UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K


þ
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
  2008.




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSITION PERIOD FROM ______________
      TO________________.









COMMISSION
FILE NO. 333-134987






TETRAGENEX
PHARMACEUTICALS, INC.


(Exact
name of registrant as specified in its charter)




DELAWARE
              
              22-3781895(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer I.D No.)





560
SYLVAN AVE 3RD
FLOOR


ENGLEWOOD
CLIFFS NJ 07632


(Address
of Principal Executive Offices)


(201)
408-5335




(Registrant’s
telephone number, including area code)




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




Securities
registered under Section 12(g) of the Exchange Act: NONE




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes þNo




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




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed under 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. þ Yes o No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  ̈




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 “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer  ̈
              Accelerated
      filer  ̈
              Non-accelerated
      filer  ̈
              Smaller
      reporting company þ




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




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 30, 2008, based on the closing price of the
Over-The-Counter Bulletin Board of $0.25 per share was $3,250,000.




Number of
shares outstanding of the registrant’s common stock, $0.001 par value,
outstanding on March 31, 2009: 15,926,126.





APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.  Yes þ; No o





Documents
Incorporated by Reference: NONE











TABLE
OF CONTENTS




PagePART
      IITEM
      1.
                                    BUSINESS
                                    1ITEM
      1A.
                                    RISK
      FACTORS
                                    12ITEM
      1B.
                                    UNRESOLVED
      STAFF COMMENTS
                                    12ITEM
      2.
                                    PROPERTIES
                                    12ITEM
      3.
                                    LEGAL
      PROCEEDINGS
                                    13ITEM
      4.
                                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                    13PART
      IIITEM
      5.
                                    MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                                    14ITEM
      6.
                                    SELECTED
      FINANCIAL DATA
                                    16ITEM
      7.
                                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                    16ITEM
      7A.
                                    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                    20ITEM
      8.
                                    FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                    20ITEM
      9.
                                    CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                    21ITEM
      9A(T)
                                    CONTROLS
      AND PROCEDURES
                                    21ITEM
      9B.
                                    OTHER
      INFORMATION
                                    22PART
      IIIITEM
      10.
                                    DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                    22ITEM
      11.
                                    EXECUTIVE
      COMPENSATION
                                    26ITEM
      12.
                                    SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                    29ITEM
      13.
                                    CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                    33ITEM
      14.
                                    PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                                    34PART
      IVITEM
      15.
                                    EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                    34SIGNATURES
                                    
                                    35










FORWARD-LOOKING
STATEMENTS





This
Annual Report on form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of
1995 and Tetragenex Pharmaceuticals, Inc.  intends that such
forward-looking statements be subject to the safe harbors created,
thereby.  The forward-looking statements relate to future events or
the future financial performance of Tetragenex Pharmaceuticals, Inc. including,
but not limited to, statements contained in: Item 1. “Business” and Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”  Readers are cautioned that such statements, which may be
identified by words including ‘‘anticipates,’’ ‘‘believes,’’ ‘‘intends,’’
‘‘estimates,’’ ‘‘expects,’’ and similar expressions, are only predictions or
estimations and are subject to known and unknown risks and
uncertainties.  In evaluating such statements, readers should consider
the various factors identified in this Annual Report on Form 10-K which could
cause actual events, performance or results to differ materially from those
indicated by such statements.  In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by
Tetragenex Pharmaceuticals, Inc. or any other person that its objectives or
plans will be achieved.  Tetragenex Pharmaceuticals, Inc. does not
undertake and specifically declines any obligation to update any forward-looking
statements or to publicly announce the results of any revisions to any
statements to reflect new information or future events or
developments.




PART
I






ITEM
      1.
            BUSINESS




GENERAL
OVERVIEW





Tetragenex
Pharmaceuticals, Inc. (referred to herein as “Tetragenex,” the “Company,” “we,”
“our” or “us”) was a wholly owned subsidiary of Innapharma, Inc. (“Innapharma”).
Innapharma was founded in 1989 in the State of Delaware as a biotechnology
company that has discovered and intends to commercialize proprietary
pharmaceutical products for use in treatment resistant depression and other
central nervous system diseases.  Innapharma filed for protection
under Chapter 11 of the United States Bankruptcy Code on April 15,
2003.  As part of the bankruptcy restructuring, Innapharma merged into
and with Tetragenex.  Effective November 23, 2004 the combined company
emerged from bankruptcy under the name Tetragenex Pharmaceuticals,
Inc.   Tetragenex is headquartered in Englewood Cliffs, New
Jersey, with small satellite offices in Melville, New York and Syosset, New
York.




We have a
platform of peptides which have shown activity in the treatment of central
nervous system (“CNS”) diseases.  Nemifitide, our lead compound, was
initially entered into human clinical trials in the late 1990’s.  Over
12 clinical trials have been conducted with Nemifitide for various types of
depression. We believe that Nemifitide is active in refractory or
treatment-resistant patients, who are typically difficult to treat and normally
don’t respond to other CNS treatments., Nemifitide has shown a rapid and robust
onset of action after 10-14 days of treatment (10-15 subcutaneous injections)
with lasting benefits of approximately four months following treatment.
Nemifitide is generally well tolerated, without any current evidence of
significant side effects, as compared to the current drugs that are used in the
treatment of major depressive disorders.




We intend
to find a licensing partner to continue our development of Nemifitide, primarily
in treatment- resistant patients which currently represents approximately 5 to
10 percent of the overall patient population suffering from the
disease.  Nemifitide is currently administered through subcutaneous
injection and is given intermittently with 10 or 15 doses, over a 2 or 3 week
period. Patients who respond tend to stay healthy for several months after the
initial dosing regimen.





1




ANTIDEPRESSANT
DEVELOPMENT PROGRAM (“Central Nervous System”)


Depression





The
Diagnostic and Statistical Manual of Mental Disorders (Fourth Edition) defines
depression as a common psychobiological disorder that manifests itself through
symptoms such as a pervasive low mood and loss of ability to enjoy usual
activities, a change in weight, a change in appetite and/or sleep activity, a
decrease in energy, a feeling of worthlessness or guilt, difficulty in thinking
or making decisions, and/or recurring thoughts of death or suicide. According to
the World Health Organization (“WHO”) in 2009, indicate that up to 20% of the
world’s population will suffer from severe depression at one point in their
lifetime of sufficient degree to require medical and/or psychotherapeutic
intervention According to the National Depressive and Manic Depressive
Association, it is estimated that more than 22,000,000 American adults and 121
million people worldwide suffer from depression and result in approximately
30,000 suicides annually. Fewer than 25% of those affected receive adequate
care. The United States government estimates that depression costs approximately
$17 billion in lost work days each year. Both the WHO and the National
Institutes of Mental Health (“NIMH”) recognize that depression is a major global
health concern and they have encouraged increasing resources to be devoted to
improving currently available treatments, as only about 20% to 30% of patients
with major depressive disorder are appropriately diagnosed and adequately
treated. The United States Preventative Task Force, a group sponsored by an
office of the United States Department of Health and Human Services, has
recommended that physicians formally screen patients for depression during
routine physical examinations and establish appropriate systems to ensure
treatment and follow-up.




Antidepressant
Market


According
to the WHO’s current website, an estimated 121 million people around the world
suffer from a depressive disorder for which they require treatment. More women
than men suffer from depression. It is estimated that 5.8% of all men and 9.5%
of all women will suffer from a depressive disorder in any given year. Many
people will be afflicted by a depressive disorder at some point in their lives.
The WHO projects that 17% of all men and women will suffer from a depressive
disorder at some point in their lives. Depression is a major health problem and
the WHO predicts that by 2020 depression will be the second largest cause of the
global health burden. Major depressive disorder accounts for 4.4 percent of the
total overall global disease burden, a contribution similar to that of ischemic
heart disease or diarrheal diseases.




According
to LeadDiscovery Ltd., the antidepressant market is set to undergo a period of
rapid change as seven out of the eight leading brands suffered US patent
expirations in 2008 and is now offered generically. With only a handful of new
products anticipated to replace these blockbuster products, the market is
expected to decrease by 21.5% to $13.5 billion by 2011, as physicians are
encouraged to utilize cheaper generics. Brand players must look towards
maximizing revenues through product differentiation and innovative lifecycle
strategies. According to the Journal of Clinical Psychiatry (J.F. Greden),
treatment is often challenging; an estimated 20%-40% of patients do not benefit
sufficiently from existing antidepressant interventions including trials of
medication and psychotherapy. Because of the clinical profile of Nemifitide
which shows rapid onset of action, minimal side effects, maintenance of efficacy
of 2-4 months following initial dosing period, and level of response in serious
depressive disorder, we feel that we will have rapid entry into this
market.




2





Nemifitide





Although
we have a number of product candidates in different stages of development for
the treatment of various categories of disease, our major focus is on our lead
antidepressant compound, Nemifitide. Nemifitide has shown the potential for a
rapid onset of action with long-lasting benefits. Minimal side effects have been
observed to date in clinical trials with a similar incidence when compared to
placebo in our placebo-controlled double-blind trials. We believe this may
represent a major paradigm shift for the treatment of major depressive disorder
because currently available anti-depressants: (i) require two to six weeks
before the patient begins to experience significant symptomatic relief;
(ii) have a large number of side effects that often result in the premature
discontinuation of treatment (almost half of all patients for whom
anti-depressants are currently prescribed never fill their second prescription);
and (iii) require daily dosing for months and often times, years. In
contrast, Nemifitide often requires only 10 to 15 doses via subcutaneous
injection over a two to three-week period for a sustained clinical effect
(approximately 4 months). It is our belief that Nemifitide will become the
treatment of choice for a broad spectrum of depressive disorders, including
patients who do not respond to available antidepressants (refractory
patients).




We
completed preclinical testing necessary for the conduct of our clinical program,
Phase 1 clinical testing (testing for safety and tolerance in healthy
volunteers), and substantial Phase 2 clinical testing (small-scale testing for
safety and efficacy in depressed patients) of Nemifitide and are anticipating
large scale, multicenter Phase 3 studies. Removal of the clinical hold allows us
to expand our Phase 2/3 clinical trials program during the course of the year
2009. The only significant drug-related side effect observed to date for
Nemifitide was an allergic reaction in one patient, which resulted in the
subject being withdrawn from the study. All other side effects observed to date
in the over 400 subjects dosed to date in our clinical trials have been
non-serious as defined by the FDA.




Nemifitide
was discovered and developed by our scientists and is based upon a model of
naturally occurring brain peptide. By modifying these naturally occurring
substances, we have been able to develop a platform of unique synthetic
peptides, which we believe has a rapid onset of action with minimal side effects
as compared to the current drugs that treat depression. The side effects of
Nemifitide observed in human clinical trials are reported to be minimal and of
short duration, and include dizziness, mild headaches, transient drowsiness,
constipation, a metallic taste and mild skin irritation at the site of the
injection, with a similar incidence when compared to placebo.




We
continue to synthesize, test and add peptides to our platform. To date, we have
evaluated more than 200 of these compounds, and our efforts are ongoing. This
work has already identified several drug candidates that show even greater
activity in preclinical testing than did Nemifitide, and these compounds have
been designated as second-generation drugs. We have been granted patents that
cover our extensive library of peptides and we will continue to seek additional
patent protection as new peptides are developed.




OVERVIEW
OF NEMIFITIDE





In April
2003, the FDA informed us that they were placing Nemifitide on clinical hold due
to brain and muscle lesions found during a routine 3-month dog study. We
completed additional canine and monkey studies which prompted the FDA to remove
the clinical hold. On March 29, 2006, the FDA confirmed that they had completed
their review of our complete response to the clinical hold and that the clinical
hold had been lifted. To date we have seen no evidence of similar problems in
the 400 humans who have received Nemifitide. We believe Nemifitide has shown
several advantages over the drugs currently marketed to treat depression. These
advantages include:




3




1.
            RAPID
      ONSET OF ACTION AND SYMPTOMATIC
RELIEF




The
initial effects of Nemifitide are observable within the first three to five days
of treatment. Peak effects of Nemifitide occur within two to three weeks, versus
four to eight weeks for other current antidepressant therapeutics. Nemifitide
may be used to treat severely depressed patients who require rapid symptomatic
relief, as effectiveness can be clinically measured within three to five days of
initiating treatment.




2.
            MANY
      PATIENTS EXPERIENCE COMPLETE SYMPTOMATIC
RELIEF




Many
patients who respond to Nemifitide enter into remission from their
depression.




3.
            FREEDOM
      FROM REGULAR DAILY TREATMENT




Nemifitide
is administered via ten subcutaneous injections on average over a two to
three-week period and has a long duration of effective action (approximately 4
months). This allows for intermittent clinical treatment versus regular daily
treatment required with existing medications.




4.
            MINIMAL
      SIDE EFFECTS IN PHASE 1 AND 2
STUDIES




Nemifitide
has been administered to over 400 subjects without any evidence of the
problematic adverse side effects commonly exhibited by currently available
therapies, such as anxiety and sexual dysfunction. The only significant side
effect observed to date has been an allergic reaction in one patient, which
caused withdrawal from the study. All other side effects listed have been minor
or inconsequential and most of them were not different from placebo in our
double-blind studies.




5.
            LITTLE
      OR NO POTENTIAL FOR ADVERSE INTERACTIONS WITH OTHER
  DRUGS




Based on
in vitro (in test tubes) studies conducted to date, Nemifitide is not expected
to show significant drug-drug interaction in human beings. This is especially
beneficial in the treatment of geriatric depression or other patients who take
multiple medications.




6.
            POTENTIAL
      FOR ALTERNATIVE FORMS OF
ADMINISTRATION




Evidence
from a Phase 1 clinical study indicates that Nemifitide may be administered
through needle less injection devices. We intend to explore other forms of
delivery, such as transdermal patch (through the skin by way of a patch),
intranasal spray and other methods of administration.




7.
            POTENTIAL
      TO TREAT OTHER CNS DISORDERS




In
addition to treating major depressive disorder, preclinical animal data with
Nemifitide and other peptide analogs demonstrated the potential for treating
anxiety disorders. We intend to pursue other CNS indications as
well.




Treatment
of Severely Refractory Patients





Results
from an open-label (a clinical trial without the use of a placebo) pilot study
in severely refractory depressed patients (patients who have not responded to
available antidepressants) have shown a 44% response rate. These results have
generated a considerable amount of interest among the clinical/scientific
community and the FDA. We believe this reflects the novel activity of Nemifitide
and the potential to treat this debilitating disorder. According to the National
Institute of Mental Health, approximately 10% of patients suffering from major
depressive disorder have the refractory form of the illness.




4




Unique
Mechanism of Action





We
believe that the mechanism of action of Nemifitide is different from that of
other antidepressants. Studies regarding specific aspects of the mechanism of
action of Nemifitide are part of the development program. The results of rat
studies conducted to date indicate that Nemifitide crosses the blood brain
barrier rapidly and is concentrated in key brain areas related to depression,
especially the hippocampus, amygdala and pre-frontal cortex. In vitro studies
(studies conducted in the laboratory rather than in animals) show that
Nemifitide is not significantly metabolized by the brain tissue of rats.
Following in vivo studies (studies conducted in live animals), unchanged
Nemifitide, as well as our active metabolite, were found in the brains of the
rats. This data suggests that the antidepressant activity of Nemifitide is due,
at least in part, to unchanged Nemifitide in the brain.




In vitro
studies were conducted to determine the specific brain receptors to which
Nemifitide binds. The results indicate that Nemifitide binds to certain
serotonin receptors, such as 5HT2A and 5HTT. Other in vivo studies in rats
confirmed these results. This is a strong indication that Nemifitide is
interacting with the serotonergic pathway in the body, in a manner that differs
from that of the selective serotonin reuptake inhibitors (SSRIs), such as
Prozac, Paxil, Zoloft and others. This unique mechanism of action, in
conjunction with the advantages of Nemifitide observed in the clinic, supports
management’s belief that Nemifitide represents a new treatment paradigm for
depression.




