UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
     1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
     OF 1934


                         COMMISSION FILE NO. 333-134987


                         TETRAGENEX PHARMACEUTICALS, INC

                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<C>                                         <C>                                    <C>
               DELAWARE                                0-2834                         22-3781895
    (State or other jurisdiction of         (Primary Standard Industrial           (I.R.S. Employer
    incorporation or organization)           Classification Code Number)               I.D No.)
</TABLE>

                            1 MAYNARD DRIVE SUITE 105
                          PARK RIDGE, NEW JERSEY 07656

                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (201) 505-1300
                           (ISSUER'S TELEPHONE NUMBER)

    Securities registered under Section 12(b) of the Securities Exchange Act
                   of 1934, as amended ("Exchange Act"): NONE.

    Title of each class name of each exchange on which registered Securities
              registered under Section 12(g) of the Exchange Act:

        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.

Check  whether  the  issuer (1) filed all  reports  required  to be filed  under
Section 13 or 15(d) of the Exchange Act,  during the past 12 months (or for such
shorter period that the Issuer was required to file such  reports),  and (2) has
been subject to such filing requirements for the past 90 days. [X] Yes [__] No

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

The Issuer's  revenues for the fiscal year ended  December 31, 2006 were $0. The
aggregate market value of the voting stock held by non-affiliates of the Issuer,
computed  by  reference  to the price at which the stock was sold or the average
bid and ask prices of such stock as of March 30, 2007, was  approximately $0 per
share. Shares of common stock held by each executive officer and director and by
certain  persons who own 5% or more of the  outstanding  common  stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate  status is not  necessarily  a conclusive  determination  for other
purposes.

Number of shares  outstanding  of  Issuer's  common  stock,  $0.001  par  value,
outstanding on March 30, 2007: 15,901,126.

Documents Incorporated by Reference:  NONE

Transitional Small Business Disclosure Format (Check one):  Yes [_]; No [X]

The  Registrant,  by this Form 10-KSB has not been changed or updated to reflect
any changes in information that may have occurred  subsequent to the date of the
reporting period that this Form 10-KSB.


<PAGE>

                                TABLE OF CONTENTS


<TABLE>
<S>               <C>                                                                                            <C>
PART I............................................................................................................1

     ITEM 1.      BUSINESS........................................................................................1
     ITEM 2.      DESCRIPTION OF PROPERTY........................................................................14
     ITEM 3.      LEGAL PROCEEDINGS..............................................................................14
     ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................15


PART II..........................................................................................................16

     ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS........................................................................................16
     ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION OR PLAN OF OPERATIONS................................................................16
     ITEM 7.      FINANCIAL STATEMENTS...........................................................................23


TETRAGENEX PHARMACEUTICAL, INC. - INDEX..........................................................................23

     ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........24
     ITEM 8A.     CONTROLS AND PROCEDURES........................................................................24
     ITEM 8B.     OTHER INFORMATION..............................................................................24


PART III.........................................................................................................25

     ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....................................25
     ITEM 10.     EXECUTIVE COMPENSATION.........................................................................28
     ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.32
     ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................37
     ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K...............................................................37
     ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................38
</TABLE>


                                        i


<PAGE>

                                     PART I


ITEM 1. BUSINESS

GENERAL

The  Company  was  founded  in 1989  by a  group  of  researchers  from  Lederle
Laboratories as a contract  research  organization  (CRO) to perform  consulting
services for small to medium-sized  pharmaceutical and biotechnology  companies.
The Company had planned to utilize  revenues  generated by its CRO activities to
create and develop a portfolio of  proprietary  pharmaceutical  products.  At an
early point, the Company  identified a platform of peptides for the treatment of
central nervous system disorders such as depression.

In 1993, Mr.  Schacker,  was the Chairman of a Wall Street  Investment Bank, and
commenced due diligence on Innapharma,  Inc., in 1994 he joined the Company as a
Director  and funded the  Company  with  approximately  $7.5  million in several
rounds of financing;  through his Trust Bank,  from 1994 to 1998,  Mr.  Schacker
provided the Company with an additional $20 million in a combination of debt and
equity  financing,  allowing the Company to continue to develop  nemifitide  and
other promising compounds.

In 1998,  the Board of  Directors  asked Mr.  Schacker  and Mr. Abel to take the
Co-Chairmanship  of the Company for the purposes of helping the Company  improve
its then  current  management  issues;  at that  time the  Chairman  voluntarily
stepped  down from his  position as Chairman  but kept his position as CEO and a
director.  After a thorough review of the Company's issues,  the Board asked Mr.
Schacker  to become the CEO.  Mr.  Schacker  and Mr.  Abel took the  position of
co-CEO of  Innapharma,  Inc.,  and got  directly  involved  with the  day-to-day
business of the Company.

In 1999,  Messrs.  Schacker and Abel decided  that a full  restructuring  of the
scientific  management  was necessary  for the survival of the Company.  Messrs.
Schacker  and Abel  decided  that a full  restructuring  of the  management  was
inevitable  and necessary in order for the Company to  successfully  develop its
flagship  compound as well as raising  capital to keep the Company in  business.
Messrs. Schacker and Abel restructured the board to that same end.

Messrs.  Schacker  and Abel  recruited  Dr.  Feighner  as the new  President  of
Innapharma.  They felt that Dr.  Feighner's  extensive  experience as a clinical
psychopharmacologist,   having   been   involved  in  the   development   of  11
anti-depressants,  would be an  enormous  asset  to the  continued  progress  of
Innapharma's  anti-depressant.  Mr. Budetti,  Dr.  Feighner's long time business
partner also agreed to join as the Chief Operating Officer. Dr. Feighner and Mr.
Budetti were both  recruited  because of their vast  experience in the CNS area,
which includes working on more than 30 antidepressants, and their involvement in
more than 200 clinical  trials with Central  Nervous System  ("CNS")  compounds.
Management   believes  that  the  addition  of  Dr.  Feighner  and  Mr.  Budetti
revitalized  our Company,  which was reflected in our ability to raise funds for
the development of nemifitide (our lead compound in the development  program for
the treatment of major depression and serious  refractory  depression).  The new
Management team, which consisted of Messrs. Schacker, Abel, Budetti and the late
Dr.  Feighner,  led to a crucial  turn around and renewed  success of their drug
development program and the Company's financial status.

After the  restructuring,  Mr.  Schacker  successfully  led the  Company's  fund
raising with an additional  $40 million in multiple  financings  offering over a
six-year period.  Under the direction of our new management team, we implemented
a plan to restructure our operations and finances by:


                                       1
<PAGE>


     o    Reducing our cost structure dramatically;

     o    Renegotiating key supply and other contracts;

     o    Establishing   a  disciplined   and  focused   development   plan  for
          nemifitide; and

     o    Eliminating  approximately  $15,000,000 of our vendor  obligations and
          debt obligations  through  repayment and conversions of such debt into
          equity.

Management   believes  that  these  steps   strengthened   us  financially   and
operationally,  enabling us to leverage our scientific expertise and refocus our
efforts on the development of nemifitide and other proprietary products.

In 2004 Dr.  Cartwright was asked by the management  team to go from  scientific
consultant to full-time  lead  scientific  manager in order to oversee the total
drug development  process with a special focus on the preclinical aspects of our
compounds.  Dr.  Cartwright,   who  has  post-graduate  experience  in  clinical
psychiatry and CNS development, has been instrumental in the overall development
of nemefitide. Since the successful lifting of the clinical hold, Dr. Cartwright
and Dr.  Feighner have been working  together to evaluate and plan the continued
clinical  development of nemifitide.  As a result of the lifting of the clinical
hold on March 29, 2006, the Company plans to actively pursue the development and
commercialization   of  nemifitide  and  to  pursue  the  development  of  other
proprietary  pharmaceutical  products  that  treat  serious  diseases  for which
current  therapies  are  inadequate.  We  have  developed  a novel  platform  of
pharmaceutical  "small  chain"  peptides with the potential for the treatment of
depression, anxiety and other central nervous system disorders.

We have  conducted  extensive  testing of  nemifitide on both animals and humans
over the last ten years.  Early  preclinical  animal  studies  demonstrated  the
potential  efficacy of nemifitide as a treatment  for human  patients  suffering
from depression.  These preclinical  results have been supported by the clinical
studies  that we have  conducted  in over  500  subjects  to date  and in  which
nemifitide  was  administered  to over 400  subjects.  Since the FDA  lifted the
clinical hold, our management believes, that we may be able to submit a new drug
application ("NDA") for ultimate market approval in the year 2009.

