

June 30, 2010 financing:	March 31,  2012			December 31, 2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	1.43
Estimated future volatility		100	%		86-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.19-0.47	%		0.38-0.58	%		1.78	%
Equivalent volatility		63-70	%		72-79	%		98	%
Equivalent risk-free rate		0.10-0.19	%		0.08-0.14	%		0.59	%

March 31, 2011 financing:	March 31,  2012			December 31, 2011			Transaction Date
Trading market prices	$	0.53		$	0.38		$	1.18
Estimated future volatility		89-100	%		87-100	%		100	%
Dividend		-			-			-
Estimated future risk-free rate		0.19-1.84	%		0.38-1.54	%		1.32-3.64	%
Equivalent volatility		63-82	%		72-90	%		79-96	%
Equivalent risk-free rate		0.10-0.38	%		0.08-0.28	%		0.39-1.09	%

Changes in the fair value of the warrant liabilities, carried at fair value, as reported as "unrealized (loss) gain on fair value of warrants" in the statement of operations:

	Three Months Ended  March 31, 2012			Three Months  Ended  March 31, 2011			Cumulative  from  March 19, 2001 (Inception) to  March 31, 2012
December 18, 2007 financing	$	-		$	-		$	50,722
March 20, 2008 financing		-			92,704			160,063
June 5, 2009 financing:
Series I warrants		-			-			707,111
Series II warrants		-			-			(2,191,175	)
Series III warrants		(14,622	)		(191,644	)		1,201,822
Warrants to placement agent		(1,665	)		(15,513	)		97,319
Derivative loss at inception		-			-			(328,937	)
October 23, 2009 financing:
Warrants to institutional investors		(42,131	)		(242,718	)		(207,658	)
Warrants to placement agent		(728	)		(112,654	)		(137,380	)
June 30, 2010 financing
Warrants to institutional investors		(17,800	)		2,000			1,693,200
Warrants to placement agent		(20	)		200			177,740
March 31, 2011 financing:
Warrants to institutional investors		(184,333	)		-			2,098,333
Warrants to placement agent		(562	)		-			93,084
Total:	$	(261,861	)	$	(467,625	)	$	3,414,244