CLINICAL
AND PRECLINICAL DEVELOPMENT PROGRAMS





Clinical
Trials – Nemifitide





Our
clinical trial program has been designed to produce information about the
efficacy and safety of Nemifitide. Patients who desired to participate in our
trials were first screened by trained physicians and determined to be eligible.
Eligibility criteria were evaluated during the screening, with an emphasis on
the degree of depression, as measured by standardized tests, and the appropriate
depressive diagnosis, as determined by the screening physicians. Those patients
found to be suffering from major depressive disorders and who met standard,
well-defined inclusion and exclusion criteria were included in our
studies.




Our lead
compound, Nemifitide, is well advanced in Phase 2 clinical trial testing in
depressed patients and has demonstrated potential significant advantages over
existing therapies. These include a rapid onset of action (3-5 days vs. weeks),
a long-acting response (approximately 4 months), and minimal side effects when
compared with placebo (with none of the sexual dysfunction and weight gain that
often make current antidepressants intolerable).




We have,
to date, performed five blinded, placebo-controlled Phase 2 clinical trials and
two unblinded trials with Nemifitide. We have performed both blinded and
open-label studies. Blinded trials include a group of patients who are randomly
assigned to receive either placebo (sugar) or Nemifitide. During a blinded
trial, neither the patient nor the examining physician knows which patients are
receiving the placebo and which are receiving Nemifitide. Upon completion of the
study, the study is unblinded and the effectiveness of the treatment is
determined. Placebo-controlled studies provide the most reliable information
about the efficacy of a new antidepressant and are required by the FDA and other
international regulatory agencies in order to approve the commercialization of a
new drug.




5




The data
from our first two blinded studies provided evidence indicating that Nemifitide
is an active antidepressant that is safe and well-tolerated in human patients.
The data from the two blinded studies gave us information regarding the optimal
doses and treatment regimen (i.e., daily doses, alternate day dosing, 10 doses,
15 doses, etc.), as well as demonstrating a dose response. As the FDA recently
lifted the clinical hold imposed on our research, we intend to proceed with
expansion of our Phase 2/Phase 3 pivotal clinical programs required for FDA
approval during the course of the year 2009. In our most recent blinded study,
one treatment group received ten doses of 30 mg of Nemifitide, the second
treatment group received ten doses of 45 mg of Nemifitide and the third group
received ten doses of matching placebo over a two-week period. There were 78
patients in the study (approximately 26 patients per treatment group). Patients
receiving Nemifitide did significantly better than patients receiving placebo. A
dose-response was observed, as well, with the 45 mg patients responding better
than the 30 mg patients. In addition, further data analysis revealed that the
more depressed a patient was upon entering the study, the stronger their
response.




In the
other blinded study, patients received either 9 or 15 doses of 160 mg of
Nemifitide (or a placebo) over a three-week period. The purpose was to evaluate
the efficacy of the 160 mg dose and compare daily dosing (Monday-Friday) to
every-other-day dosing (Monday/Wednesday/Friday) for three weeks. Results of
this study showed a sustained significant response for the patients receiving
the Monday/Wednesday/Friday dosing regimen, while patients who received the
daily dosing regimen did not separate from placebo patients.




In
addition to the placebo-controlled blinded studies, we conducted two open-label
trials. These studies, in which the patient knows they are getting a drug, are
typically used when data is needed quickly and/or we wish to compare a range of
doses. The first open-label study involved 27 patients who had completed
treatment in one of our double-blinded, placebo-controlled studies. In this
study all patients received Nemifitide (18-160 mg for up to three weeks).
Sixty-seven percent (18 of 27) experienced a prolonged therapeutic response and
the drug was well tolerated with no significant drug-related side
effects.




CLINICAL
TRIALS-REFRACTORY DEPRESSION





Our
second open-label trial was conducted in a patient population with severe
refractory depression, who had not responded to available antidepressant
therapy. Refractory patients make up 5% to 10% of the total depressed patient
population. Management believes that any medication that would help this
population would be of great clinical utility and would become the treatment of
choice almost immediately. In this 25 patient study there was a significant
improvement in 11 of the patients, representing a 44% response rate. As a result
of this positive data, we plan to expand our late Phase 2 and 3 programs and to
include a placebo-controlled study in refractory depression. Management
estimates that the projected date of submission of the New Drug Application for
Nemifitide to the FDA is the year 2010/2011.




Our
clinical studies are conducted under internationally accepted protocols that
will enable us to submit the results to regulatory authorities in all important
world marketplaces, including the United States, Europe and Japan.




PRECLINICAL
STAGES OF DEVELOPMENT





Preclinical
studies are performed to generate the data that is necessary before the FDA will
grant permission to start clinical trials. Four general types of preclinical
information are required safety, pharmacology, pharmacokinetics/metabolism and
manufacturing.




Safety
and pharmacokinetic studies are performed in animals, usually rats and dogs, at
doses that far exceed those expected to be utilized in human beings. After
treatment, the animals are carefully autopsied and the toxic effects of the drug
are noted. From this data, a determination is made regarding the maximum dose
that can be utilized in human trials.




6




Pharmacological
activity studies are designed to provide evidence that the candidate drug is
active in the target disorder. There are many different types of activity models
available, depending on the target disorder. In general, activity studies are
also performed in rodents because they are readily available, inexpensive and
have consistently predicted clinical effects in human beings. We have available
rodent models that are highly effective in identifying candidate antidepressant,
anti-cancer and antibacterial drugs, which will be used in order to evaluate our
drugs in preclinical development.




Manufacturing
studies are performed in order to demonstrate that the drug candidate can be
prepared in sufficient purity and stability to meet FDA requirements for human
administration.




We have
the following other product candidates currently in preclinical stages; however,
all are in early stages and as a result we have put no value on these
products:




1.
            NEW
      CENTRAL NERVOUS SYSTEM ACTIVE
PEPTIDES




We
currently have under development a large number of central nervous systems
active peptides that we believe may have clinical utility. Two of these
compounds, INN 01134 and INN 00955, are shown to be more active in preclinical
models than Nemifitide. INN 01134 is a pharmacologically active metabolite of
Nemifitide. It is our goal to pursue the development of these compounds as
second-generation medications for the treatment of depression, anxiety and other
major psychiatric disorders. Depression is a heterogeneous disorder and as a
result patients often respond very differently to psychotropic drugs (drugs that
are active in psychiatric disorders) that even have a similar mechanism of
action. Physicians are aware of this possibility and commonly utilize several
drugs of a given class when treating individual patients. The availability of
alternate therapeutics related to Nemifitide would therefore greatly improve the
likelihood of central nervous system peptides becoming the treatment of choice
among physicians.




The
methods we use to evaluate the activity and toxicity of Nemifitide are equally
applicable to the testing of other central nervous system active peptides.
Accordingly, the development of a second-generation antidepressant peptide is
greatly facilitated by our previous experience. Several drug candidates are
currently under evaluation in animal models.




2.
            ANTI-CANCER
      AND ANTIBIOTIC RESISTANCE DEVELOPMENT
PROGRAM




Tetracyclines
were discovered in the mid 1940’s. Initially, they were used as highly effective
antibiotics in the treatment of a variety of infectious diseases. In the early
1980’s, it was discovered that tetracyclines were also effective inhibitors of
MMPs (matrix metalloproteinases), key enzymes in the promotion of many human
disorders. The first application of tetracyclines as Matrix Metal/opportunities
MMP inhibitors was in the treatment of periodontal disease. However, management
believes that the most promising area for tetracyclines is in the treatment of
cancer. Cancer cells utilize MMPs for many of the processes associated with
growth, proliferation and metastasis. Tetracyclines, which are usually of
limited toxicity, can often be administered to patients in high doses for
extended periods of time. This makes them particularly attractive candidates as
anti-cancer drugs, where the toxicity of currently available therapeutics often
limits the dose and duration of their utilization.




7




3.
            CHEMICALLY-MODIFIED
      TETRACYCLINE-BASED COMPOUNDS




Tetracyclines
belong to a family of naturally occurring antibiotics that have been
demonstrated to be potent inhibitors of matrix metalloproteinases (enzymes which
are key in the promotion of many human disorders). We are currently developing a
platform of new and unique chemically modified tetracycline molecules to be used
in the treatment of certain types of cancer (prostate and breast) and
antibiotic-resistant bacterial infections.




A project
is currently underway to synthesize and evaluate new chemically modified
tetracycline molecules for the treatment of cancer and antibiotic-resistant
bacterial infections. To date, we have syntehsized100 new compounds, and many
more will be available in the near future. All of these compounds are in the
process of being screened for pharmacological activity, and several of them have
already been identified as promising candidates.




Our
tetracycline-based drugs are in the preclinical development stage. Our in vitro
studies have identified a series of chemically modified tetracyclines, which we
believe can be used in the treatment of cancer and antibiotic resistant
infections. To date, we have prepared and developed approximately 100
tetracycline-based derivatives. We filed a patent application on October 5, 2002
covering our tetracycline product candidates.




The
preclinical in vitro and in vivo models used for preclinical testing of
antibacterial drugs are highly predictive of clinical activity. In addition, the
development program to establish confirmation of concept in the clinic is of a
relatively short term, with appropriate financing for this program made
available to do the short-term clinical work. We have identified two of these
derivatives to have activity in vitro against tetracycline-resistant bacterial
strains. The next phase will be a rapid development of the preclinical program
to take us into clinical studies.




Preliminary
animal studies with two of our tetracycline derivatives, INN 01137 and INN
01147, have demonstrated activity in two prostate cancer models. Further studies
will be carried out to confirm these results.




MANUFACTURING





We do not
own or operate any manufacturing facilities. We contract with qualified third
parties for the manufacture of bulk active pharmaceutical ingredients and
production of clinical and commercial supplies. The ingredients and supplies
comply with current good manufacturing practices reviewed by the FDA. We have
entered into agreements with three overseas manufacturers for production of
clinical and commercial supplies of Nemifitide. We believe the prices charged by
these overseas manufacturers are competitive. We plan to continue to outsource
the manufacture of our products throughout the stages of commercialization and
expect the cost of purchasing them will be significantly reduced as they are
manufactured in bulk.  We do not own or operate any manufacturing
and/or lab facilities. We maintain confidentiality agreements with potential and
existing contract manufacturers for both active drug and formulated product in
order to protect our proprietary rights. We currently synthesize our early stage
chemical compounds (the chemical compounds used for study prior to our
preclinical testing). However, scale-up quantities and materials for preclinical
toxicology evaluations are manufactured by qualified third parties in strict
compliance with current good manufacturing practices.




MARKETING
AND DISTRIBUTION STRATEGY





To avoid
the costs of establishing a sales force and to allow management to direct its
energies to the formulation of new products, we intend to develop strategic
relationships with one or more major pharmaceutical companies on a worldwide
basis in order to market and distribute our products. This will also allow us to
benefit from the marketing experience of such partner. Pursuant to such
strategic relationships, we may grant such companies the right to market and
distribute our antidepressant products in consideration for an up-front payment,
milestone payments, development cost sharing, and a percentage of the revenues
from the sale of the marketed product.




8




PATENTS
AND PROPRIETARY INFORMATION





CORE
PROGRAM IN ANTIDEPRESSANT THERAPEUTICS





We
currently hold four issued patents in the United States and eight issued patents
abroad, including a European patent, which relate to our core program in
peptide-based neurological therapeutics. In addition, five applications are
pending abroad in connection with this program. We were issued United States
Patent No. 5,589,460 for our primary platform of peptide-based compounds on
December 31, 1996, from an application filed in 1994. This patent includes
claims directed at both compounds (compositions of matter) and methods of
treating depression using the compounds. The expiration date of this patent is
May 4, 2014. However, the patent term may be extended by as much as five years
pursuant to the Patent Term Restoration Act, 35 United States Code ss.156,
providing that the appropriate conditions are met, a timely application is made
and the provisions of the Patent Term Restoration Act are not
changed.




Further
to our initial patent, we sequentially filed three continuation-in-part (“CIP”)
applications that have also been issued as United States patents. We filed a
first CIP application in 1995 to cover additional peptide-based compounds and we
were issued United States Patent No. 5,767,083 on June 16, 1998. We filed a
second CIP application in 1997 to cover additional new peptide derivatives and
were issued United States Patent No. 6,093,797 on July 25, 2000. We filed a
third CIP application in 2002 to cover the use of the compounds in treating
additional neurological and psychiatric disorders and new routes of
administration for our compounds and were issued as U.S. Patent No. 6,767,897 on
July 27, 2004.




CORE
PROGRAM IN TETRACYCLINE DERIVATIVE THERAPEUTICS





We
currently have two pending patent applications in the United States and ten
pending patent applications abroad, which relate to our core program in
tetracycline derivative therapeutics. The U.S. and non-U.S. applications are
directed toward compositions and/or methods for treating cancer and microbial
infections.




NON-CORE
PROGRAMS





We
currently hold four issued United States patents and one pending Canadian patent
application that do not relate to our core programs. We are not currently
pursuing development of the subject matter of these four U.S. patents or the
referenced Canadian application.


9




Antidepressant
Peptide Patent Family Status


Country
              
              Application
      No.
              
              Filing
      Date
              
              Related
      Application Information
              
              Status
              
              Patent
      no.United
      States
              
              08/238,089
              
              05/04/94
              
              
              
              Granted
      12/31/98
              
              5,589,4601st CIP-US
              
              08/432,651
              
              05/02/95
              
              Continuation-in-part
      of US 08/238,089
              
              Granted
      06/16/98
              
              5,767,0832nd CIP-US
              
              08/962,962
              
              11/04/97
              
              Continuation-in-part
      of US 08/432,651
              
              Granted
      07/25/00
              
              6,093,7973rd CIP-US
              
              10/122,246
              
              04/11/02
              
              Continuation-in-part
      of US 08/962,962
              
              Granted
      07/27/04
              
              6,767,897Divisional
      of 3rd
      CIP-US
              
              10/900,026
              
              07/27/04
              
              Divisional
      of US 10/122,246
              
              PendingPatent
      Cooperation Treaty (PCT)
              
              PCT/US95/05560
              
              05/02/95
              
              Based
      on US 08/238,089
              
              Completed:
      entered national phasePatent
      Cooperation Treaty (PCT)
              
              PCT/US03/11403
              
              04/10/03
              
              Based
      on US 10/122,246
              
              Completed:
      entered national phaseAustralia
              
              2813995
              
              11/04/96
              
              Nat’l
      Phase of PCT/US95/05560
              
              Granted
      08/06/98
              
              685292Canada
              
              2,189,145
              
              10/29/96
              
              Nat’l
      Phase of PCT/US95/05560
              
              Granted
      3/18/08
              
              *China
      (PRC)
              
              CN
      95193885.1
              
              12/26/96
              
              Nat’l
      Phase of PCT/US95/05560
              
              Granted
      05/19/04
              
              CN1150028CEuropean
      Patent Convention
              
              95
      92 3659.7
              
              11/04/96
              
              Regional
      Phase of PCT/US95/05560
              
              Granted
      01/21/04 Validated in AT, BE, CH, DE, DK, ES, FR, GB, IE, IT, LI, LX, MN,
      NL, PT, and SE
              
              EP0759772European
      Patent Convention
              
              03
      72 4013.2-2404
              
              04/10/03
              
              Regional
      Phase of PCT/US03/11403
              
              PendingFinland
              
              FI
      964363
              
              11/04/96
              
              Nat’l
      Phase of PCT/US95/05560
              
              PendingIndia
              
              198CAL2001
              
              04/04/01
              
              Priority
      to US 08/432,651 (Divisional of 786CAL96)
              
              Granted
      12/06/03
              
              191479India
              
              237CAL2001
              
              04/20/01
              
              Priority
      to US 08/432,651 (Divisional of 786CAL96)
              
              Gramted
      6/25/08India
              
              483CAL2002
              
              08/16/02
              
              Divisional
      of 198CAL2001
              
              Granted
      5/15/07
              
              *Indonesia
              
              P-9526222
              
              12/08/95
              
              Based
      on US 08/432,651
              
              PendingIndonesia
              
              P-00200500377
              
              07/11/05
              
              Divisional
      of Indonesian Application No. P-9526222 (Priority to US
      08/432,651)
              
              PendingJapan
              
              529076/1995
              
              11/05/95
              
              Nat’l
      Phase of PCT/US95/05560
              
              Granted
      11/17/06
              
              3878983Malaysia
              
              PI
      9503240
              
              10/27/95
              
              Based
      on PCT/US95/05560
              
              Granted
      02/28/02
              
              MYI13407
      AMalaysia
              
              PI
      20031342
              
              04/10/03
              
              Based
      on US 10/122,246
              
              PendingNorway
              
              P964561
              
              11/04/96
              
              Nat’l
      Phase of PCT/US95/05560
              
              Granted
      01/03/05
              
              317919Russia
              
              96
      123 269
              
              12/04/96
              
              Nat’l
      Phase of PCT/US95/05560
              
              Granted
      08/28/01
              
              2,182,910Taiwan
      (ROC)
              
              84111543
              
              11/01/95
              
              Based
      on PCT/US95/05560
              
              Granted
      10/11/02
              
              167954Taiwan
      (ROC)
              
              92108419
              
              04/11/03
              
              Based
      on US 10/122,246
              
              Granted
      03/11/07
              
              I
      275398




Dermatological
Use of Peptides Patent Family


Country
            
            Application
      No.
            