We have conducted extensive testing of nemifitide in both animals  (preclinical)
and human (clinical)  studies over the last ten years.  Early preclinical animal
studies  demonstrated  the powerful  potential of  nemifitide as a treatment for
human patients  suffering from depression.  These preclinical  results have been
supported by the clinical studies that we have conducted in over 500 subjects in
which nemifitide was administered to over 400 subjects. In January 2003, we were
conducting Phase 2 clinical trials (studies in depressed patients),  in order to
demonstrate  proof-of- principle in patients. At that time, results of a 3-month
toxicology  study  performed by Huntingdon  Life Sciences,  Inc.  ("Huntingdon")
wherein  dogs,  in  accordance  with  the  requirements   of  the  Food  &  Drug
Administration (the FDA),  were given  extremely  high daily doses of nemifitide
over a 3-month period (the "Dog Study"), became available. After three months, a
customary  sacrifice of certain dogs was  performed.  This study found brain and
muscle  lesions in the dogs. We notified the FDA and all human  clinical  trials
were placed on hold by the FDA. We then engaged a panel of leading scientists in
the field of neurotoxicology,  neuropathology and regulatory affairs to evaluate
all of the data and to address the  feasibility  of resolving the clinical hold.
Following  a  recommendation  from  the  FDA,  the  Tetragenex  scientific  team
implemented  two additional  animal studies  consisting of one primate  (monkey)
study and one dog study. The independent expert panel thought that these studies
would generate  appropriate  data for the FDA to address and remove the clinical
hold.  These  studies  are  now  completed.  In the new  dog  study  with a more
sophisticated  evaluation of the target organs, there was less toxicity observed
than with


                                       2
<PAGE>

the previous  study with an improved risk benefit  safety  profile.  The primate
study, with similar sophisticated evaluation, did not show any treatment-related
toxicity due to nemifitide at any of the doses investigated, which would suggest
species  specificity to the dog. The FDA confirmed on March 29, 2006,  that they
had completed  their review of the Company's  complete  response to the clinical
hold and that the  clinical  hold had been  lifted.  This permits the company to
re-enter human clinical trials.

In  double-blind,  placebo-controlled  trials,  the  efficacy  of  the  compound
compares very favorably to other currently  available  antidepressants,  without
any  evidence of adverse side effects  commonly  exhibited by current  available
therapies such as anxiety,  sexual  dysfunction and serious sleep  disorder.  We
believe that nemifitide has the potential to  revolutionize  the  antidepressant
market,  which today is estimated to be $10 billion in the United  States and in
excess of $17.1 billion worldwide.

BANKRUPTCY

In light of the  results  of the Dog Study and the  difficult  financial  market
conditions at the time,  which had hampered our fund-raising  efforts,  on April
15, 2003,  Innapharma filed for protection under Chapter 11 of the United States
Bankruptcy  Code (See Item 3 of this Annual Report "Legal  Proceedings").  At or
about the time of the filing, we took measures to drastically reduce our monthly
overhead and other costs, which included  terminating  non-essential  employees,
rehiring some employees as consultants,  and deferring salaries of all remaining
employees.  We closed our Florida  office that year but continue to maintain our
headquarters in Park Ridge, NJ, with a small satellite office in Melville, NY.

From  the  filing  of the  bankruptcy  to  November  2004,  we  filed  a plan of
reorganization,  negotiated  settlements with both the creditor's  committee and
the  preferred  shareholders  and got our plan of  reorganization  confirmed  in
Bankruptcy  Court in the Eastern District with an effective date of November 26,
2004.

Simultaneously,  while emerging from bankruptcy,  we had an initial closing of a
private placement of our securities and managed into Tetragenex Pharmaceuticals,
Inc.

ANTIDEPRESSANT (CNS) DEVELOPMENT PROGRAM

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.  Recent
studies conducted by the World Health  Organization  (WHO),  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 suffer
from depression and result in approximately 30,000 suicides annually. 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 problem 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


                                       3
<PAGE>

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 report from 2001,  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.  The disease is the central  nervous  system
(CNS) disorder with the highest  prevalence -- about 40 million  diagnosed cases
in the United States, France,  Germany, Italy, Spain, United Kingdom, and Japan.
In the United States,  there are 15 million cases of  depression.  The diagnosis
rate for depression  should continue to rise as public  awareness of the disease
increases.

Antidepressant   sales  constitute  the  largest  segment  of  the  CNS  market,
approximately  24%. In 2004, global sales of antidepressant  agents exceeded $15
billion. Japan is currently a relatively unimportant market for antidepressants,
constituting  about 5% of the global  market;  Europe (19%) and  especially  the
United States (71%) account for most of the global sales of antidepressants.

Over the next five  years,  generic  forms of  nearly  all the  leading  branded
antidepressants  will  emerge.  As a result of  patent  expiries,  Research  and
Markets  expect the value of the U.S.  antidepressant  market to decline by 2.1%
per year between 2004 and 2009.

According to Lead Discovery Ltd., the antidepressant  market is set to undergo a
period of rapid change as seven out of the eight leading brands suffer US patent
expiries by 2008.  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.  Because of the profile of
nemifitide, which shows rapid onset of action, minimal side effects, maintenance
of efficacy of 2-4 months following initial dosing period,  level of response in
serious  depressive  disorder,  the Company  feels that it will have rapid entry
into this market.

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).


                                       4
<PAGE>

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
2007.  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 in 2006.

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.  The clinical hold may hinder our ability to obtain a
licensing agreement with a pharmaceutical  company as well as attract additional
investment  into  the  Company.  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:

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.

MANY PATIENTS EXPERIENCE COMPLETE SYMPTOMATIC RELIEF.

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

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.


                                       5
<PAGE>

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.

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.

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.

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 5% to 10% of patients  suffering from
major depressive disorder have the refractory form of the illness.

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


                                       6
<PAGE>

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.
Many 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.

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.
Since the FDA recently lifted the clinical hold imposed on our research,  we may
proceed with expansion of our Phase 2/Phase 3 pivotal clinical programs required
for FDA approval  during the course of the year 2006. 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.


                                       7
<PAGE>

The  Monday/Wednesday/Friday  dosing  regimen is  supported  by  earlier  animal
studies performed by Dr. David Overstreet at the University of North Carolina in
his Flinders sensitive rat models.

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 years).
Sixty-seven percent (18 of 27) experienced a prolonged  therapeutic response and
the drug was well tolerated with no significant drug-related side effects.

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 2009.

Our  clinical  studies  are  being  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.

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:

NEW CENTRAL NERVOUS SYSTEM ACTIVE PEPTIDES.

We currently have under  development a large number of central  nervous  systems
active  peptides  that the Company  believes 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


                                       8
<PAGE>

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.

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.

TETRACYCLINE DEVELOPMENT PROGRAM

The  continuing  emergence  of  antibiotic  resistance  threatens to reverse the
progress  made during the latter half of the  twentieth  century to  effectively
treat  bacterial  and  other  infectious  diseases.  In  2001,  the  problem  of
antimicrobial  resistance  posed a global threat to the  effective  treatment of
many  bacterial  diseases.  The  tetracyclines  are a  group  of  broad-spectrum
antibiotics,  which,  even 60 years  after  their  discovery,  have  retained  a
prominent position in the treatment of infectious diseases,  exhibiting activity
against a wide range of microorganisms including gram-positive and gram-negative
bacteria.  We have  initiated  a  program  to  develop  new  chemically-modified
tetracyclines that we believe may be active against both resistant and sensitive
organisms.   This  is  a  rapid  development  program  once  efficacy  has  been
demonstrated.  A recent report on the world antibiotic market projects sales for
a new antibiotic to quickly reach $100 to $300 million per year.

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, 100 new compounds have been
synthesized by our company, and many more will be available in the near future.


                                       9
<PAGE>

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 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.  Prior to the imposition of the
clinical hold, we were in discussions with several  pharmaceutical  companies to
market  and   distribute   our   products  and  will  enter  into  one  or  more
co-development agreements with such companies in the course of this year.


                                       10
<PAGE>

STRATEGIC COLLABORATIONS

On June 5, 2001,  Quintiles,  through its  corporate  ventures  group  PharmaBio
Development,  purchased $1,500,000 of our common stock.  Simultaneously with the
investment,  we  entered  into a  non-exclusive  preferred  provider  agreement,
pursuant  to  which  Quintiles  will be our  preferred  provider  of  outsourced
clinical  development  and  commercialization  services and will work with us in
planning  and  implementing  a  clinical  program  for  nemifitide.   Under  the
agreement,  Quintiles will provide us with access to its experts in the areas of
central nervous system disorders and will become our clinical  research provider
of choice.  We are under no obligation to retain  Quintiles  with respect to the
provision of clinical  research  services unless Quintiles' bid is competitively
priced and it has the capacity and expertise to perform such services.

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,  nine  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 act are not changed.

Further to our initial patent, we sequentially filed three  continuation-in-part
("CIP") applications that have also issued as United States patents. A first CIP
application was filed in 1995 to cover  additional  peptide-based  compounds and
issued as United  States  Patent No.  5,767,083  on June 16,  1998. A second CIP
application  was filed in 1997 and issued as United States Patent No.  6,093,797
on July 25, 2000. A third CIP  application was filed in 2002 to cover the use of
the compounds in treating additional  neurological and psychiatric disorders and
new routes of administration for our compounds. The third CIP application 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 and the
referenced Canadian application.

We also rely on trade secret  information,  technical know-how and innovation to
continuously  expand our  proprietary  position.  We require our  employees  and
consultants to execute  non-disclosure and assignment of invention agreements on
commencement of their employment or engagement.


                                       11
<PAGE>

There are no  actions  currently  pending  or  threatened  with  respect  to our
patents, patent applications and other intellectual property.


                       ANTIDEPRESSANT PATENT FAMILY STATUS

<TABLE>
<CAPTION>
=====================================================================================================================
                                             FILING     RELATED APPLICATION
       COUNTRY          APPLICATION NO.       DATE          INFORMATION               STATUS           PATENT NO.
=====================================================================================================================
<S>                   <C>                  <C>        <C>                      <C>                   <C>
United States         08/238,089           05/04/94                            Granted 12/31/96      5,589,460
---------------------------------------------------------------------------------------------------------------------
1st CIP-US            08/432,651           05/02/95   Continuation-in-part of  Granted 06/16/98      5,767,083
                                                      US 08/238,089
---------------------------------------------------------------------------------------------------------------------
2nd CIP-US            08/962,962           11/04/97   Continuation-in-part of  Granted 07/25/00      6,093,797
                                                      US 08/432,651
---------------------------------------------------------------------------------------------------------------------
3rd CIP-US            10/122,246           04/11/02   Continuation-in-part of  Granted 07/27/04      6,767,897
                                                      US 08/962,962
---------------------------------------------------------------------------------------------------------------------
Patent Cooperation    PCT/US95/05560       05/02/95   Based on US 08/238,089   Completed:  entered
Treaty (PCT)                                                                   national phase
---------------------------------------------------------------------------------------------------------------------
Patent Cooperation    PCT/US03/11403       04/10/03   Based on US 10/122,246   Completed:  entered
Treaty (PCT)                                                                   national phase
---------------------------------------------------------------------------------------------------------------------
Australia             2813995              11/04/96   Nat'l Phase of           Granted 08/06/98      685292
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
Canada                2,189,145            10/29/96   Nat'l Phase of           Pending
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
China (PRC)           CN 95193885.1        12/26/96   Nat'l Phase of           Granted 05/19/04      CN1150028C
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
European Patent       95 92 3659.7         11/04/96   Regional Phase of        Granted 01/21/04      EP0759772
Convention                                            PCT/US95/05560           Validated in AT, BE,
                                                                               CH, DE, DK, ES, FR,
                                                                               GB, IE, IT, LI, LX,
                                                                               MN, NL, PT, and SE
---------------------------------------------------------------------------------------------------------------------
European Patent       03 72 4013.2-2404    04/10/03   Regional Phase of        Pending
Convention                                            PCT/US03/11403
---------------------------------------------------------------------------------------------------------------------
Finland               FI 964363            11/04/96   Nat'l Phase of           Pending
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
India                 198CAL2001           04/04/01   Priority to US           Granted 12/06/03      191479
                                                      08/432,651 (Divisional
                                                      of 786CAL96)
---------------------------------------------------------------------------------------------------------------------
India                 237CAL2001           04/20/01   Priority to US           Pending
                                                      08/432,651 (Divisional
                                                      of 786CAL96)
---------------------------------------------------------------------------------------------------------------------
Indonesia             P-9526222            12/08/95   Based on US 08/432,651   Pending
---------------------------------------------------------------------------------------------------------------------
Indonesia             P-00200500377        07/11/05   Divisional of            Pending
                                                      Indonesian Application
                                                      No. P-9526222 (Priority
                                                      to US 08/432,651)
---------------------------------------------------------------------------------------------------------------------
Japan                 529076/1995          11/05/95   Nat'l Phase of           Pending
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>
=====================================================================================================================
                                             FILING     RELATED APPLICATION
       COUNTRY          APPLICATION NO.       DATE          INFORMATION               STATUS           PATENT NO.
=====================================================================================================================
<S>                   <C>                  <C>        <C>                      <C>                   <C>

Malaysia              PI 9503240           10/27/95   Based on PCT/US95/05560  Granted 02/28/02      MYI13407 A
---------------------------------------------------------------------------------------------------------------------
Malaysia              PI 20031342          04/10/03   Based on US 10/122,246   Pending
---------------------------------------------------------------------------------------------------------------------
Norway                P964561              11/04/96   Nat'l Phase of           Granted 01/03/05      317919
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
Russia                96 123 269           12/04/96   Nat'l Phase of           Granted 08/28/01      2,182,910
                                                      PCT/US95/05560
---------------------------------------------------------------------------------------------------------------------
Taiwan (ROC)          84111543             11/01/95   Based on PCT/US95/05560  Granted 10/11/02      167954
---------------------------------------------------------------------------------------------------------------------
Taiwan (ROC)          92108419             04/11/03   Based on US 10/122,246   Pending
=====================================================================================================================
</TABLE>


                  TETRACYCLINE DERIVATIVES PATENT FAMILY STATUS

<TABLE>
<CAPTION>
=====================================================================================================================
                                            FILING       RELATED APPLICATION
       COUNTRY           APPLICATION NO.     DATE            INFORMATION                STATUS          PATENT NO.
=====================================================================================================================
<S>                    <C>                 <C>         <C>                       <C>                    <C>
United States          10/264,454          10/04/02    Priority to US            Pending
                                                       60/327,502
---------------------------------------------------------------------------------------------------------------------
United States          11/076,276          03/09/05    Divisional of US          Pending
                                                       10/264,454
---------------------------------------------------------------------------------------------------------------------
Patent                 PCT/US02/31730      10/04/02    Priority to US            Completed:
Cooperation                                            60/327,502                entered national
Treaty (PCT)                                                                     phase
---------------------------------------------------------------------------------------------------------------------
Australia              2002341970          04/01/04    Nat'l Phase of            Pending
                                                       PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
Canada                 2,462,572           04/01/04    Nat'l Phase of            Pending
                                                       PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
China                  02819722.4          04/05/04    Nat'l Phase of            Pending
                                                       PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
European Patent        02776131.1          04/23/04    Regional Phase of         Pending
Convention                                             PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
Indonesia              W-00200400639       04/06/04    Nat'l Phase of            Pending
                                                       PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
Japan                  2003-533853         04/05/04    Nat'l Phase of            Pending
                                                       PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
Malaysia               PI 20023717         10/04/02    Priority to US            Pending
                                                       60/327,502
---------------------------------------------------------------------------------------------------------------------
Norway                 2004-1272           03/26/04    Nat'l Phase of            Pending
                                                       PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
Russian                2004109986          03/29/04    Nat'l Phase of            Pending
Federation                                             PCT/US02/31730
---------------------------------------------------------------------------------------------------------------------
Taiwan                 91123025            10/04/02    Priority to US            Pending
                                                       60/327,502
=====================================================================================================================
</TABLE>


                                       13
<PAGE>

EMPLOYEES AND CONSULTANTS

As of the date of this Form 10-KSB (the "Annual Report"),  we had a workforce of
12, 7 full-time employees and 5 part-time scientific consultants,  6 of who hold
Ph.D. or M.D.  degrees,  or both, and three of whom hold other advanced degrees.
Of our total  employee and consultant  workforce,  8 are engaged in research and
development, 5 are engaged in business development and finance and 2 are engaged
in administration and support capacities.  None of our employees are represented
by a collective bargaining agreement, nor have we experienced work stoppages.

FACILITIES

We lease  approximately  2,300 square feet of office  space at 1 Maynard  Drive,
Suite 105, Park Ridge, New Jersey,  under a lease terminating in March, 2012. We
also have office space at 200 Broad Hollow Road,  Melville,  New York, but incur
no  rental  expense  from  these  premises.  Management  believes  our  existing
facilities are adequate to meet our requirements through the year 2007. On March
1, 2007 the Company entered into an operating lease for its current office space
in Park Ridge,  New Jersey.  The lease commenced on March 1, 2007 and expires on
March 1, 2012 and requires  monthly base rental  payments of $6,300 plus certain
annual escalation.

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

YEAR ENDING
DECEMBER 31,
------------------------------------------------------------
2007                                            87,300
2008                                            75,600
2009                                            75,600
2010                                            75,600
2011                                            75,600
                                       ---------------------
Total minimum lease payments             $     389,700
                                       =====================

Rental  expense was $132,814 and $133,504 for the years ended  December 31, 2006
and 2005, respectively .



ITEM 2.  DESCRIPTION OF PROPERTY

Effective  March  1,  2007  the  Company  entered  into  a  new  lease  to  rent
approximately  2,300 sq ft in its current  multi tenant  building in Park Ridge,
NJ. The lease  extends for 5 years with a monthly rent of  approximately  $6,300
per month.  The Company believes this space should be adequate for its needs for
the duration of its lease.  The Company also maintains a small satellite  office
in Melville, NY but does not incur any rental expense.