            Filing
      Date
            
            Related
      Application Information
            
            Status
            
            Patent
      no.Patent
      Cooperation Treaty (PCT)
            
            PCT/US2007/068827
            
            05/12/07
            
            Earliest
      priority claimed is to 60/801,128 filed 05/17/06
            
            PendingUnited
      States
            
            11/747,762
            
            05/11/07
            
            Priority
      claimed to: 60/801,128 filed 05/17/06; 60/825,070 filed 09/08/06; and
      60/825,077 filed 09/08/06, and CIP of 10/900,026
            
            Provisional,
      now abandonedUnited
      States
            
            11/747,748
            
            05/11/07
            
            Priority
      claimed to: 60/825,070 filed 09/08/06; and 60/801,128 filed
      05/17/06
            
            Provisional
      now abandoned




10





Tetracycline
Derivatives Patent Family Status




Country
              
              Application
      No.
              
              Filing
      Date
              
              Related
      Application Information
              
              Status
              
              Patent
      no.United
      States
              
              10/264,454
              
              10/04/02
              
              Priority
      to US 60/327,502
              
              Patented
              
              7,214,669
      B2United
      States
              
              11/673,589
              
              02/11/07
              
              Divisional
      of US 10/264,454
              
              AbandonedUnited
      States
              
              11/679,744
              
              02/22/07
              
              Divisional
      of US 10/264,454
              
              PendingPatent
      Cooperation Treaty (PCT)
              
              PCT/US02/31730
              
              10/04/02
              
              Priority
      to US 60/327,502
              
              Completed:
      entered national phasesAustralia
              
              2002341970
              
              04/01/04
              
              Nat’l
      Phase of PCT/US02/31730
              
              GrantedCanada
              
              2,462,572
              
              10/04/02
              
              Priority
      to US 60/327,502
              
              GrantedChina
      (PRC)
              
              200610099226.7
              
              07/21/06
              
              Divisional
      of 02819722.4 (Nat’l Phase of PCT/US02/31730), now
    abandoned.
              
              AbandonedEuropean
      Patent Convention
              
              02776131.1
              
              04/23/04
              
              Regional
      Phase of PCT/US02/31730
              
              PendingEuropean
      Patent Convention
              
              07117753.9
              
              10/02/07
              
              Divisional
      of 02776131.1
              
              PendingHong
      Kong
              
              07109104.7
              
              08/21/07
              
              HK
      extension of China (PRC) application no. 200610099226.7
              
              PendingIndonesia
              
              W
      -00200400639
              
              04/06/04
              
              Nat’l
      Phase of PCT/US02/31730
              
              PendingJapan
              
              2003-533853
              
              04/05/04
              
              Nat’l
      Phase of PCT/US02/31730
              
              PendingMalaysia
              
              PI
      20023717
              
              10/04/02
              
              Priority
      to US 60/327,502
              
              Granted
              
              *Malaysia
              
              PI
      20070863
              
              05/31/07
      (design. 10/04/02)
              
              Divisional
      of PI 20023717
              
              PendingNorway
              
              2004-1272
              
              03/26/04
              
              Nat’l
      Phase of PCT/US02/31730
              
              PendingRussian
      Federation
              
              2004109986
              
              03/29/04
              
              Nat’l
      Phase of PCT/US02/31730
              
              Patented
              
              RU
      2 300 380 C2Taiwan
              
              91123025
              
              10/04/02
              
              Priority
      to US 60/327,502
              
              Pending




11





Non-Core
Programs Patent Status


Country
            
            Application
      No.
            
            Filing
      Date
            
            Related
      Application Information
            
            Status
            
            Patent
      No.
            
            TitleUnited
      States
            
            08/424,866
            
            04/18/95
            
            
            
            Granted
      02/24/98
            
            5,721,207
            
            Method
      for treatment of painUnited
      States
            
            08/531,525
            
            09/21/95
            
            
            
            Granted
      11/24/98
            
            5,840,683
            
            Peptides
      inhibiting the oncogenic action of P21 RASUnited
      States
            
            08/718,270
            
            09/20/96
            
            Priority
      to US 60/004,091 filed 09/21/95
            
            Granted
      06/08/99
            
            5,910,478
            
            Peptidomimetics
      inhibiting the oncogenic action of P21 RASUnited
      States
            
            08/807,473
            
            02/27/97
            
            Priority
      to 60/012,396 filed 02/28/96
            
            Granted
      11/23/99
            
            5,990,172
            
            Peptidomimetics
      for the treatment of HIV infectionCanada
            
            2,232,750
            
            09/20/96
            
            Nat’l
      Phase of PCT/US96/15098 filed 09/20/96
            
            Pending
            
            
            
            Peptides
      and Peptidomimetics inhibiting the oncogenic action of P21
    RAS





EMPLOYEES
AND CONSULTANTS





As of
March 31, 2009, we have 7 employees.  We have four full-time employees
and three part-time scientific consultants, three of whom hold Ph.D. or M.D.
degrees, or both. None of our employees are represented by a collective
bargaining agreement, nor have we experienced work stoppages.






ITEM
      1A.
            RISK
      FACTORS




Not
applicable.






ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS




Not
applicable.






ITEM
      2.
            PROPERTIES




Effective
November 15, 2008, we entered into a new lease to rent approximately 1,100
square feet in a multi tenant office building at 560 Sylvan Ave, Englewood
Cliffs, New Jersey. The lease has a term of two years with an option for a third
year and has a monthly rent of $1,919. Management believes this space will be
adequate for our needs for the duration of our lease. We also maintain small
satellite offices on Jericho Tpke in Melville, New York and one in Syosset, New
York and incur a combined monthly rent of $300 for these
properties.  Both New York properties are leased on a month to month
basis and can be cancelled by us at any time.




The
approximate aggregate minimum rental commitments on these leases are as
follows:





12




Year
      Ending December 31,2009
                  
                  
                  23,0282010
                  
                  
                  20,150$
                  43,178





Our
rental expense was $103,605 and $84,249, for the years ended December 31, 2008
and 2007, respectively.






ITEM
      3.
            LEGAL
      PROCEEDINGS




We are
not a party to any material legal proceedings.






ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




There
were no matters submitted for stockholders’ vote during the fiscal year ended
December 31, 2008.





13




PART
II




ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




MARKET
INFORMATION





Shares of
our common stock are currently quoted on the Over the Counter Bulletin Board
under the symbol “TTRX.”




There is
a limited trading market for our common stock. There is no assurance that a
regular trading market for our common stock will develop or if developed that it
will be sustained. Furthermore, it is unlikely that a lending institution will
accept our securities as pledged collateral for loans unless a regular trading
market develops.




The
following table sets forth the range of the high and low bid quotations of our
common stock for each quarter during 2007 and 2008 The quotations reflect
inter-dealer prices, without retail markup, markdown or commission and may not
represent actual transactions.




Period
              
              Low
              
              High2008Fourth
      Quarter
              
              $
      0.03
              
              $
      0.30Third
      Quarter
              
              $
      0.20
              
              $
      0.45Second
      Quarter
              
              $
      0.25
              
              $
      0.55First
      Quarter
              
              $ 0.30
              
              $
      1.002007Fourth
      Quarter
              
              $
      0.20
              
              $
      0.51Third
      Quarter
              
              $
      0.35
              
              $
      1.40Second
      Quarter
              
              $
      1.25
              
              $
      1.52First
      Quarter
              
              NA
              
              NA





HOLDERS





On March
31, 2009 there were 738 holders of record of our common stock.





DIVIDENDS





No cash
dividends were declared in the fiscal year ended December 31, 2008 or December
31, 2007, and management does not intend to pay cash dividends in the
foreseeable future.





SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS




None.




14




RECENT SALES OF UNREGISTERED SECURITIES; USE OF
PROCEEDS FROM REGISTERED SECURITIES.





Warrants
and Promissory Notes





We issued
an aggregate of 925,000 warrants during the second quarter of 2007 to several
prominent scientific consultants in exchange for future services that they would
perform for us. The warrants are exercisable at $1.30 per share and expire 5
years from issuance.




We issued
an aggregate of 155,000 warrants during the third quarter of 2007 to several
financial consultants and to members of our scientific advisory
board.




On May
28, 2008, we issued promissory notes carrying 12% interest per annum having
an aggregate face value of $175,000, together with warrants to purchase an
aggregate of 350,000 shares of our common stock at $0.50 per share, to seven
individuals.   As part of the same issuance, on July 28, 2008 we
issued promissory notes carrying 12% interest per annum having an aggregate face
value of $75,000, together with warrants to purchase an aggregate of 150,000
shares of our common stock at $0.50 per share, to three
individuals.  As part of the same issuance, in October 2008, we issued
promissory notes carrying 12% interest per annum having an aggregate face value
of $100,000, together with warrants to purchase an aggregate of 400,000 shares
of our common stock at $0.40 per share, to two
individuals.  Additionally, as a result of changes to the terms of the
offering, we adjusted prior investor’s warrants by issuing an aggregate of
1,000,000 warrants exercisable at $.40 per share and which expire within 5 years
from the date of issuance, to each of the ten individuals who participated in
the previous closings.  These warrants replaced the previously issued
500,000 warrants exercisable at $.50 per share.  All of the warrants
are exercisable at $.40 per share and expire within 5 years from the date of
issuance.  The notes are all payable the earlier of 2 years from
issuance or a funding, either public or private, of at least $2
million.




These
securities were issued in transactions not registered under the Securities Act
in reliance upon the exemption provided under Section 4(2) of the Securities Act
and/or Regulation D promulgated by the Securities and Exchange
Commission.  We believed that the exemption was available because the
offer and sale of the securities did not involve a public offering and because
of the limited number of recipients, each purchaser’s representation of
sophistication in financial matters, and his access to information concerning
our business.





We used
the proceeds from the sale of these securities for general working capital
purposes.





15




Common
Stock Transactions





During
the third quarter of 2007, 25,000 shares of common stock were issued to an
existing shareholder for stock purchased in the past and not in our stock
records due to a clerical error.




These
shares were issued in a transaction not registered under the Securities Act in
reliance upon the exemption provided under Section 4(2) of the Securities Act
and/or Regulation D promulgated by the Securities and Exchange
Commission.  We believed that the exemption was available because the
offer and sale of the securities did not involve a public offering and because
of the limited number of recipients, the purchaser’s representation of
sophistication in financial matters, and his access to information concerning
our business.







ITEM
      6.
            SELECTED
      FINANCIAL DATA




Not
applicable.






ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion and analysis should be read in conjunction with the
Financial Statements and notes thereto appearing elsewhere in this Annual
Report.




Certain
statements contained herein may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Exchange Act of 1934, as amended and the
Private Securities Litigation Reform Act of 1995.  Because such
statements include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking
statements.  Factors that could cause actual results to differ
materially include, but are not limited to, risks associated with our clinical
trials, our lack of revenue, and our inability to maintain working capital
requirements to fund future operations or our inability to attract and retain
highly qualified management.





You
should read the following discussion and analysis in conjunction with the
audited Financial Statements and Notes attached thereto, and the other financial
information appearing elsewhere in this Annual Report





RESULTS
OF OPERATIONS AND FINANCIAL CONDITION





Fiscal
Year Ended December 31, 2008 As Compared to Fiscal Ended December 31,
2007





REVENUE -
We did not generate revenue from any source during fiscal years 2008 and
2007.




RESEARCH
AND DEVELOPMENT - Our research and development costs decreased by 64.4% to
$7,894 for the year ended December 31, 2008, as compared to $22,154 for the year
ended December 31, 2007 because we did not perform any additional studies
performed during 2008.




COMPENSATION
EXPENSE - Our compensation expense decreased to by 58.3% to $664,827 for the
year ended December 31, 2008, as compared to $1,593,610 for the year ended
December 31, 2007. The decrease is attributable to a reduction in the salaries
of all existing employees as well as a reduction in
staff.  Additionally no options were issued to employees or Board
members in 2008 with the exception of options issued to Board members for
participating on committees.





16




PROFESSIONAL
FEES - Professional fees decreased by 22.2% to $103,682 for the year ended
December 31, 2008, as compared to $133,203 for the year ended December 31, 2007.
This decrease is attributable to a reduction in legal and accounting fees in
2008.




CONSULTING
FEES - Consulting expenses decreased by 97.3% to $29,859 for the year ended
December 31, 2008, as compared to $1,112,810 for the year ended December 31,
2007. This decrease was attributable to our not issuing options to consultants
as well as our eliminating all monthly consulting agreements during the year
ended December 31, 2008




DIRECTORS
FEES - Directors fees decreased by approximately 96.7% to approximately $39,100
for the year ended December 31, 2008, as compared to $1,169,000 for the year
ended December 31, 2007. This decrease was due to the fact that we did not issue
any options, with the exception of the options issued for Board committee
participation, to our Directors as well as our elimination of accruing of Board
fees.


PRINTING
AND REPRODUCTION - Printing and reproduction expenses decreased by approximately
73.2% to approximately $15,000 for the year ended December 31, 2008, as compared
to $56,000 for the year ended December 31, 2007. This decrease was attributable
to our not conducting any offerings during 2008.




LIQUIDITY
AND CAPITAL RESOURCES





As of
December 31, 2008 we had approximately $330,000 in cash.  As of March
31, 2009 we have approximately $275,000 in cash and have a core burn rate of
approximately $30,000 per month, which we believe is sufficient for 10 months
absent of the current debt coming due. The $275,000 will be used primarily for
operating expenses going forward. Additional funds will be needed to finance
further studies required by the FDA to bring our lead compound, Nemifide to
market. Future funds may be derived from additional sales of equity or debt in
the public or private markets, a licensing agreement with a pharmaceutical
Company, and/or the sale of our state tax losses through the New Jersey
Development Plan. Our debt consists of a $1,900,000 convertible note payable
plus accrued interest which we owe to the former holders of our Series D
Preferred securities which matures in April 2009 as well as the potential
repayment of $350,000 of promissory notes issued to 12 individuals during 2008.
We are currently attempting to restructure the current debt.




OFF
BALANCE SHEET ARRANGEMENTS




We are
not a party to any off balance sheet arrangements.





SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Use
of Estimates





The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from those estimates.




Financial
Instruments





Our
financial instruments include cash and cash equivalents, restricted cash,
accounts payable and accrued expenses and notes payable. These financial
instruments are carried at cost, which unless otherwise disclosed, approximates
fair value due to their short maturities.




17




Cash
and Cash Equivalents





We
consider all highly liquid investments with original maturities of three months
or less when purchased to be cash equivalents.




Our cash
and cash equivalents are held principally at one financial institution and at
times may exceed insured limits.




Property
and Equipment





Our
property and equipment are stated at cost and are depreciated on a straight-line
basis over the estimated useful lives of the related assets, which is generally
five years. Expenditures for maintenance and repairs are charged to operations
at the time the expense is incurred. Expenditures determined to represent
additions are capitalized.




Impairment
of Long-Lived Assets





We
periodically review our long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Impairment is determined to exist if estimated undiscounted future
cash flows are less than the carrying amount of the asset. If such assets are
considered to be impaired, the impairment recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets.
We have determined that there was no impairment of long-lived assets in 2008 and
2007 and thus we did not take impairment in those years.




Patents





We
capitalize our expenditures relating to the filing and maintenance of our
patents and amortize such costs over the estimated useful life of the patent,
which generally approximates fifteen years. Accumulated amortization was
$442,146 at December 31, 2008. Amortization expense related to patents was
$42,885 and 38,947 for the years ended December 31, 2008 and 2007,
respectively.




Income
Taxes





We
account for income taxes using the liability method. The liability method
requires the determination of deferred tax assets and liabilities based on the
differences between the financial statements and income tax bases of assets and
liabilities, using enacted tax rates. Additionally, net deferred tax assets are
adjusted by a valuation allowance, if, based on the weight of available
evidence, we are uncertain whether some portion or all of the net deferred tax
assets will be realized.




Research
and Development





We expend
funds on research and development to develop new products or processes, to
improve present products, and to discover new knowledge that may be valuable at
some future date. Costs incurred for research and development activities are
expensed as incurred.





18




Basic
and Diluted Loss Per Common Share





We
display earnings per share in a dual presentation of basic and diluted earnings
per share. Basic earnings per share includes no dilution and is computed by
dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding for the period.




Outstanding
common stock options, warrants, convertible preferred shares and convertible
notes payable have not been considered in the computation of diluted earnings
per share amounts, since the effect of their inclusion would be anti-dilutive.
Accordingly, basic and diluted earnings per share are identical.




Stock-Based
Compensation





On
December 16, 2004 immediately following the revised pronouncement 123-R we
adopted the provisions of SFAS 123-R retroactively to January 1, 2003. We
applied the provisions of the standard by directly expensing the fair value of
options and warrants under the Black Scholes method to the statement of
operations. This enabled us to treat employees and others on an equal basis. Had
we not adopted 123-R we would have had to calculate employee options differently
which management felt would lead to an inconsistency in the reflection of the
value of options and warrants. We account for stock based grants issued to
non-employees at fair value in accordance with SFAS 123 and EITF
96-18




RECENTLY
ISSUED ACCOUNTING STANDARDS




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 151.” (“SFAS 160”).
SFAS 160 requires all entities to report non-controlling (minority) interests in
subsidiaries as equity in the consolidated financial statements. Its intention
is to eliminate the diversity in practice regarding the accounting for
transactions between an entity and non-controlling interests. SFAS 160 is
effective for us as of January 1, 2009. Earlier adoption is prohibited. We have
no non-controlling interests and thus SFAS 160 will not have an impact on our
consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”). SFAS 141R provides guidance to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about its business combinations and its
effects. SFAS 141R establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, the goodwill acquired and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for acquisitions beginning in our fiscal year beginning December 1,
2009 and earlier application is prohibited.




In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”). This statement identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States (“GAAP”). This Statement shall be effective
sixty days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. We do not believe the
adoption of SFAS No. 162 will have a material impact on our financial condition,
results of operations or cash flows.





19




ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK








ITEM
      8.
            FINANCIAL
      STATEMENTS




TETRAGENEX
PHARMACEUTICAL, INC.




INDEX




PageReport
      of Independent Registered Public Accounting Firm
                    F–1Balance
      Sheets as of December 31, 2008 and 2007
                    F–2Statements
      of Operations for the Years Ended December 31, 2008 and
    2007
                    F–3Statements
      of Stockholders’ Deficit for the Years Ended December 31, 2008 and
      2007
                    F–4Statements
      of Cash Flows for the Years Ended December 31, 2008 and
    2007
                    F–5Notes
      to the Financial Statements
                    F–6









20




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To the
Board of Directors and Stockholders of
 Tetragenex
Pharmaceuticals, Inc.
  We have
audited the accompanying balance sheets of Tetragenex Pharmaceuticals, Inc. as
of December 31, 2008 and 2007, and the related statements of operations, changes
in stockholders’ deficit, and cash flows for each of the two years in the
periods ended December 31, 2008. Tetragenex
Pharmaceuticals, Inc’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these financial statements based
on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Tetragenex Pharmaceuticals, Inc. as
of December 31, 2008 and 2007, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in the notes to the
financial statements, the Company has suffered recurring operating losses and
has a net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management’s plans concerning these matters are
also disclosed in the notes. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
  /s/
DEMETRIUS & COMPANY, L.L.C.
  Wayne,
New Jersey
 March 30,
2009




F-1





TETRAGENEX
PHARMACEUTICALS, INC.


BALANCE
SHEETS




AS
OF DECEMBER 31, 2008 AND 2007




Year
      Ended December 31,ASSETS
                                                                          
                                                                          2008
                                                                          
                                                                          
                                                                          2007Current
      assetsCash
      and cash equivalents
                                                                          
                                                                          $
                                                                          329,863
                                                                          
                                                                          
                                                                          $
                                                                          527,737Prepaid
      insurance and other current assets
                                                                          
                                                                          
                                                                          18,780
                                                                          
                                                                          
                                                                          
                                                                          33,777Total
      current Assets
                                                                          
                                                                          
                                                                          348,643
                                                                          
                                                                          
                                                                          
                                                                          561,514Property
      and equipment, net
                                                                          
                                                                          
                                                                          6,255
                                                                          
                                                                          
                                                                          
                                                                          4,188Security
      Deposit
                                                                          
                                                                          
                                                                          4,188
                                                                          
                                                                          
                                                                          
                                                                          18,958Patents,
      net
                                                                          
                                                                          
                                                                          449,671
                                                                          
                                                                          
                                                                          
                                                                          429,268$
                                                                          808,757
                                                                          
                                                                          
                                                                          $
                                                                          1,013,928LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesNotes
      payable
                                                                          
                                                                          
                                                                          1,882,362Accounts
      payable and accrued expenses
                                                                          
                                                                          
                                                                          1,610,729
                                                                          
                                                                          
                                                                          
                                                                          1,153,639Accrued
      interest
                                                                          
                                                                          
                                                                          254,354
                                                                          
                                                                          
                                                                          
                                                                          178,828Total
      current liabilities
                                                                          
                                                                          
                                                                          3,747,445
                                                                          
                                                                          
                                                                          
                                                                          1,332,467Long
      term liabilityNotes
      payable
                                                                          
                                                                          
                                                                          308,823
                                                                          
                                                                          
                                                                          
                                                                          1,882,362Total
      liabilities
                                                                          
                                                                          
                                                                          4,056,268
                                                                          
                                                                          
                                                                          
                                                                          3,214,829Commitments and
      contingenciesStockholders'
      equityClass
      A preferred stock - $.01 par value - 5,000,000 shares
      authorized; 0 shares outstanding
                                                                          
                                                                          
                                                                          -Common
      stock - $.001 par value - 50,000,000 shares authorized 15,926,126
      shares issued and outstanding
                                                                          
                                                                          
                                                                          15,926
                                                                          
                                                                          
                                                                          
                                                                          15,926Additional
      paid-in capital
                                                                          
                                                                          
                                                                          101,836,042
                                                                          
                                                                          
                                                                          
                                                                          101,775,845Accumulated
      deficit
                                                                          
                                                                          
                                                                          (105,099,479
                                                                          )
                                                                          
                                                                          
                                                                          (103,992,672
                                                                          )Total
      stockholders' equity
                                                                          
                                                                          
                                                                          (3,247,511
                                                                          )
                                                                          
                                                                          
                                                                          (2,200,901
                                                                          )$
                                                                          808,757
                                                                          
                                                                          
                                                                          $
                                                                          1,013,928




Please
See Notes to the Financial Statements





F-2





TETRAGENEX
PHARMACEUTICALS, INC.


STATEMENTS
OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




YEAR
      ENDED
                  DECEMBER
      31,2008
              
              
              2007REVENUEContract
      revenue
              
              
              –
              
              
              
              ––
              
              
              
              –OPERATING
      EXPENSESResearch
      and development
              
              $
              7,894
              
              
              $
              22,154Compensation
      expense
              
              
              664,827
              
              
              
              1,593,610Travel
              
              
              54,634
              
              
              
              83,701General
      and administrative
              
              
              194,317
              
              
              
              1,405,034Professional
      fees
              
              
              103,682
              
              
              
              133,203Payroll
      taxes and employee benefits
              
              
              75,325
              
              
              
              81,675Consulting
      fees
              
              
              29,859
              
              
              
              1,112,810Rent
      and occupancy
              
              
              113,026
              
              
              
              91,671Depreciation
      and amortization
              
              
              45,672
              
              
              
              44,406LOSS BEFORE OTHER
      INCOME(EXPENSE) AND TAX BENEFIT
              
              
              (1,289,236
              )
              
              
              (4,568,264
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              3,132
              
              
              
              46,178Interest
      expense
              
              
              (92,946
              )
              
              
              (57,872
              )LOSS BEFORE TAX
      BENEFIT
              
              
              (1,379,050
              )
              
              
              (4,579,958
              )Sales
      of tax losses
              
              
              272,243
              
              
              
              –Net loss
              
              $
              (1,106,807
              )
              
              $
              (4,579,958
              )Basic
      and diluted net loss per share
              
              $
              (0.07
              )
              
              $
              (0.29
              )Weighted
      average common shares outstanding
              
              
              15,926,126
              
              
              
              15,926,126




Please See Notes to the Financial
Statements





F-3





TETRAGENEX
PHARMACEUTICALS, INC.


STATEMENTS
OF STOCKHOLDERS’ DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




Shares
                  Issued
      and
                  Outstanding
              
              
              Common
                Stock
              
              
              Additional
                  Paid-in
                  Capital
              
              
              Accumulated
                  Deficit
              
              
              TotalBALANCE,
      DECEMBER 31, 2006
              
              $
              15,901,126
              
              
              
              15,901
              
              
              $
              98,932,619
              
              
              $
              (99,412,714
              )
              
              $
              (464,194
              )Stock
      issued to correct stock records
              
              
              25,000
              
              
              
              25
              
              
              
              (25
              )Issuance
      of common stock and options for services
              
              
              
              
              
              
              
              
              
              
              2,843,251
              
              
              
              
              
              
              
              2,843,251Net
      Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,579,958
              )
              
              
              (4,579,958
              )BALANCE,
      DECEMBER 31, 2007
              
              $
              15,926,126
              
              
              
              15,926
              
              
              $
              101,775,845
              
              
              $
              (103,992,672
              )
              
              $
              (2,200,901
              )Warrants
      to bridge loan financing
              
              
              
              
              
              
              
              
              
              
              58,597
              
              
              
              
              
              
              
              58,597Issuance
      of common stock options for services
              
              
              
              
              
              
              
              
              
              
              1,600
              
              
              
              
              
              
              
              1600Net
      Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,106,807
              )
              
              
              (1,106,807
              )BALANCE,
      DECEMBER 31, 2008
              
              $
              15,926,126
              
              
              
              15,926
              
              
              $
              101,836,042
              
              
              $
              (105,099,479
              )
              
              $
              (3,247,511
              )





Please See Notes to the Financial
Statements





F-4





TETRAGENEX
PHARMACEUTICALS, INC.


STATEMENTS
OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




YEAR
      ENDED DECEMBER 31,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (1,106,807
              )
              
              $
              (4,579,958
              )Adjustments
      to Reconcile Net Loss to Net Cash Used in Operating
    ActivitiesAmortization
      of debt discount
              
              
              17,420Depreciation
      and amortization
              
              
              45,672
              
              
              
              44,406Stock,
      option and warrant compensation
              
              
              1,600
              
              
              
              2,843,241Changes
      in Operating Assets and LiabilitiesPrepaid
      insurance and other current assets
              
              
              14,997
              
              
              
              (15,608
              )Security
      deposits
              
              
              14,770Accounts
      payable and accrued expenses
              
              
              457,090
              
              
              
              280,434Accrued
      interest payable
              
              
              75,526
              
              
              
              57,872NET CASH USED IN OPERATING
      ACTIVITIES
              
              
              (479,732
              )
              
              
              (1,369,603
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      paid for property and equipment
              
              
              (4,854
              )Patent
      costs
              
              
              (63,288
              )
              
              
              (68,620
              )NET CASH USED IN INVESTING
      ACTIVITIES
              
              
              (68,142
              )
              
              
              (68,620
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
              
              
              350,000NET CASH PROVIDED BY FINANCING
      ACTIVITIES
              
              
              350,000NET DECREASE IN CASH AND CASH
      EQUIVALENTS
              
              $
              (197,874
              )
              
              $
              (1,438,223
              )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              
              527,737
              
              
              
              1,965,960CASH
      AND CASH EQUIVALENTS, END OF YEAR
              
              $
              329,863
              
              
              $
              527,737SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for taxes
              
              
              –
              
              
              
              –Cash
      paid for interest
              
              
              –
              
              
              
              –NON
      CASH TRANSACTIONSStock,
      options, and warrants issued for compensation
              
              $
              1,600
              
              
              $
              2,843,251




Please See Notes to the Financial
Statements




F-5





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS





1.
            THE
      COMPANY





Tetragenex
Pharmaceuticals Inc. (“Tetragenex” or the “Company”) was incorporated in 2000 in
the State of Delaware. Innapharma, Inc., the Company’s former parent Company and
predecessor, was incorporated in 1989 also in the State of Delaware. The
Company’s corporate headquarters are located in Englewood Cliffs, New Jersey. On
November 23, 2004 Innapharma, Inc. merged into its wholly owned subsidiary
Tetragenex. As part of the merger, all existing shares, options and warrants of
Innapharma converted into securities of Tetragenex on a 1-for-4
basis.




Tetragenex
is a biopharmaceutical Company working to discover, develop and commercialize
proprietary pharmaceutical products that treat serious diseases for which
current therapies are inadequate. Innapharma developed and patented a novel
platform of pharmaceutical “small chain” peptides that treat depression, anxiety
and other central nervous system disorders, which were subsequently assigned to
the Company upon the merger. The Company currently requires funding to enable it
to continue human clinical development program.  Tetragenex has also
discovered, synthesized and is currently developing a platform of new and unique
chemically modified tetracycline molecules to be used in the treatment of
certain types of cancer and treatment resistant bacterial infections. These
tetracycline-based product candidates are currently in the pre-clinical
development stage.




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





GOING
CONCERN AND LIQUIDITY





The
financial statements of the Company have been prepared assuming the Company will
continue as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company
incurred losses of $1,106,807 and $4,579,958 for years ended December 31, 2008
and 2007 respectively. In addition at December 31, 2008 the Company has a
working capital deficiency of $1,516,440, short term debt of $1.88 million plus
accrued interest and a deficiency in stockholder’s equity of $3,247,511. The
Company has less than 12 months working capital in the bank currently and its
main source of funds has been private investments. These factors raise doubt
about the Company’s ability to continue as a going concern. To address the
Company’s immediate cash requirements which are necessary for the Company to
continue in business, several members of the Board of directors made investments
into a bridge loan to the Company. Several other individuals participated as
well. Subsequently, the Company will commence an offering of its Company stock
in an effort to raise funds. The Company’s low stock price and its continuing
losses may make it difficult to obtain either equity or debt financing, and,
there can be no assurances that additional financing which is necessary for the
Company to continue its business will be available to the Company on acceptable
terms, or at all. The Company believes that its lead compound, Nemifitide is a
revolutionary treatment for depression and should it reach the market or become
licensed to a pharmaceutical Company, could prove extremely lucrative to the
Company. The Company’s ability to continue its operations is dependent upon its
ability to generate sufficient funds from financing to meet its obligations on a
timely basis and to further develop and market its products. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.





F-6





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




USE
OF ESTIMATES





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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. Actual results could differ from those
estimates.




FINANCIAL
INSTRUMENTS





The
Company’s financial instruments include cash and cash equivalents, accounts
payable and accrued expenses and notes payable. These financial instruments are
carried at cost, which unless otherwise disclosed, approximates fair value due
to their short maturities.




CASH
AND CASH EQUIVALENTS





The
Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents. The Company’s cash
and cash equivalents are held principally at one financial institution and at
times may exceed insured limits.




PROPERTY
AND EQUIPMENT





Property
and equipment are stated at cost and depreciated on a straight-line basis over
the estimated useful lives of the related assets, which is generally five years.
Expenditures for maintenance and repairs are charged to operations at the time
the expense is incurred. Expenditures determined to represent additions are
capitalized.




IMPAIRMENT
OF LONG-LIVED ASSETS





The
Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Impairment is determined to exist if estimated undiscounted
future cash flows are less than the carrying amount of the asset. If such assets
are considered to be impaired, the impairment recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. The Company has determined that there was no impairment of long-lived
assets in 2008 and 2007 and thus no impairment loss was taken in those
years.