ITEM 3.  LEGAL PROCEEDINGS

HISTORIC LEGAL EVENTS

Due to the clinical  hold being placed on our lead  compound,  nemifitide  which
increased our expenditures and eliminated our ability to raise additional funds,
we filed for protection  under Chapter 11 of the bankruptcy  code in the Eastern
District  of Long Island on April 15,  2003.  During the  bankruptcy  process we
reached  an  agreement  with our  creditors  which  allowed  us to  satisfy  our
obligations with two


                                       14
<PAGE>

distributions  totaling  approximately  57% of the amount owed.  We brought suit
against two  entities in  bankruptcy  court.  The first  being  Huntington  Life
Sciences  in  reference  to the studies  performed.  The suit was settled out of
court.  Secondly,  a suit  was  brought  against  our  lead  class  D  preferred
shareholder  KBC Securities and a countersuit  was brought  against us. The case
was eventually  settled  through the bankruptcy  court. In May 2004, the Company
entered  into an  agreement  with  the  holders  of the 725  shares  of  Class D
preferred  stock to eliminate the class D preferred  shares in exchange for 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 comprise the
preferred D shareholders agreed to convert their portion of the $600,000 payment
into  equity.  A total of  $143,967.60  was  converted  into  179,960  shares of
Tetragenex  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 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 common
stock. An aggregate of 1,066,722 shares of common stock was issued to the former
note holders and approximately  $1,800,000 plus interest is due in May 2009. The
long-term  note due to the former  Preferred D holders is secured by the patents
of the Company.  Our third and final plan of reorganization  was affirmed by the
court  and on  November  23,  2004 we  emerged  from  bankruptcy  as  Tetragenex
Pharmaceuticals,  Inc.  Having  previously  filed for  bankruptcy may hinder our
ability  to  obtain  future  financing  or  obtain  credit  with a lender of our
vendors.

A suit was  brought  against us by one of our former  directors  claiming he was
improperly removed from the board, amongst other things. The suit was ultimately
dismissed in court.

All suits formerly  brought  against us are finalized and not subject to further
litigation.  We  believe we have no further  threats  to our  Company  from such
claims.



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

There were no matters  submitted for  stockholders'  vote during the fiscal year
2006.


                                       15
<PAGE>

                                     PART II



ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no current market for our shares.

The Company does not currently have any  compensation  plans or employee benefit
plans.



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  OR PLAN OF
         OPERATIONS

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

                           FORWARD LOOKING STATEMENTS

THE INFORMATION SET FORTH IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ("MD&A") CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING, AMONG OTHERS (I)
EXPECTED CHANGES IN THE COMPANY'S REVENUES AND PROFITABILITY, (II) PROSPECTIVE
BUSINESS OPPORTUNITIES AND (III) THE COMPANY'S STRATEGY FOR FINANCING ITS
BUSINESS. FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL
INFORMATION OR STATEMENTS OF CURRENT CONDITION. SOME FORWARD-LOOKING STATEMENTS
MAY BE IDENTIFIED BY USE OF TERMS SUCH AS "BELIEVES", "ANTICIPATES", "INTENDS"
OR "EXPECTS". THESE FORWARD-LOOKING STATEMENTS RELATE TO THE PLANS, OBJECTIVES
AND EXPECTATIONS OF THE COMPANY FOR FUTURE OPERATIONS. ALTHOUGH THE COMPANY
BELIEVES THAT ITS EXPECTATIONS WITH RESPECT TO THE FORWARD-LOOKING STATEMENTS
ARE BASED UPON REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF ITS KNOWLEDGE OF ITS
BUSINESS AND OPERATIONS, IN LIGHT OF THE RISKS AND UNCERTAINTIES INHERENT IN ALL
FUTURE PROJECTIONS, THE INCLUSION OF FORWARD-LOOKING STATEMENTS IN THIS REPORT
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON
THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.

YOU SHOULD READ THE FOLLOWING  DISCUSSION AND ANALYSIS IN  CONJUNCTION  WITH THE
FINANCIAL  STATEMENTS AND NOTES ATTACHED  HERETO,  AND THE OTHER  FINANCIAL DATA
APPEARING ELSEWHERE IN THIS ANNUAL REPORT.

THE COMPANY'S  REVENUES AND RESULTS OF OPERATIONS  COULD DIFFER  MATERIALLY FROM
THOSE  PROJECTED  IN THE  FORWARD-LOOKING  STATEMENTS  AS A RESULT  OF  NUMEROUS
FACTORS,  INCLUDING,  BUT NOT LIMITED TO, THE FOLLOWING: THE RISK OF SIGNIFICANT
NATURAL DISASTER,  THE INABILITY OF THE COMPANY TO INSURE AGAINST CERTAIN RISKS,
INFLATIONARY AND DEFLATIONARY  CONDITIONS AND CYCLES,  CURRENCY  EXCHANGE RATES,
CHANGING GOVERNMENT REGULATIONS  DOMESTICALLY AND INTERNATIONALLY  AFFECTING OUR
PRODUCTS AND BUSINESSES.

PLAN OF OPERATIONS

OVERVIEW

We are a  biopharmaceutical  Company.  We discovered and are developing  several
novel  compounds to address  unmet needs in the area of  depression,  antibiotic
resistance  and  anticancer.  Tetragenex is the successor  Company to Innapharma
through a reverse merger,  which was completed upon Innapharma's  emergence from
Chapter  11 in  2004.  Innapharma  was  founded  in 1989  and has  insignificant
operating revenues to date.


                                       16
<PAGE>

OPERATING HISTORY:  PLAN OF OPERATION

The Company is currently  developing  an  antidepressant  compound,  nemifitide,
which  is in late  Phase 2 human  clinical  trials.  During  Phase  2,  clinical
development  of  the  Company's  flagship  antidepressant  compound  was  put on
clinical hold by the Food and Drug  Administration  (the "FDA"),  as a result of
some toxicity  issues in a Beagle dog study that was completed in 2003.  The FDA
asked the  Company to repeat  the  animal  study and  generate  some  additional
preclinical data with regard to the toxicity issue. The Company  completed a dog
study and a primate  study to address the  concerns of the FDA.  After the final
reports from these  studies were  submitted to the FDA, the FDA  confirmed  that
this was a complete  response to the clinical hold and  therefore,  the clinical
hold was lifted on March 29,  2006.  The Company  either  intends to license the
drug out for the final  stage of  development  or raise  additional  capital and
continue the Phase 3 development of nemifitide. The Company believes that upon a
successful licensing agreement, there will be significant milestone payments, as
well as permanent royalty against the revenues of the drug.

Nemifitide  is  a  five-chain   peptide,   part  of  a  significant  library  of
patent-protected  compounds.  The Company, in its preclinical development plans,
will  evaluate the  potential  of other  patented  neuropeptides  to treat other
disorders,  such as anorexia,  bulimia,  panic disorder,  anxiety  disorders and
post-traumatic   stress   disorder.   The  Company   currently   has  three  GMP
manufacturers  synthesizing its compound, all of whom are located in Europe. The
Company believes that it has sufficient nemifitide bulk to meet its requirements
for the foreseeable future.

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).  The  Company  is
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.

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.  We intend to complete some
additional  in-vivo and in-vitro studies,  prepare an IND and attempt to license
both the anti-cancer  compound and the treatment resistant bacteria compound out
for development.

In addition to the in-house development program, the Company intends to research
and acquire existing  compounds and replatform them for other  therapeutic uses,
and pursue a licensing agreement with the original inventor.

During the past 15 months we completed two private offerings raising  $4,087,047
of equity capital. Our core burn rate is approximately  $80,000 a month and with
approximately  $1.8  million  cash on hand it gives the Company  16-24 months of
operating capital. The Company intends to hire appropriate  scientific personnel
to strengthen its licensing acquisition program and to assist in the preparation
and  filing of IND  submissions  for the  tetracycline  compounds.  The  Company
intends to seek a quotation of its common stock on the NASDAQ bulletin board.

The Company has good patent protection in all the significant worldwide markets.


                                       17
<PAGE>

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Innapharma  successfully emerged from bankruptcy and merged with its subsidiary,
Tetragenex,  in  November  2004 The  Company  raised  over $4  million in equity
throughout  the Chapter 11 process and had  significant  expenses  directly  and
indirectly  relating to the bankruptcy from April of 2003 to November of 2004. A
significant  portion of the proceeds from its Private Placement was committed to
general and  administrative  overhead and implementing  the preclinical  studies
requested by the FDA.

The Company  successfully  converted close to 30% of the debt that remained from
the bankruptcy back into equity.  The Company currently has  approximately  $1.8
million in long-term debt due in April 2009. The Company  successfully  paid the
$430,000 in short-term debt that had become due in November 2005.