PATENTS
UPDATE





The
Company capitalizes its expenditures relating to the filing and maintenance of
its patents and amortizes such costs over the estimated useful life of the
patent, which generally approximates fifteen years. Accumulated amortization was
$442,146 at December 31, 2008. Amortization expense related to patents was
$42,885 and $38,947 for the years ended December 31, 2008 and 2007,
respectively.





F-7





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




INCOME
TAXES





The
Company accounts for income taxes using the liability method. The liability
method requires the determination of deferred tax assets and liabilities based
on the differences between the financial statements and income tax bases of
assets and liabilities, using enacted tax rates. Additionally, net deferred tax
assets are adjusted by a valuation allowance, if, based on the weight of
available evidence, it is uncertain whether some portion or all of the net
deferred tax assets will be realized.




RESEARCH
AND DEVELOPMENT





The
Company expends funds on research and development to develop new products or
processes, to improve present products, and to discover new knowledge that may
be valuable at some future date. Costs incurred for research and development
activities are expensed as incurred.




BASIC
AND DILUTED LOSS PER COMMON SHARE





The
Company displays earnings per share in a dual presentation of basic and diluted
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing net income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Outstanding
common stock options, warrants, convertible preferred shares and convertible
notes payable have not been considered in the computation of diluted earnings
per share amounts, since the effect of their inclusion would be ant dilutive.
Accordingly, basic and diluted earnings per share are identical.




STOCK
BASED COMPENSATION





On
December 16, 2004, immediately following the revised pronouncement 123-R the
Company adopted the provisions of SFAS 123-R early and retroactively to January
1, 2003. The Company applied the provisions of the standard by directly
expensing the fair value of options and warrants under the black scholes method
to the statement of operations. This enabled the Company to treat employees and
others on an equal basis. Had the Company not adopted 123-R it would have had to
calculate employee options differently which the Company felt would lead to an
inconsistency in the reflection of the value of options and warrants. The
Company accounts for stock based grants issued to non-employees at fair value in
accordance with SFAS 123 and EITF 96-18 “Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or In Conjunction with
Selling, Goods or Services.”




RECENTLY
ISSUED ACCOUNTING STANDARDS





In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – an amendment of ARB No. 151.” (“SFAS 160”).
SFAS 160 requires all entities to report non-controlling (minority) interests in
subsidiaries as equity in the consolidated financial statements. Its intention
is to eliminate the diversity in practice regarding the accounting for
transactions between an entity and non-controlling interests. This Statement is
effective for the Company as of January 1, 2009. Earlier adoption is prohibited.
The Company is currently assessing the impact, if any, of SFAS 160 on its
consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”). SFAS 141R provides guidance to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about its business combinations and its
effects. SFAS 141R establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, the goodwill acquired and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for acquisitions beginning in our fiscal year beginning December 1,
2009 and earlier application is prohibited.





F-8





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”). This statement identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States (“GAAP”). This Statement shall be effective
sixty days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company does not
believe the adoption of SFAS No. 162 will have a material impact on its
financial condition, results of operations or cash flows.





3.
            PROPERTY
      AND EQUIPMENT


Property
and equipment are summarized as follows:




December
      31,
                            2008
                          
                          
                          December
      31,
                            2007Furniture
      and fixtures
                          
                          $
                          1,833
                          
                          
                          $
                          82,995Machinery
      and equipment
                          
                          
                          15,437
                          
                          
                          
                          78,76117,270
                          
                          
                          
                          161,756Less
      accumulated depreciation
                          
                          
                          11,015
                          
                          
                          
                          157,568$
                          6,255
                          
                          
                          $
                          4,188




Depreciation
expense for the years ended December 31, 2008 and 2007 was $2,787 and $5,459
respectively. The decrease was due to certain assets becoming fully
depreciated.




4.
            INCOME
      TAXES





The
income tax benefit for the year ended, December 31, 2008 and 2007,
includes:




2008
                        
                        
                        2007Federal
                        
                        
                        –
                        
                        
                        
                        –State
                        
                        $
                        272,243
                        
                        
                        $
                        -$
                        272,243
                        
                        
                        $
                        -DEFERREDFederal
                        
                        
                        –
                        
                        
                        
                        –State
                        
                        
                        –
                        
                        
                        
                        –$
                        –
                        
                        
                        $
                        -




F-9





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




There is
no current provision for corporate income taxes for the years ended December 31,
2008, and 2007 as the Company generated net losses for income tax purposes. At
December 31, 2008, the Company had available for federal income tax purposes net
operating loss carry forwards of approximately $70,827,000 that expire through
2028. At December 31, 2008, the Company had credits for increasing research
activities of approximately $825,000 that expire from the years 2015 through
2022.




The tax
effects of temporary differences that give rise to deferred tax assets and
liabilities are summarized as follows:




DECEMBER
      31,
                          2008
                        
                        
                        DECEMBER
      31,
                          2007DEFERRED
      TAX ASSETS:Net
      operating loss carry forwards
                        
                        $
                        24,911,000
                        
                        
                        $
                        25,117,000Research
      and development credits
                        
                        
                        825,000
                        
                        
                        
                        825,000TOTAL DEFERRED TAX
      ASSETS
                        
                        
                        25,736,000
                        
                        
                        
                        25,942,000Valuation
      allowance
                        
                        
                        (25,736,000
                        )
                        
                        
                        (25,942,000
                        )Net deferred tax
      assets
                        
                        $
                        –
                        
                        
                        $
                        –





The net
change in the valuation allowance was a (decrease) and an increase of $(300,000)
and $594,000 for the years ending 2008 and 2007 respectively.




The
reconciliation of estimated income taxes attributed to operations, at the
statutory tax rates, to the reported income tax benefit is as
follows:




2008
                      
                      
                      2007Expected
      federal tax credit at statutory rate
                      
                      $
                      (521,000
                      )
                      
                      $
                      (470,000
                      )State
      taxes, net of federal tax rate
                      
                      
                      (380,000
                      )
                      
                      
                      (124,000
                      )Change
      in valuation allowance
                      
                      
                      901,000
                      
                      
                      
                      594,000$
                      --
                      
                      
                      $
                      --





As of
December 31, 2008 the Company had net operating loss carry forwards for federal
income tax purposes of approximately $70,827,000 which expire in the years 2009
through 2028 and federal research and development tax credits of approximately
$825,000 which expire in the years 2015 through 2022.




As of
December 31, 2008 The Company had net operating loss carry forwards for state
income tax purposes of approximately $2,086,000 which expire in the years 2009
through 2028.




Utilization
of the Company’s net operating loss and credit carry forwards may be subject to
substantial annual limitation due to the ownership change imitations provided by
the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss and credits
before utilization




During
2008, the Company participated in the Technology Tax Certificate Transfer
Program sponsored by the New Jersey Economic Development Authority. Through the
Program the Company was able to transfer a portion of its State operating loss
carry forwards in exchange for $272,243.





F-10





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




5.
            NOTES
      PAYABLE




The
Company has $1,882,362 in notes payable plus 3% interest due on April 23, 2009.
The notes are convertible into common shares at $5 per share at the discretion
of the holders of the notes. The notes are secured by the patents of the
Company.  The Company is attempting to negotiate with the holders of
the note to either convert or extent the note.




Additionally
during 2008 the Company raised $350,000 as part of a bridge
loan.  Pursuant to the financing, the Company issued notes payable
totaling $350,000 plus 12% interest per annum.  The notes are due upon
the earlier to occur of (a) 2 years from the date of issuance, or
(b) upon the closing of at least $2 million in
funding.  Additionally, 1,400,000 warrants exercisable at $.40 per
share expiring in 2013 were issued to the holders of the notes.  Due
to the issuance of the warrants a discount of $58,597 was booked.  The
warrants were valued using the Black Scholes method




6.
            STOCKHOLDERS’
      EQUITY





STOCK
OPTIONS




On July
26, 2007 the Board unanimously approved the granting of 3.72 million options,
which was approved on May 29, 2007, to officers, Directors, employees and
consultants of the Company. All options are exercisable at $1 per share and
expire 10 years from issuance. The options were valued using the Black Scholes
method and total charges of $2,001,999 were applied to the appropriate
accounts.




On
December 31, 2007 a total of 40,000 options were granted to Bruce Bergman, Aaron
Cohen, William Comer and Alf Akerman (10,000 each) for participation on Board
committees under the same terms as the July 26, 2007 options. In 2007 an
aggregate of 3,760,000 options were granted to officers, Directors and employees
of the Company. Expenses totaling $2,011,839 were charged to “Compensation
Expense” and “Board Expense” in 2007.




On
December 31, 2008 a total of 40,000 options were granted to Bruce Bergman, Aaron
Cohen, William Comer and Alf Akerman (10,000 each) for participation on Board
committees exercisable at $1 per share expiring 10 years from
issuance.  Expenses totaling $1,600 were charged to “Board Expense” in
2008.




All
options are vested immediately. The options are not actively trading and the
fair market value is not readily ascertainable, the options are taxable at the
time of exercise as opposed to the time of the grant.





F-11





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




The
following table presents the combined activity of the plan and non-plan stock
option issuances for the years ended December 31, 2007 and 2008:




OPTIONS
                                      
                                      
                                      WEIGHTED
                                        AVERAGE
                                        EXERCISE
                                        PRICEOUTSTANDING
      AT DECEMBER 31, 2006
                                      
                                      
                                      8,038,253
                                      
                                      
                                      $
                                      1.00Granted
      during 2007
                                      
                                      
                                      3,760,000
                                      
                                      
                                      $
                                      1.00OUTSTANDING AT DECEMBER 31,
      2007
                                      
                                      
                                      11,798,253
                                      
                                      
                                      $
                                      1.00Granted
      during 2008
                                      
                                      
                                      40,000
                                      
                                      
                                      $
                                      1.00OUTSTANDING
      AT DECEMBER 31, 2008
                                      
                                      
                                      11,838,253
                                      
                                      
                                      $
                                      1.00





The
following table presents, for each of the following classes of options, as
determined by range of exercise price, the information regarding
weighted-average exercise price and weighted average remaining contractual life
as of December 31, 2008:


Options
      Outstanding and ExercisableRange
      of
                  Exercise
      Price
              
              Number
      of
                  Options
              
              Weighted
                  Average
                  Exercise
      Price
              
              Weighted
                  Average
                  Remaining
                  Life$1.00
              
              11,838,253
              
              $1.00
              
              9.7




The
grant-date fair values of options granted were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
years ended December 31:




2008
              
              2007Expected
      life (years)
              9.7
              
              13.3Risk-free
      interest rate
              1.434%
              
              5.102%Volatility
              96%
              
              96%





WARRANTS





An
aggregate of 925,000 warrants were issued during the 2nd quarter of 2007 to
several prominent scientific consultants in exchange for future services to the
Company. The warrants are exercisable at $1.30 per share and expire 5 years from
issuance. As a result an expense of $772,517 was charged to scientific
consulting. The calculation was done using the Black Scholes
method.




An
aggregate of 155,000 warrants were issued during the 3rd quarter of 2007 to
several financial consultants and to members of the Company’s scientific
advisory Board. The warrants were valued using the Black Scholes method and
total charges of $58,893 were applied to the appropriate accounts.




On May
28, 2008, the Company issued promissory notes carrying 12% interest per annum
having an aggregate face value of $175,000, together with warrants to purchase
an aggregate of 350,000 shares of the Company’s common stock at $0.50 per share,
to seven individuals.  Further and as part of the same financing, on
July 28, 2008 the Company issued promissory notes carrying 12% interest per
annum having an aggregate face value of $75,000, together with warrants to
purchase an aggregate of 150,000 shares of the Company’s common stock at $0.50
per share, to three individuals.  The Company had a third closing in
October 2008.  The Company issued promissory notes carrying 12%
interest per annum having an aggregate face value of $100,000, together with
warrants to purchase an aggregate of 400,000 shares of the Company’s common
stock at $0.40 per share, to two individuals.





F-12





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




Additionally,
the Company issued an aggregate of 1,000,000 warrants exercisable at $.40 per
share expiring 5 years of issuance to the ten individuals who participated in
the May 28, 2008 and July 28, 2008 closings.  These warrants replace
the previously issued 500,000 warrants exercisable at $.50 per share expiring 5
years from issuance.  The terms of the bridge loan were changed and
thus previous investor’s holdings were adjusted to the new terms which were 4
warrants for every $1 issued.  The warrants are exercisable at $.40
per share and expire 5 years from issuance.




At
December 31, 2008, the Company had outstanding warrants to purchase 13,418,514
shares of the Company’s common stock at exercise prices of $.40, $1, $1.30,
$1.65 and $6 per share. These warrants have expirations of July 2013, November
30, 2009, March 30, 2012, April 30, 2009 and November 30, 2011
respectively.




The
following table presents, for each of the following classes of warrants as
determined by range of exercise price, information regarding warrants
outstanding and weighted-average exercise price as of December 31,
2008.




Warrants
      OutstandingRange
      of
                  Exercise
      Price
              
              Number
      of
                  Warrants
              
              Weighted
      Average
                  Exercise
      Price$1.00
              
              7,058,796
              
              $1.00$1.30
              
              1,030,000
              
              $1.30$1.65
              
              645,322
              
              $1.65$6.00
              
              3,284,396
              
              $6.00$0.40
              
              1,400,000
              
              $0.40





COMMON
STOCK
TRANSACTIONS





During
the third quarter 2007, 25,000 shares of common stock were issued to an existing
shareholder for stock purchased in the past and not in the stock records due to
a clerical error. On September 30, 2007 there were 15,926,126 common shares
outstanding.




At
December 31, 2008, the Company has authorized 50,000,000 shares of common stock,
$.001 stated value. The following table represents the approximate allocation of
reserved shares at December 31, 2008:




Common
      Stock
                      
                      
                      15,926,126Stock
      Options
                      
                      
                      11,838,253Warrants
                      
                      
                      13,418,51441,182,893




F-13





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




EMPLOYMENT
AGREEMENTS





On
December 15, 1999, the Company entered into a three-year employment agreement
with its co-Chief Executive Officer and Chairman of the Board, Martin F.
Schacker (“Co-CEO”). The agreement provided for an annual base salary of
$160,000, subject to a minimum ten percent annual increase. On February 6, 2001,
in view of the Co-CEO’s efforts on behalf of the Company and his performance,
the Company’s Board of Directors (i) increased his annual salary to $250,000
with no automatic annual increases, and extended the term of his employment
agreement for an additional two years, and (ii) granted the executive a ten-year
option to acquire 125,000 shares of the Company’s common stock at an exercise
price of $17 per share, one third of which vested immediately, one third of
which vested on February 6, 2002, and the final third vested on February 6,
2003. On December 11, 2001, in consideration of services provided to the
Company, the Board of Directors (i) further increased his annual salary to
$300,000, (ii) further extended the term of the agreement by one year, through
and including December 15, 2005 and (iii) granted the Co-CEO an additional,
immediately vested five-year option to acquire 125,000 shares of the Company’s
common stock at an exercise price of $17 per share. On April 6, 2003, as a
result of the Company’s cost reduction, the executive agreed to defer half of
his $300,000 yearly salary. In December 2005 the Co-CEO agreed to convert
$177,000 of his deferred salary into 177,000 options to purchase shares of
Tetragenex common stock at $1 per share expiring December 20, 2020. At December
31, 2008, the Co-CEO had deferred compensation totaling $478,413. The Co-CEO is
the nephew of the Company’s other co-Chief Executive Officer, David
Abel.




All
officers, directors and employees of the Company at the time of the bankruptcy
agreed to defer a portion or all of their compensation. On December 31, 2008,
there was $1,298,056 deferred from officers and employees and $206,250 from
directors.   It is anticipated that the majority of accrued
salaries will be converted into warrants of the Company on a 1-for-1
basis.  In April 2008 at the Board’s request all salaried employees of
the Company were subject to a minimum of 50% temporary cash salary reduction
while the Company sought financing for its operations.  In October
2008, the Company ceased accruing salary reductions for all officers, directors
and employees.




7.
            LITIGATION





At
December 31, 2008 and December 31, 2007, the Company was not involved in any
ongoing litigation.




8.
            RISKS
      AND UNCERTAINTIES





The
Company is subject to risks common to companies in the biopharmaceutical
industry, including, but not limited to, successful commercialization of product
candidates, protection of proprietary technology and compliance with Food and
Drug Administration regulations.




As
reflected in the accompanying consolidated financial statements, the Company has
incurred significant recurring losses from operations and negative operating
cash flows, which have been financed primarily by proceeds from stock and debt
issuances. As a result, the Company had an accumulated deficit of $105,099,479
and $103,992,672 on December 31, 2008 and 2007, respectively.





F-14





TETRAGENEX
PHARMACEUTICALS, INC.


NOTES
TO THE FINANCIAL STATEMENTS (cont’d)




The
Company plans to provide for additional working capital and funds for the
continued development of its products through private or public sale of the
Company’s common stock. The Company’s ability to obtain such financing is
contingent upon continued progress in its drug development efforts and its
ability to access capital resources. The Company is also attempting to enter
into an agreement with a major pharmaceutical Company to co-develop its
antidepressant drug, which may generate significant cash flows for the Company.
No assurance can be given as to the Company’s ability to enter into such an
agreement or successfully complete future funding.




9.
            LEASE
      OBLIGATIONS





The
Company leases approximately 1,100 square feet of office space at 560 Sylvan
Ave, Englewood Cliffs, New Jersey, under a lease terminating in March 2012. The
Company also has office space at 200 Broad Hollow Road, Melville, New York with
respect to which the Company incurs no rental expense from this premises and on
Jericho Turnpike in Syosset NY with respect to which the Company incurs a rental
expense of $300 per month on a month-to-month basis. The Company believes its
existing facilities are adequate to meet its requirements through the year 2009.
On November 1, 2008, the Company entered into an operating lease for its current
office space in Englewood Cliffs, New Jersey. The lease commenced on November
15, 2008 and expires on November 15, 2010 and requires monthly base rental
payments of $1,919 plus certain annual escalation..




The
approximate aggregate minimum rental commitments on these leases are as
follows:




Year
      Ending December 31,2009
                
                
                23,0282010
                
                
                19,190Total
                
                $
                42,218





Our
rental expense was $103,605 and $84,249, for the years ended December 31, 2008
and 2007, respectively.




10.
            RELATED
      PARTY TRANSACTIONS





Several
Board members invested in the Company’s bridge loan in 2008.  Five
Board members invested a total of $125,000 into the bridge
offering.  Each invested $25,000 and in exchange received a two year
promissory note with a stated interest rate of 12% per
annum.  Additionally, each received 100,000 warrants exercisable at
$.40 per share expiring 5 years from issuance.




11.
            SUBSEQUENT
      EVENTS




In
February 2009 a director of the Company made a second $25,000 investment into
the Company’s bridge offering under the same terms as described
above.





F-15




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




There
have been no changes or disagreements with our accountants on accounting and
financial disclosure.






ITEM
    9A(T).
              CONTROLS
      AND PROCEDURES




(A)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES




We
maintain a system of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended) that are designed to ensure
that information required to be disclosed in our Securities and Exchange
Commission reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms, and to ensure that such information is accumulated and communicated to
our management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in assessing the costs
and benefits of such controls and procedures, which, by their nature, can
provide only reasonable assurance regarding management’s control
objectives.




Management,
with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures, as of the end of the period covered by this Annual Report on Form
10-K. Based upon this evaluation, management concluded that our disclosure
controls and procedures were not effective as of the end of December 31, 2008.
In making this evaluation, the Chief Executive Officer and Chief Financial
Officer considered, among other matters, the material weakness in our internal
control over financial reporting described below.




(B)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Our management with the
participation of the Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework. Based on this evaluation,
our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2008 we did not maintain
effective internal controls over financial reporting due to our limited number
of employees which resulted in our inability to effectively segregate all
conflicting duties. Currently we employ one individual who is in charge of our
accounting and financial duties on a day-to-day basis and we also use one
consultant to assist in the preparation of the financial statements and
accompanying footnotes.




To remedy
this material weakness, we will, to the extent possible, implement procedures to
assure the initiation of transactions, the custody of assets and the recording
of transactions will be performed by separate individuals. Further, concurrent
with having sufficient resources we will engage additional individuals to assist
us in remedying this material weakness.




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




21




LIMITATIONS
ON THE EFFECTIVENESS OF INTERNAL CONTROLS




Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will necessarily prevent all fraud and material
errors. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. 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, 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 internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.




(C)
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING




There
have been no significant changes in our internal controls over financial
reporting during the quarter ended December 31, 2008 that have altered our
conclusion as to the ineffectiveness of such controls.




ITEM
      9B.
            OTHER
      INFORMATION




None.






PART
III






ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




DIRECTORS
AND EXECUTIVE OFFICERS





Biographical
descriptions of each of our directors and executive officers can be found
below:


NAME
            
            AGE
            
            POSITIONMartin
      F. Schacker
            
            52
            
            Chairman
      of the Board and Co-Chief Executive OfficerDavid
      Abel
            
            66
            
            Vice
      Chairman of the Board, Co-Chief Executive OfficerNeil
      Martucci
            
            36
            
            Chief
      Financial OfficerRobert
      P. Budetti
            
            66
            
            Chief
      Operating Officer and DirectorKenneth
      Cartwright
            
            73
            
            Senior
      Vice President of Drug Developments Regulatory Affairs and
      DirectorAlf
      E. F. Akerman
            
            45
            
            DirectorBruce
      J. Bergman, Esq.
            
            63
            
            DirectorWilliam
      T. Comer, Ph.D
            
            72
            
            DirectorAaron
      Cohen
            
            72
            
            Director




22





MARTIN F.
SCHACKER currently serves as Chairman of the Board and Co-CEO. Mr. Schacker
served as our Co-Chairman of the Board of Directors from 1998 to 2004 and as
Chairman of the Board since 2004. He has served as Co-Chief Executive Officer
since March 1999. Mr. Schacker was appointed as a Director in November 1994.
With extensive biotechnology and investment banking experience, Mr. Schacker has
helped raise approximately $60,000,000 for us to date. From August 1991 through
February 2001, Mr. Schacker served as Chairman of the Board of M.S. Farrell
& Co., Inc., an investment banking and brokerage firm, and was its Chief
Executive Officer from 1991 to 2000. From June 1987 through December 1991, Mr.
Schacker was a Senior Vice President of D.H. Blair & Company, Inc., an
investment banking and brokerage firm that focuses on biotechnology companies.
From 1982 to May 1987, Mr. Schacker was employed in various capacities,
including as Senior Vice President at Shearson Lehman Brothers, an international
investment banking and brokerage firm. Mr. Schacker received a B.A. in Business
from Hofstra University in 1982. Mr. Schacker is the nephew of David
Abel.




DAVID
ABEL has served as our Co-Chief Executive Officer since March 1998 and as Vice
Chairman of the Board since 2004. He was Co-Chairman of the Board from 1999
through 2004. Mr. Abel has served as a Director since November 1994. Mr. Abel is
the President and Founder of United Realty, Inc., a commercial and industrial
real estate company headquartered in Melville, New York, and is a general
partner of Triangle Properties, a partnership that owns and operates over 50
commercial properties throughout the greater New York metropolitan area. Mr.
Abel received a B.B.A. from City College of New York (C.C.N.Y.) in 1962. Mr.
Abel is the uncle of Martin F. Schacker.




NEIL
MARTUCCI has served as our Chief Financial Officer since 2004. In 2003, he
joined Innapharma, Inc. as Controller and was appointed Chief Financial Officer
in 2004. From 2001 through 2003, Mr. Martucci served as Vice President of
Investments for Kirlin Securities, a publicly traded investment bank. From 1994
through 2001, Mr. Martucci served as Vice President of Investments for M.S.
Farrell and Co, a small Wall Street Investment firm. In addition, he served as
an investment banker for M.S. Farrell and Co. from 1999 through 2001. Mr.
Martucci graduated from Miami (Ohio) University with a degree in finance in
1994.




ROBERT P.
BUDETTI has served as our Chief Operating Officer and a Director since October
1999. Mr. Budetti served as our Chief Financial Officer from October 1999 to
December 2000. Since 1979, Mr. Budetti has served as the Chief Executive Officer
of the Feighner Research Institute, a clinical neuropsychopharmacologic research
center. From 1984 to 1992, Mr. Budetti served as the Chief Operating Officer and
Chief Financial Officer of ICR, of which he was one of the founders. In 1992,
ICR was sold to Quintiles. From 1992 to 1994, Mr. Budetti served as the Chief
Financial Officer of the ICR division of Quintiles. Mr. Budetti received a BA in
Engineering Sciences and Applied Physics from Harvard College in 1963 and a MBA
from Harvard Business School in 1968.




23




KENNETH
CARTWRIGHT, M.B., CH.B., M.R.C.P. has served as our Director since 1989 and
Senior Vice President, Drug Development and Regulatory Affairs since 2003. Dr.
Cartwright is currently President of CMRC Consulting Services, an independent
scientific consulting firm. Dr. Cartwright served as Senior Vice President of
Development and Regulatory Affairs of Alteon, Inc., a biopharmaceutical company,
from 1994 until he retired in 1999. During his tenure at Alteon, Dr. Cartwright
served as a member of the management committee and was involved in the initial
IPO. In addition Dr. Cartwright was responsible for overall product development
including strategic clinical development planning, subsequent compilation of
NDAs and product registration and maintaining compliance within our Company and
interaction with the FDA. Prior to joining Alteon, he served as the Director of
Clinical Research (U.S.A.) and as Vice President of Global Clinical Research of
American Cyanamid Company, Lederle Laboratories from 1982 to 1989. During his
tenure with American Cyanamid, Dr. Cartwright was responsible for overall global
strategic clinical plans and worldwide clinical development of phase 1, 2 and 3
programs. He subsequently established a worldwide clinical research organization
with regional offices in Australia, Canada, and England. Prior to joining
American Cyanamid, Dr. Cartwright held the positions of Medical Director,
Directory of Marketing and Deputy Vice President of the Pharmaceutical Division
of Ciba-Geigy, Canada. Dr. Cartwright received his M.B., Ch.B. in 1959 from
Liverpool University Medical School, his D.P.M. from Wessex Regional
Post-Graduate School of Psychiatry in 1969, his M.F.C.M. from the Faculty of
Community Medicine, Royal College of Physicians in 1971 and his M.R.C., Psych
from the Royal Colleges of Psychiatrists in 1973.




ALF E. F.
AKERMAN has served as our Director of the Company since March 1999. Mr. Akerman
served as the Director of Business Integration of Volvo Car Finance, a
subsidiary of Ford Motor Company, based in Belgium from 1994 to 2000. From
December 1997 through June 1999, Mr. Akerman served as the Risk Manager of Volvo
Car Finance Holdings. Mr. Akerman received a B.Sc. in Banking and Finance at
Loughborough University in England. Mr. Akerman currently works for a financial
institution in Sydney, Australia.




BRUCE J.
BERGMAN, ESQ. has served as our Director since November 1994. He is a member of
the New York law firm of Berkman, Henoch, Peterson & Peddy, P.C., where he
practices real estate litigation and mortgage foreclosure. Previously, Mr.
Bergman was a Deputy Attorney for Nassau County and a Deputy Bureau Chief for
Special Litigation in Nassau County. Mr. Bergman currently serves as an adjunct
associate professor of real estate at New York University Real Estate Institute
and a special lecturer in law at Hofstra Law School. He is a member of the
American College of Real Estate Lawyers, the American College of Mortgage
Attorneys and was three times elected City Councilman in Long Beach, New York,
serving in that capacity from 1980 through 1988. His biography appears in WHO’S
WHO IN AMERICAN LAW and he is listed in AMERICA’S BEST LAWYERS. Mr. Bergman
received a B.S. from Cornell University in 1966 and a J.D. from Fordham Law
School in 1969.




WILLIAM
T. COMER, PH.D. has served as our Director since February 2001. Since 2000 Dr.
Comer has also served as Director of TorreyPines Therapeutics (formerly known as
Neurogenetics Inc.), a company which he founded. From 1991 through 1999, Dr.
Comer served as President, CEO and Director of SIBIA Neurosciences, Inc., a
company focusing on drug discovery and the development of neurodegenerative
disease therapeutics, which was acquired by Merck & Co. From 1961 through
1981 he served in various capacities at Mead Johnson & Co., including as
scientist and Vice President of Research. From 1982 through 1990 he served in
various capacities at Bristol-Meyers, including President of Research and
Licensing, and from 1990 - 1991 he was Senior Vice President, Strategic
Management for Bristol-Myers Squibb. Dr. Comer was a member of the Board of
Directors of Epimmune (formerly Cytel Corporation) from 1994 through 2005, and
Trega Biosciences (formerly Houghton Pharmaceuticals) from 1993 through 1996. He
has served on the Board of the University of California San Diego Foundation
since 1993 and the Board of La Jolla Institute of Molecular Medicine since 2000.
Dr. Comer received a B.A. in Chemistry from Carleton College in 1957, and a
Ph.D. in Organic Chemistry and Pharmacology from University of Iowa in
1961.




24




AARON
COHEN has served as a Director since February 2001. Mr. Cohen, founded National
Technical Systems in 1961, a publicly traded company and is currently a
Vice-Chairman of the Board of Directors; Mr. Cohen has served as the President
of Smithway Associates, Inc., a property management company, since 1991. He is
the Chief Financial Officer and Director of Intelligent Optical
Systems. Mr. Cohen is a Member of the Deans Adivsory Board of the Henry
Samueli UCLA School of Engineering and Applied Sciences, the American Society of
Quality Control, the Institute of Environmental Sciences and a Professional
Member of the International Conference of Building Officials. In addition, Mr.
Cohen is a Director of the Sephardic Education Center and the Vice President of
Sephardic Temple Tifereth Israel. Mr. Cohen is a Registered Professional
Engineer in the State of California, and received his B.S. in Engineering from
UCLA in 1958. There are no family relationships among any of our Directors or
executive officers, other than David Abel and Martin Schacker who are nephew and
uncle.




COMPOSITION
AND ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS





Our Board
of Directors currently consists of nine members. In June 2004, our Board of
Directors was divided into three classes, designated as Class I, Class II and
Class III. The Board of Directors currently consists of three Class I Directors
(William T. Comer, Ph.D., Aaron Cohen and Alf E. Akerman), three Class II
Directors (Bruce J. Bergman, Esq., Kenneth Cartwright and Robert P. Budetti),
and three Class III Directors (Martin F. Schacker, David Abel and John P.
Feighner, M.D.). The Class I Directors shall served as directors for an initial
term of one year, the Class II Directors for an initial term of two years and
the Class III Directors for an initial term of three years. The initial term for
each class of directors commenced in June 2004. After the initial term expired,
each director serves for a staggered three-year term. At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. A
director holds office until the annual meeting for the year in which such
director’s term expires and until such director’s successor shall be duly
elected and qualified, subject, however to prior death, resignation, retirement,
disqualification or removal from office.




Our
executive officers are appointed by our Board of Directors.




SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE




To the
best of the Company’s knowledge, there were no Section 16(A) transactions that
were required to be reported.




CODE
OF ETHICS





We have
adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K.
This Code of Ethics applies to our principal executive officer, our principal
financial officer and principal accounting officer, as well as all other
employees. The Code of Ethics increases the fiduciary duties of our financial
management team. If we make substantive amendments to this Code of Ethics or
grant any waiver, including any implicit waiver, we will disclose the nature of
such amendment or waiver on our website or in a current report within four days
of such amendment or waiver.




DIRECTOR
INDEPENDENCE




Our
determination of independence of directors is made using the definition of
“independent director” contained in Rule 4200(a)(15) of the Marketplace Rules of
the NASDAQ Stock Market (“NASDAQ”), even though such definitions do not
currently apply to us because we are not listed on NASDAQ. We have determined
that
­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­
Messrs. Cohen, Bergman, Comer and Akerman are “independent” within the meaning
of such rules.