For the past four years the Company has sold a portion of its tax losses through
a program  sponsored  by the State of New Jersey.  The  program  generated a net
check to the  Company  two years ago of in excess of  $200,000,  it  generated a
check of over  $400,000  in  December  of 2004  and an  additional  $315,000  in
December  2005. In 2006 due to the loss of  Innapharma's  tax losses the company
received $5,000 through the program.

We believe that our burn rate could increase by approximately  $15,000 - $20,000
a month for costs relating to additional  employees and various  continued costs
that will be incurred  when we become a fully  reporting  and  trading  Company,
including  but not limited to attorney's  fees,  accounting  fees,  filing fees,
public relations expenses,  insurance,  etc. The Company committed approximately
between $75,000 to the continued development of its tetracyclines.

As of December  31,  2006,  we have  approximately  $2.0 million in liquid funds
available  to us. We  believe  this is  sufficient  to last us between 16 and 24
months  from the date of filing.  Our  current  core burn rate is  approximately
$80,000 per month.  Employee and consultant salary is the major component in our
burn rate. Our current payroll is approximately $32,000 per month. Additionally,
our scientific consultants receive approximately $16,000 per month and work on a
part time basis.  Our rent expense is currently  $6,300per  month. D&O insurance
and product  liability  insurance total about $6,000 per month and insurance for
employees is  currently  $3,000 per month which will  increase to  approximately
$7,000 per month now that we are a public entity.  Included in the remainder are
car  allowances,  telephone and internet  access,  general  corporate  expenses,
outsourced  accounting and legal fees and office supplies.  This may increase to
approximately  $100,000  per  month  upon  the  need for  additional  staff  and
additional  expense  which may occur once our common  shares begin to trade on a
public exchange. Future funds will be derived from additional sale of our common
stock in the public or  private  markets  and/or a  licensing  agreement  with a
pharmaceutical  Company as well as the continuing  sales of our state tax losses
through the New Jersey  Development  Plan. We have a successful  track record in
raising funds, having completed 13 private financings since 1994, which resulted
in the raising  over $75  million.  Our only debt  consists of the $1.8  million
convertible  note payable to the former holders of our Preferred D securities in
April 2009.

RESULT OF OPERATION

Innapharma  successfully emerged from bankruptcy and merged with its subsidiary,
Tetragenex,  in  November  2005 The  Company  raised  over $4  million in equity
throughout  the Chapter 11 process and had  significant  expenses  directly  and
indirectly  relating to the bankruptcy from April of 2003 to November of 2004. A
significant  portion of the proceeds from its Private Placement was committed to
general and  administrative  overhead and implementing  the preclinical  studies
requested by the FDA. The majority of the net loss in 2005 was attributed to the
value of the  option  grant to the  officers,  directors  and  employees  of the
Company.


                                       18
<PAGE>

For the past four years the Company has sold a portion of its tax losses through
a program  sponsored  by the State of New Jersey.  The  program  generated a net
check to the Company in 2003 in excess of $200,000, it generated a check of over
$400,000 in December of 2004 and an  additional  $315,000 in December  2005.  In
2006 due to the elimination of Innapharma we only received $5,000 as part of the
program, however going forward we will be applying for Tetragenex' tax losses.

We believe that our burning rate will increase by approximately  $15,000-$20,000
a month for costs relating to additional  employees and various  continued costs
that will be incurred when we become a fully  reporting  Company,  including but
not limited to attorney's fees,  accounting fees,  filing fees, public relations
expenses, etc. The Company committed $75,000 to the continued development of its
tetracyclines.

As of the date of the filing,  we currently have  approximately  $1.8 million in
liquid funds  available to us. We believe this is  sufficient to last us between
18 and 24  months  from  the date of  filing.  Our  current  core  burn  rate is
approximately  $80,000 per month.  Employee and  consultant  salary is the major
component in our burn rate.  Our current  payroll is  approximately  $32,000 per
month. Additionally our scientific consultants receive approximately $16,000 per
month and work on a part time basis.  Our rent expense is  currently  $6,300 per
month.  D&O insurance  and product  liability  insurance  total about $6,000 per
month and insurance for employees is currently  $3,000 per month which will soon
increase  to  approximately  $7,000  per month now that we are a public  entity.
Included in the remainder  are car  allowances,  telephone and internet  access,
general  corporate  expenses,  outsourced  accounting  and legal fees and office
supplies.  This may increase to  approximately  $100,000 per month upon the need
for  additional  staff  should we become a public  entity.  Future funds will be
derived  from  additional  sales of our  common  stock in the  public or private
markets and/or a licensing  agreement with a  pharmaceutical  company as well as
the continuing sales of our state tax losses through the New Jersey  Development
Plan. We have a successful  track record in raising funds,  having  completed 13
private  financings since 1994, which resulted in raising over $75 million.  Our
only debt  consists of the $1.8 million  convertible  note payable to the former
holders of our Preferred D securities in April 2009.

The Year Ended  December  31,  2006 as  compared  to the period of the  year-end
December 31, 2005  Revenue - The Company had no revenue  from any source  during
fiscal years 2005 and 2006.

Research  and  Development-  R&D costs  decreased  from $1.2  million to $41,000
during fiscal year 2006 versus 2005.  During 2005 the Company completed and paid
for a dog and  monkey  study  which  was  needed to have the FDA  clinical  hold
removed from our lead compound Nemifitide.  No additional studies were performed
in 2006.

Compensation  Expense - Compensation Expense decreased from $7.1 million in 2005
down to $1.8  million  in 2006.  More  options  were  granted  to all  officers,
directors and  employees of the Company in 2005 as compared to 2006,  which were
valued and  expensed  using the black  scholes  method and resulted in the lower
compensation expense in 2006.

Warrant  Restructuring - The Company incurred an expense of $2.4 million in 2005
from  restructuring  all  existing  warrants by reducing  the number of warrants
outstanding and reducing the exercise price and extending the expiration  dates.
There was no such expense in 2006.

Travel Expense - Travel expense increased from $43,000 to $90,000 in 2006 versus
2005.  This was mainly due to the in person board meeting which occurred in July
2006  in  San Diego, CA.  Professional  Fees -  Professional  fees  decrease to\
$165,000  in 2006 versus $243,000 in 2005.  This  was  mainly  attributed  to  a
reduction  in legal fees in 2006 due to fewer offerings and closings.


                                       19
<PAGE>



Payroll Taxes and Employee  Benefits - This expense was reduced from $136,000 in
2005 to $80,000 in 2006.  This was due to the  reduction of benefits  which came
with the  closing of the San Diego  office in 2006 and the loss of Dr.  Feighner
and his staff.

Consulting  Fees -  Consulting  expenses  were  reduced to $333,000 in 2006 from
$387,000 in 2005 which was the result of a reduction in the need for  scientific
consulting help after the dog and monkey studies were completed.

Relief From  Liabilities - This expense  decreased  from $56,000 in 2005 to 0 in
2006. In 2005 the Company  settled a dispute with a vendor which resulted in the
$56,000 relief from liabilities.

Sale of Tax Losses - There was a  reduction  in the sale of tax  losses.  It was
reduced from $315,000 in 2005 down to $5,000 in 2006. This was the result of the
elimination  of the tax  benefits  of  Innapharma,  Inc.  upon the  merger  into
Tetragenex Pharmaceuticals

LEGAL CONTIGENCY

We  may  be  subject  to  proceedings,  lawsuits  and  other  claims,  including
proceedings  under laws and government  regulations  related to the environment,
labor,  product and other  matters.  We are required to assess the likelihood of
any adverse judgments or outcomes to these matters,  as well as potential ranges
of probable losses. A determination of the amount of reserves required,  if any,
for these  contingencies is based on a careful analysis of each individual issue
with the assistance of outside legal counsel.  The required  reserves may change
in the future due to new developments in each matter or changes in approach such
as a change in settlement  strategy in dealing with these  matters.  On December
31, 2006, there are no outstanding legal proceedings, nor are there any reserves
established.

LIQUIDITY AND CAPITAL RESSOURCES

The Company currently has approximately $1.8 million in current assets and has a
core burn rate of  approximately  $80,000.per  month.  These  funds will be used
primarily to operate the Company going forward.  Additional funds will be needed
to fund further studies required by the FDA to bring its lead compound, Nemifide
to market.  Future  funds will be derived  from  additional  sales of our common
stock in the public or  private  markets  and/or a  licensing  agreement  with a
pharmaceutical  company as well as the continuing  sales of our state tax losses
through the New Jersey Development Plan. Our only long term debt consists of the
$1.8 million  convertible  note payable to the former holders of our Preferred D
securities in April 2009.

CRITICAL ACCOUNTING POLICIES

          USE OF ESTIMATES

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

          The Company's 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.


                                       20
<PAGE>

          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 2005 and 2006 and thus no  impairment  loss was
          taken in those years.