25





BOARD
COMMITTEES





The audit
committee is comprised of Messrs. Akerman, Bergman, and Cohen. Our audit
committee financial expert is Mr. Akerman.  The compensation committee
is comprised of Messrs. Cohen, Abel and Bergman. Mr. Cartwright serves as an
advisor to the compensation committee.  There were 4 meetings of the
Board of Directors held during 2008.  Each director attended at least
75% of the meetings held..






ITEM
      11.
            EXECUTIVE
      COMPENSATION




The
following table sets forth the aggregate cash compensation paid by the Company
to: (i) its Chief Executive Officer, Chairman and Chief Financial Officer;
and (ii) its most highly compensated officers whose cash compensation
exceeded $100,000 for services performed during the year ended December 31, 2008
and 2007.




EXECUTIVE
COMPENSATION





Name
      and
                              Principal
      Position
                              (A)
                          
                          Year
                              (B)
                          
                          Salary
                              ($)
                              (C)
                          
                          
                          Bonus
                              ($)
                              (D)
                          
                          
                          Stock
                              Awards
                              ($)
                              (E)
                          
                          
                          Option
                              Awards
                              ($)
                              (F)
                          
                          
                          Non-equity
                              Incentive
                              Plan
                              Compensation
                              ($)
                              (G)
                          
                          
                          Non-qualified
                              Deferred
                              Compensation
                              Earnings
                              ($)
                              (H)
                          
                          
                          All
      Other
                              Compensation
                              ($)
                              (H)
                          
                          
                          Total
                              ($)
                              (I)Martin
      Schacker(1)
                            Co-CEO/ Chairman
                          
                          2007
                          
                          
                          300,000
                          
                          
                          
                          45,000
                          
                          
                          
                          –
                          
                          
                          
                          459,918
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          14,000
                          
                          
                          
                          818,9182008
                          
                          
                          300,000
                          
                          
                          
                          --
                          
                          
                          
                          –
                          
                          
                          
                          --
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          14,000
                          
                          
                          
                          314,000David
      Abel(2)
                            Co-CEO/Vice-Chairman
                          
                          2007
                          
                          
                          110,000
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          162,324
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          272,3242008
                          
                          
                          110,000
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          --
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          110,000Robert
      Budetti(3)
                            Board Member
                          
                          2007
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          189,378
                          
                          
                          
                          –
                          
                          
                          
                          43,000
                          
                          
                          
                          232,3782008
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          --
                          
                          
                          
                          --
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          --Neil
      Martucci(4)
                            Chief Financial Officer
                          
                          2007
                          
                          
                          100,000
                          
                          
                          
                          20,000
                          
                          
                          
                          –
                          
                          
                          
                          162,324
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          282,3242008
                          
                          
                          100,000
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          --
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          100,000Dr.
      Kenneth Cartwright(5)
                            Chief Scientific Officer
                          
                          2007
                          
                          
                          60,000
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          270,540
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          6,000
                          
                          
                          
                          396,5402008
                          
                          
                          60,000
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          --
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          60,000




(1)
            As
      per his employment agreement, Mr. Schacker is due an annual salary of
      $300,000 per year. As part of cost cutting measures at the time of the
      bankruptcy, Mr. Schacker, at the Board’s request, agreed to defer 50% of
      his annual salary.  In April 2008, Mr. Schacker at the Board’s
      request agreed to defer another 50% of his salary.  He is
      currently drawing a cash salary of $75,000 per annum. During the 2007
      fiscal year, Mr. Schacker received 850,000 additional options exercisable
      at $1 per share expiring 10 years from
issuance.




(2)
            Mr.
      Abel is due to receive an annual salary of $110,000 per year. As part of
      cost cutting measures at the time of the bankruptcy, Mr. Abel at the
      Board’s request agreed to defer 100% of his annual salary and has thus
      received no cash compensation since then. In 2007, Mr. Abel received an
      additional 300,000 options, exercisable at $1 per share expiring 10 years
      from issuance.




(3)
            Robert
      Budetti is our former Chief Operating Officer and is currently a Board
      member. He is paid as a consultant on a task-by-task basis. In 2007, he
      received an additional 350,000 options exercisable at $1 per share
      expiring 10 years from issuance.




(4)
            Neil
      Martucci is our Chief Financial Officer.  He received 300,000
      options in 2007, exercisable at $1 per share expiring 10 years from the
      date of issuance.




(5)
            Dr.
      Ken Cartwright is our Chief Scientific Officer and a Board
      member.  In 2007, he received an additional 500,000 options
      exercisable at $1 per share expiring 10 years from
    issuance.




(6)
            The
      remuneration described in the above table does not include our cost of
      benefits furnished to the named executive officers, including premiums for
      health insurance and other personal benefits provided to such individuals
      that are extended to all of our employees in connection with their
      employment. Perquisites and other personal benefits, securities, or
      property received by an executive officer are either the lesser of $50,000
      or 10% of the total salary and bonus reported for each named executive
      officer, except as otherwise disclosed.  All options issued to
      employees were valued for the purposes of this table using the Black
      Scholes method as described in SFAS 123(r). All assumptions used in
      calculating the value of the options are contained in footnote 6 which
      accompanies the financial statements included in this Annual
      Report.




26





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END




The
following table sets forth certain information concerning unexercised stock
options held by the named executive officers as of December 31, 2008. None of
the named executive officers exercised any of their stock options during the
period from inception




Name
                      Option
      awards
                      Stock
      awardsNumber
      of securities underlying unexercised options
                        (#)
      exercisable
                      Number
      of securities
                        underlying
                        unexercised
                        options
                        (#)
      unexercisable
                      Equity
                        incentive
                        plan
      awards: Number of
                        securities
                        underlying
                        unexercised
                        unearned
                        options
                        (#)
                      Option
                        exercise
                        price
                        ($)
                      Option
                        expiration
                        date
                      Number
      of
                        shares
      or
                        units
                        of
      stock
                        that
      have
                        not
      vested
                        (#)
                      Market
      value of shares of units of stock that have not vested
                        ($)
                      Equity
                        incentive
                        plan
      awards: Number
                        of
                        unearned
                        shares,
      units or other rights
                        that
      have
                        not
      vested
                        (#)
                      Equity
                        incentive
                        plan
      awards:
                        Market
      or
                        payout
      value
                        of
                        unearned
                        shares,
      units or
                        other
      rights
                        that
      have
                        notvested
                        ($)(a)
                      (b)
                      (c)
                      (d)
                      (e)
                      (f)
                      (g)
                      (h)
                      (i)
                      (j)MartinSchacker
                        Co-CEO/
                        Chairman
                      1,712,000
                        850,000
                      0
                        0
                      0
                        0
                      $1.00
                        $1.00
                      1/6/20
                        8/31/17
                      0
                        0
                      0
                        0
                      0
                        0
                      0
                        0DavidAbel
                        Co-CEO/Vice-Chairman
                      1,138,187
                        300,000
                      0
                        0
                      0
                        0
                      $1.00
                        $1.00
                      1/6/20
                        8/31/17
                      0
                        0
                      0
                        0
                      0
                        0
                      0
                        0RobertBudetti
                        Board
      Member
                      570,000
                        350,000
                      0
                        0
                      0
                        0
                      $1.00
                        $1.00
                      1/6/20
                        8/31/17
                      0
                        0
                      0
                        0
                      0
                        0
                      0
                        0Neil
      Martucci
                        Chief
      Financial
                        Officer
                      295,000
                        300,000
                      0
                        0
                      0
                        0
                      $1.00
                        $1.00
                      1/6/20
                        8/31/17
                      0
                        0
                      0
                        0
                      0
                        0
                      0Dr.
      KennethCartwright
                        Chief
      Scientific
                        Officer
                      437,502
                        500,000
                      0
                        0
                      0
                        0
                      $1.00
                        $1.00
                      1/6/20
                        8/31/17
                      0
                        0
                      0
                        0
                      0
                        0
                      0
                        0




27




The
grant-date fair values of options granted were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
years ended December 31:




2008
              
              2007Expected
      life (years)
              9.7
              
              13.3Risk-free
      interest rate
              1.434%
              
              5.102%Volatility
              96%
              
              96%





DIRECTORS
COMPENSATION


Name
            Fees
      Earned
                or
      Paid
                in
      Cash
            Stock
      Award
            Option
      Awards(1)
            Non-equity
                Incentive
      Plan
                Compensation
            Nonqualified
      Deferred Compensation Earnings
            All
      Other Compensation
            TotalWilliam
      Comer
            $9,375
            0
            $400
            0
            0
            0
            $9,775Aaron
      Cohen
            $9,375
            0
            $400
            0
            0
            0
            $9,775Alf
      Akerman
            $9,375
            0
            $400
            0
            0
            0
            $9,775Bruce
      Bergman
            $9,375
            0
            $400
            0
            0
            0
            $9,775




(1) All
options issued to employees were valued for the purposes of this table using the
Black Scholes method as described in SFAS 123(r). All assumptions used in
calculating the value of the options are contained in footnote 6 which
accompanies the financial statements included in this Annual Report


Effective
January 1, 2002, each non-employee and non-consultant member of our Board of
Directors received the following annual compensation in consideration for
services rendered as a Director: (i) a five-year option to purchase up to
40,000 shares of our common stock, which options vest quarterly and were issued
annually in arrears, and were exercisable at an exercise price equal to
(a) a 15% discount to the fair market value at the end of the year in which
such option is granted, if our common stock is publicly traded, unless such
percentage reduction shall have a deleterious tax consequence upon us, in which
event the exercise price shall be equal to the fair market value, or
(b) such dollar amount as is set by our Board of Directors at the end of
the year in which such option is granted, if our common stock is not publicly
traded; (ii) a cash stipend of $12,500 per annum, paid on a quarterly
basis; and (iii) reimbursement of reasonable and ordinary expenses incurred
in connection with such member’s attendance at Board or committee meetings. In
2005, all existing options were converted into warrants to purchase shares of
our common stock exercisable at either $1 per share or $6 per share expiring
either in November 2009 or 2011. At the Board’s request all Board stipends were
deferred to a later date. In December 2005, all deferred Board stipends were
converted into Tetragenex options. In July 2006, it was decided that all Board
members serving on a Board committee would be entitled to an additional $10,000
per year to be paid in options until it was determined that we had sufficient
funds to pay the fee in cash.




If
directors provide additional consulting services outside of their duties as
Board members, they may receive additional compensation above their cash
stipend. In 2005 we issued employees, officers, and directors a one-time option
grant of approximately 25% of our fully diluted outstanding shares of common
stock. The amount and breakdown was determined by the Board.


28




EMPLOYMENT
AGREEMENTS AND CONSULTING AGREEMENTS





Employment
Agreements





On
December 15, 1999, we entered into a three-year employment agreement with our
co-Chief Executive Officer and co-Chairman of the Board, Mr. Martin Schacker.
The agreement provided for an annual base salary of $160,000, subject to a
minimum ten percent annual increase. On February 6, 2001, in view of Mr.
Schacker’s efforts on our behalf and his performance, our Board of Directors:
(i) increased his annual salary to $250,000 with no automatic annual
increases, and extended the term of his employment agreement for an additional
two years, and (ii) granted Mr. Schacker a ten-year option to acquire
125,000 shares of our common stock at an exercise price of $17 per share, one
third of which vested immediately, one third of which vested on February 6,
2002, and the final third vested on February 6, 2003. On December 11, 2001, in
consideration of services provided to us, the Board of Directors:
(x) further increased his annual salary to $300,000, (y) further
extended the term of the agreement by one year, through and including December
15, 2005, and (z) granted the executive an additional, immediately vested
five-year option to acquire 125,000 shares of our common stock at an exercise
price of $17 per share. In December 2005, the executive’s contract was extended
by an additional 3 years by the Board under the same terms as the previous
agreement. On April 6, 2003, as a result of our cost reduction, Mr. Schacker
agreed to defer half of his $300,000 yearly salary. In December 2005, Mr.
Schacker agreed to convert $177,000 of his deferred salary into 177,000 options
to purchase shares of Tetragenex common stock at $1 per share expiring December
20, 2020. In April 2008 at the Board’s request Mr. Schacker’s salary was reduced
by another 50% to $75,000 per annum.  At December 31, 2008, Mr.
Schacker had deferred compensation totaling $478,423. Mr. Schacker was granted
an aggregate of 850,000 options exercisable at $1 per share and expiring in 2017
during 2007.




Consulting
Agreements





All
consultants are paid on an hourly basis as needed.  We do not have any
agreements in place with our consultants.






ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




The
following tables set forth certain information regarding beneficial ownership of
our capital stock as of the date of the filing March 31, 2009 by (i) each
person whom we know to beneficially own more than five percent of any class of
our common stock, (ii) each of our Directors, (iii) each of the
executive officers, and (iv) all our Directors and executive officers as a
group. Unless otherwise indicated, each of the persons listed below has sole
voting and investment power with respect to the shares beneficially
owned.




29




Our total
authorized capital stock consists of 50,000,000 shares of common stock, $.001
par value per share, and 5,000,000 shares of preferred stock, $.01 par value per
share. As of March 31, 2009, there were 15,926,126 shares of our common stock
outstanding, all of which were fully paid, non-assessable and entitled to vote.
Each share of our common stock entitles its holder to one vote on each matter
submitted to our stockholders. As of the date hereof, there were no shares of
preferred stock issued and outstanding.


Title
      of Class
            
            Name and Address of Beneficial
      Owner(1)
            
            Amount and Nature
      of
                Beneficial
      Ownership(2)
            
            Percentage
      of ClassCommon
      Stock
            
            Martin
      F. Schacker(3)
            
            2,748,679
            
            14.72%Common
      Stock
            
            David
      Abel(4)
            
            2,543,622
            
            14.24%Common
      Stock
            
            Estate
      of Feighner Family.(5)
            
            2,865,306
            
            15.93%Common
      Stock
            
            Robert
      P. Budetti(6)
            
            1,592,817
            
            9.11%Common
      Stock
            
            Alf
      E. F. Akerman(7)
            
            677,708
            
            4.03%Common
      Stock
            
            Bruce
      J. Bergman, Esq.(8)
            
            705,521
            
            4.19%Common
      Stock
            
            Kenneth
      Cartwright(9)
            
            1,333,925
            
            7.74%Common
      Stock
            
            William
      T. Comer(10)
            
            1,025,089
            
            6.10%Common
      Stock
            
            Aaron
      Cohen(11)
            
            885,155
            
            5.31%Common
      Stock
            
            Neil
      Martucci(12)
            
            607,643
            
            3.68%Common
      Stock
            
            The
      William Shenk 1996 Revocable Trust(13)
            
            1,681,088
            
            10.14%All
      Directors and officers as a group (9) persons)
            
            16,666,553
            
            56.01%




(1)
            Unless
      otherwise indicated, the address of each person listed below is c/o
      Tetragenex Pharmaceuticals, Inc., 560 Sylvan Ave Englewood Cliffs NJ
      07632.




(2)
            Pursuant
      to the rules and regulations of the Securities and Exchange Commission,
      shares of common stock that an individual or group has a right to acquire
      within 60 days pursuant to the exercise of options or warrants are deemed
      to be outstanding for the purposes of computing the percentage ownership
      of such individual or group, but are not deemed to be outstanding for the
      purposes of computing the percentage ownership of any other person shown
      in the table.




(3)
            Martin
      Schacker is our Chairman and Co-CEO. His holdings consist of 49,833 common
      shares which represents .31% of our total outstanding common stock as of
      3/30/09, based on 15,926,126 shares outstanding, which was received from
      acting as a placement agent during our early stage financing as Chairman
      of M.S. Farrell. Additionally, 2,562,000 options exercisable at $1 per
      share expiring at different times between  2017 to 2020 were
      granted to Mr. Shacker as consideration for services provided to us as
      well as the forgiveness of accrued salaries due to Mr. Schacker.
      Additionally, Mr. Schacker currently owns 62,169 warrants to purchase
      shares of our common stock at $1 per share expiring November 30, 2009, and
      74,677 non-voting warrants to purchase shares of our common stock at $6
      per share expiring November 30, 2011. The warrants consist of options for
      services provided which were converted into warrants as well as for acting
      as a placement agent over the years in our private placements. Mr.
      Schacker is the nephew of David
Abel.