          PATENTS

          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   $360,315  at  December   31,  2006.
          Amortization  expense  related to patents  was $34,538 and $51,007 for
          the years ended December 31, 2006 and 2005 respectively.

          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 loss 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 we early 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


                                       21
<PAGE>

          black scholes method to the statement of operations.  This enabled the
          company to treat  employees  and others on an equal basis.  Had we not
          adopted 123-R the company would have had to calculate employee options
          differently  which  management  felt would lead  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."

ACCOUNTING FOR 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.

IMPAIRMENT OF INVESTMENTS

         RECENT ACCOUNTING PRONOUNCEMENT

          In May 2005,  the FASB  issued SFAS 154  Accounting  Changes and Error
          Corrections   which   requires   accounting   changes  to  be  applied
          retroactively  as of the earliest  practicable  date and all financial
          statements for periods  subsequent to that date to reflect the adopted
          principle  as if it had been in effect  for all  periods.  SFAS 154 is
          effective for fiscal years beginning after December 15, 2005.  Company
          does not  believe  the  adoption  of SFAS No. 154 will have a material
          impact on its financial statements.

          In February  2006, the FASB issued  Statement of Financial  Accounting
          Standard (SFAS) No. 155 (SFAS No. 155),  ACCOUNTING FOR CERTAIN HYBRID
          FINANCIAL  INSTRUMENTS--AN  AMENDMENT OF FASB  STATEMENTS  NO. 133 AND
          140, to simplify and make more  consistent  the accounting for certain
          financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133,
          ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND HEDGING  ACTIVITIES,  to
          permit fair value  re-measurement for any hybrid financial  instrument
          with an embedded  derivative that otherwise would require  bifurcation
          provided  that the whole  instrument  is accounted for on a fair value
          basis.  Prior  to  fair  value  measurement,   however,  interests  in
          securitized  financial assets must be evaluated to identify  interests
          containing embedded derivatives requiring bifurcation.  The amendments
          to SFAS No. 133 also clarify  that  interest-only  and  principal-only
          strips  are not  subject  to the  requirements  of the SFAS,  and that
          concentrations  of credit  risk in the form of  subordination  are not
          embedded  derivatives.  Finally,  SFAS No.  155 amends  SFAS No.  140,
          ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL FOR  LONG-LIVED  ASSETS,  to
          allow a qualifying  special-purpose  entity (SPE) to hold a derivative
          financial instrument that pertains to a beneficial interest other than
          another derivative financial  instrument.  SFAS No. 155 applies to all
          financial  instruments  acquired or issued  after the  beginning of an
          entity's first fiscal year that begins after  September 15, 2006, with
          earlier application  allowed. The Company does not anticipate that the
          adoption of this statement to have a material  impact on its financial
          statements.

          The  FASB  has   recently   announced  a  new   interpretation,   FASB
          Interpretation  No. 48,  "Accounting  for Uncertainty in Income Taxes"
          (FIN 48),  which will be effective  for fiscal years  beginning  after
          December 15, 2006, FIN 48 clarifies the accounting for  uncertainty in
          income taxes  recognized in an  enterprise's  financial  statements in
          accordance with FASB statement No. 109, "Accounting for Income Taxes".
          FIN 48 prescribes a recognition threshold and


                                       22
<PAGE>

          measurement  attribute for the  financial  statement  recognition  and
          measurement  of a tax position  taken or expected to be taken in a tax
          return.   FIN   48   also   provides   guidance   on   de-recognition,
          classification, interest and penalties, accounting in interim periods,
          disclosure and  transition.  The Company does not believe the adoption
          of FIN 48 will impact its financial statements.

          In  September   2006,  the  FASB  issued  SFAS  No.  157  "Fair  Value
          Measurements"  ("SFAS 157"). SFAS 157 provides  accounting guidance on
          the definition of fair value and establishes a framework for measuring
          fair  value in U.S.  GAAP and  expands  disclosures  about  fair value
          measurements.  SFAS 157 is effective for financial  statements  issued
          for fiscal years  beginning  after November 15, 2007. We plan to adopt
          the provisions of SFAS 157 on November 1, 2008. The  implementation of
          SFAS 157 is not  expected to have a material  impact on our results of
          operations or financial condition.

          QUANTIFYING    AND   EVALUATING   THE    MATERIALITY   OF   UNRECORDED
          MISSTATEMENTS.

          In  September  2006,  the SEC issued SAB No.  108 ("SAB  108"),  which
          addresses  the  process  for  considering  the  effects  of prior year
          misstatements when quantifying misstatements in current year financial
          statements.  SAB 108  expresses  the SEC Staff's  views  regarding the
          process  of  quantifying   financial  statement   misstatements.   The
          interpretations  in SAB 108  are  intended  to  address  diversity  in
          practice in  quantifying  financial  statement  misstatements  and the
          potential under current  practice for the build-up of improper balance
          sheet amounts.  The  application of SAB 108 is effective for financial
          statements  issued  for an  interim  period of the first  fiscal  year
          ending after November 15, 2006. We will adopt the  interpretations  of
          SAB 108 on  November  1, 2006.  The  implementation  of SAB 108 is not
          expected  to have a material  impact on our results of  operations  or
          financial condition.



ITEM 7.  FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended December 31, 2006 are
included beginning on page F-1.


                                       23
<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

On August 2005, the Audit Committee of the Company based on recommendations from
our Board of  Directors  as,  dismissed  our  auditing  firm Hays and Co. LLP as
independent  auditors and appointed  Demetrius & Company,  L.L.C, as independent
auditors of the Company to complete the auditing of our financial statements. We
had not  completed  an audit since the year ending  December 31, 2002 due to the
bankruptcy and financial restraints.  Demetrius & Company,  L.L.C. completed the
auditing work for December 31, 2004 and 2005.  There were no disagreements as to
accounting  policies or  pronouncements  between Hays and Co and ourselves which
led to the  replacement.  In preparation of our financial  statements we engaged
several  consultants to assist us. Our former Chief Financial  Officer  (C.F.O.)
Richard Portney assisted in preparing the financials and with general accounting
work.  We early  adopted  rule 123(R) and thus  valued our options and  warrants
issued using the black scholes  method.  We outsourced  the work of  calculating
that work to an expert in the field.

ITEM 8A.  CONTROLS AND PROCEDURES

The Company's principal executive officer and principal financial officer, based
on their  evaluation of the Company's  disclosure  controls and  procedures  (as
defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934,
as amended) as of December 31, 2006 has concluded that the Company's  disclosure
controls  and  procedures  are adequate  and  effective to ensure that  material
information  relating to the Company are  recorded,  processed,  summarized  and
reported within the time periods in which this Annual Report has been prepared.

The Company's  principal  executive officer,  as well as the principal financial
officer,  have concluded that there were no significant changes in the Company's
internal  controls or in other  factors  that could  significantly  affect these
controls  for the year ended  December  31,  2006,  the date of his most  recent
evaluation of such controls, and that there were no significant  deficiencies or
material weaknesses in the Company's internal controls.

ITEM 8B.  OTHER INFORMATION

NONE


                                       24
<PAGE>

                                    PART III



ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

Our officers and  directors  and further  information  concerning  them,  are as
follows:

<TABLE>
<CAPTION>
            NAME                AGE                                      POSITION
----------------------------- -------- --------------------------------------------------------------------------
<S>                             <C>    <C>
Martin F. Schacker              50     Chairman of the Board and Co-Chief Executive Officer

David Abel                      65     Vice Chairman of the Board, Co-Chief Executive Officer,
                                       Chief Financial Officer and Treasurer

Robert P. Budetti               65     Chief Operating Officer and Director

Kenneth Cartwright              72     Senior Vice President of Drug Developments Regulatory Affairs and Director

Alf E. F. Akerman               44     Director

Bruce J. Bergman, Esq.          62     Director

William T. Comer, Ph.D          71     Director

Aaron Cohen                     70     Director
</TABLE>

MARTIN F.  SCHACKER  currently  serves as Chairman  of the Board and Co-CEO.  He
served as our  Co-Chairman  of the Board of  Directors  from 1998 to 2004 and as
Chairman  of the Board  since  2004 to  present  times.  He is also  serving  as
Co-Chief Executive Officer since March 1999. Mr. Schacker was appointed Director
in  November  1994.  With an  extensive  biotechnology  and  investment  banking
experience,  Mr. Schacker has helped raise  approximately  $60,000,000 for us to
date, demonstrating a steadfast commitment to us and the proven ability to raise
the capital needed to keep our development  program of nemifitide  moving toward
FDA approval. When Mr. Schacker took over the management of our company in early
1999, we were experiencing severe operational  difficulties.  Since that time he
has been able to recruit a small but  experienced  management team and spearhead
our fundraising activities. 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 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 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
was a minority  shareholder of M.S. Farrell  Holdings,  Inc., the parent holding
company of M.S.  Farrell & Co.,  Inc. Mr. Abel is the  President  and Founder of
United  Realty,   Inc.,  a  commercial   and  industrial   real  estate  company
headquartered in Melville, New York, and


                                       25
<PAGE>

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.