(4)
            Mr.
      Abel is our Vice Chairman and Co-CEO. His holdings consist of 606,341
      shares of our common stock which represents 3.8% of our total outstanding
      common stock as of 3/30/09, based on 15,926,126 shares outstanding, and
      was obtained from investments in several of our private placements.
      Additionally, Mr. Abel holds 1,438,187 nonvoting immediately vesting
      options exercisable at $1 per share expiring at different times between
      2017 to 2020 which were granted for services rendered to us as our Vice
      Chairman and Co-CEO as well as the forgiveness of accrued salaries due to
      him. Mr. Abel also holds 262,864 non-voting warrants to purchase shares of
      our common stock at $1 per share, expiring November 30, 2009, and 136,230
      nonvoting warrants to purchase shares of our common stock at $6 per share,
      expiring November 30, 2011 and 100,000 warrants exercisable at $.40
      expiring October 2013 which were obtained from various investments in our
      private placements, bridge loans, and for being a partial owner in the
      investment bank which was the placement agent for several of the our
      offerings. David Abel is the uncle of Martin
  Schacker




(5)
            Dr.
      Feighner was a consultant for us and a member of our Board prior to his
      passing in 2006. His holdings, which are now the holdings of his estate,
      consist of 807,816 shares of our common stock that represents 5.06% of our
      total outstanding common shares as of 3/30/09 based on15,926,126 shares
      outstanding, which he received from several investments in our private
      placements. Secondly he holds 1,010,976 non-voting immediately vested
      options to purchase shares of our common stock at $1 per share, expiring
      in the year 2020 which he received for services provided to us as our
      President and Director as well as for forgiveness of accrued salaries due
      to Dr. Feighner. He holds 691,438 non-voting warrants to purchase shares
      of our common stock at $1 per share expiring November 30, 2009, and
      255,076 non-voting warrants to purchase shares of our common stock at $6
      per share expiring November 30, 2011 and 100,000 warrants exercisable at
      $.40 per share expiring October 2013 that were obtained as part of
      investments made in the our common stock in several private placements and
      bridge loans as well as from the conversion of previous options granted to
      Dr. Feighner for services rendered to us as our
  President.




30




(6)
            Consists
      of 35,000 common shares of our common stock which represents .22% of our
      total outstanding common shares as of 3/30/09, based on 15,926,126 shares
      outstanding, as well as 1,179,588 non-voting options exercisable at $1 per
      share expiring at different times between 2017 to 2020, 10,000 non-voting
      warrants to purchase shares of our common stock at $1 per share expiring
      November 30, 2009, and 268,229 nonvoting warrants to purchase shares of
      our common stock at $6 per share expiring November 30, 2011 and 100,000
      warrants exercisable at $.40 expiring October 2013. Mr. Budetti is a
      member of our Board.




(7)
            Alf
      Akerman serves as our Director and his holdings consist of options to
      663,125 non-voting options exercisable at $1 per share expiring at
      different times between 2017 to 2020 granted to Mr. Akerman for services
      provided to us as our Director, and 14,583 non-voting warrants to purchase
      shares of our common stock at $6 per share, expiring November 30, 2011,
      received from converting previously issued options received for service
      provided as our Director.




(8)
            Bruce
      Bergman is serves as our Director and his holdings consist of 653,125
      non-voting options exercisable at $1 per share expiring at different times
      between 2017 and 2020 granted to Mr. Bergman for services provided to us
      as our Director. Additionally, he holds 20,000 warrants exercisable at $1
      per share, which expires November 30, 2009, and 32,396 non-voting warrants
      to purchase shares of our common stock at $6 per share, expiring November
      30, 2011 received from converting previously issued options received for
      service provided as our Director.




(9)
            Dr.
      Cartwright is our Chief Scientific Officer and a Board member and his
      holdings consist of 27,500 common shares of our common stock which
      represents .17% of our total outstanding common shares as of 3/30/09,
      based on 15,926,126 shares outstanding, obtained from an investment in our
      start-up period. He also holds 1,037,500 non-voting options exercisable at
      $1 per share expiring in the year 2020 received for services provided as
      our Director and Chief Scientific Officer as well as 135,502 non-voting
      warrants to purchase shares of our common stock at $1 per share, expiring
      November 30, 2009, 100,000 warrants exercisable at $.40 per share expiring
      October 2013, and 33,423 non-voting warrants to purchase shares of our
      common stock at $6 per share expiring November 30, 2011, received from
      converting previously issued options received for service he provided as
      our Director.




(10)
            William
      Comer is our Board member and his holdings consist of 147,172 shares of
      common stock which represents .92% f our total outstanding common shares
      as of 3/30/09, based on 15,926,126 shares outstanding, which were received
      from investments in our private placements, as well as 663,125 nonvoting
      options exercisable at $1 per share expiring at different times between
      2017 to 2020, for services provided out Director. Additionally he holds
      112,500 non-voting warrants to purchase shares of our common stock at $1
      per share expiring November 30, 2009, and 2,292 non-voting warrants to
      purchase shares of our common stock at $6 per share, expiring November 30,
      2011 and 100,000 warrants exercisable at $.40 expiring October
      2013  received from several investments he made in our
      securities as well as for converting previously issued options granted to
      him as a Director.




(11)
            Aaron
      Cohen serves as our Director and his holdings consist of 151,092 common
      shares of our common stock, which represents .95% of our total outstanding
      common shares as of  3/30/09, based on 15,926,126 shares
      outstanding, which he received from investments in our private placements
      as well as 538,125 nonvoting options exercisable at $1 per share expiring
      in the years 2017- 2020 issued for services provided to us as our
      Director. Additionally he holds 91,250 non-voting warrants to purchase
      shares of our common stock at $1 per share expiring November 30, 2009, and
      4,688 non-voting warrants to purchase shares of our common stock at $6 per
      share expiring November 30, 2011 as well as 100,000 warrants exercisable
      at $.40 per share expiring October
2013.




(12)
            Neil
      Martucci our CFO and his holdings consist of 2,750 common shares of our
      common stock, which represents .01% of our total outstanding common shares
      as of 4/29/08, based on 15,926,126 shares outstanding, received from
      assisting with our private placements as a representative of M.S. Farrell,
      as well as 595,000 non-voting options exercisable at $1 per share expiring
      at different times between 2017 to 2020, received for services provided to
      us as CFO. Additionally, he holds 9,893 non-voting warrants to purchase
      shares of our common stock at $6 per share, expiring November 30, 2011 for
      assisting us in various fund raisings as a representative of our placement
      agent in several of our financings.




(13)
            William
      Shenk, P.O. Box 1991 La Jolla, CA, is our beneficial owner and his
      holdings consist of 1,000,000 shares of common stock which represents
      6.28% of our total outstanding common shares as of 3/30/09, based on
      15,926,126 shares outstanding, as well as 650,000 non-voting warrants
      exercisable at $1 per share expiring November 30, 2009, 667 non-voting
      warrants to purchase shares of our common stock at $6 per share, expiring
      November 30, 2011, and 30,421 non- voting warrants to purchase shares of
      our common stock at $1.65 per share expiring November 30,
      2009.




31




COMPENSATION PLANS




OPTIONS/SAR
GRANTS
 Name
      and
                    Principal
      Position
                
                Number
      of
                    Securities
                    Underlying
                    Options
                
                
                %
      of Total
                    Options
                    Granted
      to
                    Employees
                    in
      2007
                
                
                %
      of Total
                    Options
                    Granted
      to
                    Employees
                    in
      2008
                
                
                Exercise
                    Price
                
                
                Expiration
                    DateMartin
      Schacker
                  Chairman/Co-CEO
                
                
                -
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -850,000
                (1)
                
                
                23.00
                %
                
                
                
                
                
                $
                1.00
                
                
                August
      2017David
      Abel
                  Co-CEO/Vice
      Chairman of the Board
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -300,000
                (2)
                
                
                8.10
                %
                
                
                
                
                
                $
                1.00
                
                
                August
      2017Robert
      Budetti
                  Director
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -350,000
                (3)
                
                
                9.46
                %
                
                
                
                
                
                $
                1.00
                
                
                August
      2017Dr.
      Kenneth Cartwright
                  Chief
      Scientific Officer/Director
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -500,000
                (4)
                
                
                13.51
                %
                
                
                
                
                
                $
                1.00
                
                
                August
      2017Neil
      Martucci
                  Chief
      Financial Officer
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -300,000
                
                
                
                8.1
                %
                
                
                
                
                
                $
                1.00
                
                
                August
      2017Other
      Employees and Board
                  Other
      Employees and Board
                
                
                40,000
                
                
                
                
                
                
                
                100
                %
                
                $
                1.00
                
                
                January
      20181,400,000
                
                
                
                37.83
                %
                
                
                
                
                
                $
                1.00
                
                
                August
      2017
  (1)
              In
      2007, we issued 850,000 options to acquire shares of our common stock to
      Mr. Schacker. These options were issued to Mr. Schacker for services
      rendered by him as the Chairman of our Board of Directors and as Co-CEO.
      These options are exercisable at a price of $1.00 per share. Each option
      is convertible into one share of common stock. These options are vested
      immediately and expire 10 years after
issuance.
  (2)
              In
      2007, we issued 300,000 options to acquire shares of our common stock to
      Mr. Able. These options were issued to Mr. Abel for services rendered by
      him as our Vice Chairman of our Board of Directors and as Co-CEO. These
      options are exercisable at a price of $1.00 per share. Each option is
      convertible into one share of stock. These options are vested immediately
      and expire 10 years after issuance which is August
  2017
  (3)
              In
      2007, we issued 350,000 options to acquire shares of our common stock to
      Mr. Budetti. These options were issued to Mr. Budetti for services
      rendered by him as our Chief Operating officer, as a Director, and for his
      efforts to license Nemifitide to a pharmaceutical company. These options
      are exercisable at a price of $1.00 per share. Each option is convertible
      into one share of stock. These options are vested immediately and expire
      10 years after issuance which is August
2017
  (4)
              In
      2007, we issued 500,000 options to acquire shares of our common stock to
      Dr. Cartwright. These options were issued to Dr. Cartwright for services
      rendered by him as our Chief Scientific officer and as our Director. These
      options are exercisable at a price of $1.00 per share. Each option is
      convertible into one share of stock. These options are vested immediately
      and expire 10 years after issuance which is August
  2017.
  (5)
              In
      2007, we issued 300,000 options to acquire shares of our common stock to
      Mr. Martucci. These options were issued to Mr.Martucci for services
      rendered by him as our Chief Financial Officer. These options are
      exercisable at a price of $1.00 per share. Each option is convertible into
      one share of stock. These options are vested immediately and expire 10
      years after issuance.
  32
  ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  On May
2004, we entered into an agreement with the holders of the 725 shares of our
Class D preferred stock to eliminate the Class D preferred shares in exchange
for our cash payments of $600,000 on the effective date of the bankruptcy, and
$600,000 one year from the effective date. They were also issued a $2.6 million
convertible note payable 53 months from the effective date plus accrued interest
at the rate of 3% per annum. On November 23, 2004, three of the entities that
comprised the Class D preferred shareholders agreed to convert their portion of
the $600,000 payment into equity. A total of $143,968 was converted into 179,960
shares of our common stock and the remaining balance was paid. They agreed as
well to convert $165,480 of the amount due one year from the effective date into
206,850 shares of our common stock and on or about November 23, 2005 the
remaining balance of the second $600,000 was paid. In addition $717,241 of the
$2.6 million note, plus accrued interest, was converted into 679,912 shares of
our common stock. An aggregate of 1,066,722 shares of our common stock was
issued to the former note holders and approximately $1,882,000 plus interest is
due in April 23, 2009. The long-term note due to the former Series D preferred
holders is secured by our patents.
  Several
members of the Board participated in the Company’s 2008 bridge
loan.  Six directors invested an aggregate of $150,000 in exchange for
a promissory note for the principal amount of loan plus 12% interest per annum
and an aggregate of 600,000 warrants exercisable at $.40 per share expiring in
2013.
  Our
Co-CEO and Chairman of the Board, Martin Schacker is the nephew of the Co-CEO
and Vice Chairman, David Abel.
  There are
no arrangements or understandings between any two or more of our Directors or
executive officers. There is no arrangement or understanding between any of our
Directors or executive officers and any other person pursuant to which any
Director or officer was or is to be selected as a Director or officer, and there
is no arrangement, plan or understanding as to whether non-management
shareholders will exercise their voting rights to continue to elect the current
Board of Directors. There are also no arrangements, agreements or understanding
between non-management shareholders that may directly or indirectly participate
in or influence the management of our affairs
  DIRECTOR
INDEPENDENCE
  This
information is provided at Item 10.
  33
  ITEM
      14.
              PRINCIPAL
      ACCOUNTING FEES AND SERVICES
  We have
appointed Demetrius & Company, LLC as our independent auditors to audit our
financial statements. The aggregate fees billed for services rendered by
Demetrius & Company, LLC for 2008 and 2007 are described below:
  AUDIT
FEES. Fees from audit services totaled approximately $42,000 and $44,175 for
2008 and 2007, respectively. Fees also include fees for the reviews of the
Company’s quarterly financials.
  OTHER
AUDIT FEES: Registration Statement totaled $5,000 for 2007.
  TAX FEES.
Fees for tax services totaled approximately $5,750 and $10,000 for 2008 and
2007, respectively.
   ITEM
      15.
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
  Exhibit
      No.
              
              Description1.1(1)
              
              Placement
      Agent Agreement between Equity Source Partners, LLC and Tetragenex
      Pharmaceuticals, Inc.2.1(1)
              
              Final
      order of the bankruptcy of Innapharma, Inc.3.1.1(1)
              
              Amended
      and Restated Certificate of Incorporation of Tetragenex Pharmaceuticals,
      Inc.3.1.2(1)
              
              Amended
      and Restated By-laws of Tetragenex Pharmaceuticals,
Inc.3.2(1)
              
              Certificate
      of Authority to do business in the State of New Jersey of Tetragenex
      Pharmaceuticals, Inc.3.2.1(1)
              
              Certificate
      of Correction of Certificate of Merger4.1(1)
              
              Promissory
      Note10.1(1)
              
              Employment
      Agreement with Martin Schacker dated October 28, 1999, as
      amended.10.2(2)
              
              Definitive
      Agreement with Dr. Stephen Stahl, dated May 29, 2007.14(1)
              
              Code
      of Ethics16(1)
              
              Letter
      from Former Auditor31.1
              
              Certification
      of Co-Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
              
              Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2
              
              Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.99.1(1)
              
              Patent
      Security Agreement.
  (1)
              Previously
      filed with our Registration Statement on Form SB-2 filed with the
      Securities and Exchange Commission on June 13, 2006, and declared
      effective on January 26, 2007.
  (2)
              Previously
      filed with our Current Report on Form 8-K, filed with the Securities and
      Exchange Commission on May 31,
2007.
  34
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 31st day of March
2009.
  TETRAGENEX
      PHARMACEUTICALS, INC.By:
                      /s/
      MARTIN F. SCHACKERMartin
      F. Schacker, Chairman andCo-Chief
      Executive Officer
   Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons in the capacities and on the
dates indicated.
  NAME
              
              TITLE
              
              DATE/s/
      Martin F. Schacker
              
              Chairman
      of the Board and
              
              March 31,
      2009Martin
      F. Schacker
              
              Co-Chief
      Executive Officer/s/
      David Abel
              
              Vice
      Chairman of the Board,
              
              March 31,
      2009David
      Abel
              
              Co-Chief
      Executive Officer/s/
      Neil Martucci
              
              Chief
      Financial Officer
              
              March
      31, 2009Neil
      Martucci/s/Robert
      P. Budetti
              
              Chief
      Operating Officer and Director
              
              March
      31, 2009Robert
      P. Budetti/s/Kenneth
      Cartwright
              
              Senior
      Vice President of Drug Developments
              
              March
      31, 2009Kenneth
      Cartwright
              
              Regulatory
      Affairs and Director/s/Alf
      E. F. Akerman
              
              Director
              
              March
      31, 2009Alf
      E. F. Akerman/s/Bruce
      J. Bergman, Esq.
              
              Director
              
              March
      31, 2009Bruce
      J. Bergman, Esq./s/William
      T. Comer, Ph.D
              
              Director
              
              March
      31, 2009William
      T. Comer, Ph.D/s/Aaron
      Cohen
              
              Director
              
              March
      31, 2009Aaron
      Cohen
   35