JOHN P. FEIGHNER,  M.D., served as our President and was a Director from October
1999 until 2006. In May 2006, Dr.  Feighner  resigned as President due to health
reasons,  but  stayed on as a lead  scientific  consultant  and  director..  Dr.
Feighner is a Board Certified  Psychiatrist  and Neurologist and a fellow of the
American Psychiatric Association. He has over thirty years of extensive clinical
neuro-psychopharmacology  research  experience and is known on both the national
and  international  level as one of the  world's  leading  experts  in  clinical
psychopharmacology and the development of new anti-depressants.  Dr. Feighner is
the founder and former President of the Feighner Research  Institute,  which has
conducted extensive clinical trials,  predominantly in psychiatric  medications,
over the past 30 years.  Dr. Feighner has been the primary  investigator in over
220 clinical  trials of  psychiatric  drugs,  has published  over 120 scientific
papers,  6 books,  has given  over 1,000  seminars  and has  extensive  clinical
research experience in the development of new  antidepressants.  Since 1972, Dr.
Feighner   conducted   studies   on  over   30   antidepressants   for   leading
biopharmaceutical  companies on both a national and international  basis and has
also served as consultant to numerous pharmaceutical  companies and participated
in their scientific advisory boards. Dr. Feighner is also one of the founders of
ICR, a clinical testing organization that was subsequently sold to Quintiles, an
international  clinical research company,  and became its central nervous system
disorder division. Dr Feighner passed away in August 2006.

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.

KENNETH CARTWRIGHT, M.B., CH.B., M.R.C.P., has served as Director of our company
since 1989 and Senior Vice President,  Drug  Development and Regulatory  Affairs
since 2003. Dr. Cartwright is currently  President of CMRC Consulting  Services.
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,  was a key  member  of the  management
committee and was involved in the initial IPO. In addition 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  tenure  with  American  Cyanamid,  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 (Far
East),  Canada (Latin America) and England  (Europe).  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.


                                       26
<PAGE>

ALF E. F.  AKERMAN,  has  served as a member of the  Board of  Directors  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 December 1997 through June 1999, Mr. Akerman was the Risk Manager
of Volvo Car Finance Holding. Prior to that he was the Deputy Treasurer of Volvo
Car Corporation and before that Director of Corporate  Finance at AB Volvo.  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 a 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,  Nassau County and a Deputy Bureau Chief for
Special  Litigation.  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 a Director since February 2001. Since 2000
Dr. Comer was Founder and Chairman of Neurogenetics  Inc. and remains a Director
as it has been  renamed  TorreyPines  Therapeutics.  From 1991 - 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 - 1981 he was a
scientist at Mead Johnson & Co., including Vice President of Research, then from
1982  - 1990  he  served  in  various  capacities  at  Bristol-Meyers  including
President  of  Research  and  Licensing;  in  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) 1994 - 2005,
and Trega Biosciences  (formerly  Houghton  Pharmaceuticals)  1993-1996.  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.

AARON COHEN has served as a Director since February 2001.  Since 1996, Mr. Cohen
has served and continues to serve as the Vice-Chairman of the Board of Directors
of National Technical Systems; Mr. Cohen has served as the President of Smithway
Associates,  Inc., a property  management  company,  since 1991. Chief Financial
Officer and Director of Intelligent  Optical Systems and as Treasurer and member
of the Board of Directors of the National Osteoporosis Institute,  the latter of
which he co-founded  in 1996.  Mr. Cohen is a Member of the Deans Cabinet of the
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  for Legal
Affairs  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

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


                                       27
<PAGE>

III Directors  (Messrs.  Martin F.  Schacker,  David Abel and John P.  Feighner,
M.D.). The Class I Directors shall serve 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 expires,  each Director
shall then serve 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.  There are no  family  relationships  among any of our
Directors or executive officers other than David Abel and Martin Schacker.

CODE OF ETHICS

We have adopted a Code of Ethics within the meaning of Item 406(b) of Regulation
S-B.  This  Code of Ethics  applies  to our  principal  executive  officer,  our
principal  financial officer and principal  accounting  officer,  as well as all
other employees,  and is filed herewith.  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 report on
Form 8-K within five days of such amendment or waiver.

BOARD COMMITTEES

AUDIT COMMITTEE:  Alf Akerman, Bruce Bergman, Aaron Cohen.

AUDIT COMMITTEE FINANCIAL EXPERT:  Alf Akerman.

COMPENSATION  COMMITTEE:  Aaron  Cohen,  David Abel and Bruce  Bergman  with Ken
Cartwright as advisor.

TETRAGENEX CODE OF ETHICS - each member of the management team has signed a code
of ethical conduct  disclosure which is affixed to the filing as exhibit 14. The
Code of Ethics increases the fiduciary duties of our financial management team.

ITEM 10.  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,
2006. 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  Tetragenex  warrants  exercisable at either $1 per
share or $6 per share expiring either in November 2009 or 2011. At


                                       28
<PAGE>

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 company
committee  would be  entitled  to an  additional  $10,000 per year to be paid in
company  options until it is determined the company has sufficient  funds to pay
the fee in cash.

If directors provide additional  consulting  services outside of their duties as
board members such as consulting, they may receive additional compensation above
their  cash  stipend.  At the time of the  bankruptcy  filing  all  payments  to
directors have been halted and are accruing.  We may offer directors  options in
lieu of their  accrued  cash  stipend.  In 2005 the  company  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.



              LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

                             EXECUTIVE COMPENSATION

<TABLE>
<CAPTION>
                                                                           NON-EQUITY    NONQUALIFIED
                                                                           INCENTIVE       DEFERRED
                                                       STOCK    OPTION        PLAN       COMPENSATION    ALL OTHER
   NAME AND PRINCIPAL           SALARY(c)  BONUS(d)  AWARDS(e) AWARDS(f) COMPENSATION(g)  EARNINGS(h)  COMPENSATION(i) TOTAL(j)
       POSITION(a)       YEAR(b)   ($)        ($)       ($)       ($)         ($)             ($)           ($)           ($)
----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>    <C>        <C>        <C>      <C>       <C>             <C>           <C>             <C>
Martin Schacker(1)       2006     300,000     45,000          -   132,627      -               -           14,000        491,627
Co-CEO/ Chairman         2005     300,000          -          - 1,121,020      -               -            6,000      1,427,020
----------------------------------------------------------------------------------------------------------------------------------
David Abel(2)            2006     110,000          -          -   126,860      -               -                -        236,860
Co-CEO/ Vice-Chairman    2005     110,000          -          -   587,470      -               -                -        697,470
----------------------------------------------------------------------------------------------------------------------------------
Dr. John Feighner(3)     2006     110,000          -          -    63,430      -               -                -        173,430
President/ Board Member  2005     220,000          -          -   335,150      -               -                -        555,150
----------------------------------------------------------------------------------------------------------------------------------
Robert Budetti(4)        2006           -          -          -   172,992      -               -                -        172,992
Board Member             2005           -          -          -   331,020      -               -            8,000        339,020
----------------------------------------------------------------------------------------------------------------------------------
Neil Martucci(5)         2006      95,000          -          -    63,430      -               -                -        158,430
Chief Financial Officer  2005      68,000     46,000          -   189,160      -               -                -        303,160
----------------------------------------------------------------------------------------------------------------------------------
Dr. Kenneth Cartwright(6)2006      84,000          -          -    63,430      -               -                -        123,430
Chief Scientific Officer 2005      60,000          -          -   380,595      -               -                -        440,595
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(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 and is still doing so. During 2005, Mr. Schacker  received an
     aggregate of 1,420,000  options  exercisable at $1 per share exercisable 15
     years from issuance as part of a one time executive option grant as well as
     177,000 options from the conversion of his accrued salary.  During 2006 Mr.
     Schacker  received  115,000  additional  options  under  the same  terms as
     before.
(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 differ  100% of his annual  salary and has thus
     received no cash compensation  since then. During 2005 Mr. Abel received an
     aggregate of 1,028,187  options  exercisable at $1 per share exercisable 15
     years from issuance. The options were granted for services provided as well
     as in exchange for forgiving accrued salary.  The options are fully vested.
     In 2006 Mr. Abel  received an  additional  110,000  options  under the same
     terms.
(3)  Dr.  Feighner was due to receive an annual  salary of $220,000 per year. As
     part of cost cutting measures at the time of the bankruptcy,  Dr. Feighner,
     at the  board's  request,  agreed to defer 100% of his annual  salary.  Dr.
     Feighner  received no cash  compensation  during 2005 or 2006. During 2005,
     Dr. Feighner received an aggregate of 955,976 options exercisable at $1 per
     share  exercisable  15 years from  issuance.  The options  were granted for
     services provided,  as well as in exchange for forgiving accrued salary. In
     2006, Dr.  Feighner  received  110,000  options under the same terms as the
     previous  options.  The options are fully vested. In June 2006 Dr. Feighner
     resigned as  President  due to health  reasons but remained a member of the
     Board. In August 2006 Dr. Feighner passed away.
(4)  Robert Budetti, is the former Chief Operating Officer of the company and is
     currently  a board  member.  He is paid as a  consultant  on a task by task
     basis. In 2005, he received an aggregate of 703,187 options  exercisable at
     $1 per share expiring 15 years from issuance for services  provided as well
     as in  exchange  for  forgiving  accrued  salary  owed to  him.  In 2006 he
     received an additional 150,000 options under the same terms.


                                       29
<PAGE>

(5)  Neil Martucci is the Chief Financial  Officer.  He received an aggregate of
     240,000 options in 2005, exercisable at $1 per share expiring 15 years from
     issuance. He received an additional 55,000 options in 2006.
(6)  Dr. Ken  Cartwright  is the Chief  Scientific  Officer of the company and a
     board  member.  Dr.  Cartwright is due an annual salary of $84,000 per year
     but has agreed to differ $2,000 per month. In 2005 he received an aggregate
     of  593,002  options  exercisable  at $1 per share  expiring  15 years from
     issuance for services provided to the company as well as the forgiveness or
     accrued  salaries  due to him.  In 2006 he received  an  additional  55,000
     options under the same terms.
*    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  the  footnotes  which  accompany  the
     financials.


                             DIRECTORS COMPENSATION

<TABLE>
<CAPTION>
                                                             NON EQUITY   NONQUALIFIED
                 FEES EARNED                                 INCENTIVE      DEFERRED
                  OR PAID IN      STOCK                         PLAN      COMPENSATION   ALL OTHER
      NAME           CASH         AWARD      OPTION AWARDS  COMPENSATION    EARNINGS    COMPENSATION     TOTAL
--------------------------------------------------------------------------------------------------------------------
<S>              <C>              <C>        <C>            <C>           <C>           <C>              <C>
William Comer       $12,500          0          $75,021           0             0             0          $87,521
Aaron Cohen         $12,500          0          $75,021           0             0             0          $87,521
Alf Akerman         $12,500          0          $75,021           0             0             0          $87,521
Bruce Bergman       $12,500          0          $75,021           0             0             0          $87,521
</TABLE>

Each  outside  board  member is due to receive an annual  stipend of $12,500 per
year for serving on the board.  In 2003 all board  members  agreed to defer such
payments  until the company felt it could  reinstate the  payments.  In 2005 all
members  agreed to convert all accrued  payments into company  options.  In 2006
each board member received 55,000 options  exercisable at $1 expiring in January
2020 for serving on the board. They  additionally  earned 10,000 warrants on the
same term if they served on one or more committee which each member does. Robert
Budetti is currently an outside director but does not receive the board stipend.

The compensation of all officers and directors is determined by the compensation
committee and then approved by the board. The compensation  committee meets on a
quarterly basis to discuss these matters.  Employees are evaluated by the CEO of
the  company  and he in  turn  discusses  his  opinions  with  the  compensation
committee. They ultimately decide on the compensation based on many factors such
as the current  situation of the company,  the  performance  of the officers and
directors as well as a comparison to the  compensation  of similar  companies in
the market place.

[Need to discuss the  compensation,  what is the base for it and how the Company
evaluate the management services]

EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS

EMPLOYMENT AGREEMENTS

On December 15, 1999, the Company entered into a three-year employment agreement
with its co-Chief  Executive  Officer  ("co-CEO")  and  co-Chairman of the Board
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 the  executive'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  executive  an  additional,  immediately  vested
five-year  option to acquire 125,000 shares of the Company's  common stock at an
exercise price of $17


                                       30
<PAGE>

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 the  company's  cost  reduction,  the  executive
agreed  to defer  half of his  $300,000  yearly  salary.  In  December  2005 the
executive 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. On December 31, 2006 the executive had deferred  compensation totaling
$226,707.   The  executive  was  granted  an  aggregate  of  1,420,000   options
exercisable  at $1 per share and  expiring  in 2020 during  2005.  The co-CEO is
related to the Company's other co-CEO.

On  September  30,  1999,  the  Company  entered  into a  three-year  employment
agreement with the Company's President Dr. John Feighner. The agreement provides
for an annual base salary of  $180,000,  which is subject to increase to between
$300,000 and $360,000 upon the execution of a major  licensing  agreement with a
pharmaceutical  company  for  the  licensing  of one or  more  of the  Company's
products. In connection with the employment agreement, the executive was granted
a ten-year option to acquire 390,625 shares of the Company's  common stock at an
exercise price of $12.00 per share,  one third of which vested upon execution of
the employment  agreement,  one third of which vested on September 30, 2000, and
the final third of which vested on  September  30,  2001.  On June 15, 2000,  in
consideration  of  services  provided  to the  Company,  the Board of  Directors
granted the President an additional 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 on June 15, 2000,  one third of which vested on June 15, 2001,  and
the final third of which  vested on June 15,  2002.  On December  11,  2001,  in
consideration  of services  provided to the Company,  the Board of Directors (i)
increased the executive's  annual salary to $225,000,  (ii) extended the term of
the  agreement by three years,  through and including  September  30, 2005,  and
(iii) granted the executive an additional,  immediately  vested five-year option
to acquire  62,500 shares of the Company's  common stock at an exercise price of
$17 per share.  In March  2006 the  executive's  contract  was  extended  for an
additional  3 years from the end of the previous  contract  under the same terms
and  conditions as before.  On April 6, 2003 as a result of the  Company's  cost
cutting the  executive  agreed to defer 100% of his yearly  salary.  In December
2005 the  executive  agreed to convert  $530,976  of his  deferred  salary  into
530,976  options to purchase  shares of Tetragenex  common stock at $1 per share
expiring December 20, 2020. As of December 31, 2006 he had deferred compensation
totaling  $124,045.  The executive  was granted an aggregate of 425,000  options
exercisable at $1 per share and expiring in 2020 during 2005.

CONSULTING AGREEMENTS

The Company had  entered  into an  agreement  with an  individual  to serve as a
Senior  Medical  Consultant  to the Company for a period of one year  commencing
October 21, 1999.  The  consultant  receives a fee of $3,000 per month,  plus an
additional  non-accountable  expense  reimbursement  of $500 per  month  for his
services.  In  connection  with  the  agreement,   the  consultant  received  an
immediately  vested  ten-year  option to acquire  10,000 shares of the Company's
common stock at an exercise price of $12.00 per share. On December 10, 1999, for
services  provided to the Company to such date, the Company's Board of Directors
granted the consultant an additional  five-year  option to acquire 10,000 shares
of the Company's common stock at an exercise price of $12.00 per share, 2,500 of
which  vested  on  December  10,  1999,  and  2,500 of which  vested  each  year
thereafter,  provided  that the  consulting  agreement  is  extended  beyond its
original term. The Company extended the term of the consulting agreement in both
2000 and 2001,  upon the same terms and conditions,  for an additional  year, to
October 21, 2001 and 2002, respectively. The


                                       31
<PAGE>

Company  again  extended  the term of the  consulting  agreement  in 2002  until
October  21,  2003,   at  a  fee  of  $4,000  per  month,   plus  an  additional
non-accountable  expense  reimbursement of $500 per month for his services.  The
Company  extended  the contract  until  October 21, 2004 at a rate of $3,250 per
month. He is currently  consulting on a month-to-month basis currently at a rate
of $2,250 per month.

On April 6,  2003,  members of the  scientific  team,  Dr.  Joseph  Hlavka,  Dr.
Gabriella  Nicolau,  and Dr.  Richard  Ablin  resigned  as  employees  to become
part-time  consultants  for the  company.  Each is  paid a  consulting  fee on a
month-to-month basis ranging from $1,000 to $5,000 per month.

In April 2003 the company  entered into ongoing  agreement with the 5 members of
its scientific blue ribbon panel to be paid hourly fees of between $300 and $500
per  hour  for work  performed  for the  company  as well as  reimbursement  for
expenses.

Several individuals were signed as consultants for the company to assist in with
the go forward plan and to make introductions to us during 2005. Each individual
is  compensated  in cash and  warrants.  An  aggregate  of  $44,850  was paid to
consultants as well as warrants during 2005. In 2006 an aggregate of $30,000 was
paid to such consultants as well as warrants.

ITEM 11.  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 25, 2007 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.

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 25, 2007,  there were 15,901,126  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 of this Annual
Report, there were no shares of preferred stock issued and outstanding.


                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                               SHARES OF                    PERCENTAGE OF
NAME AND ADDRESS                                             COMMON STOCK                   COMMON SHARES
OF BENEFICIAL OWNER(1)                                   BENEFICIALLY OWNED(2)            BENEFICIALLY OWNED
--------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                              <C>
Martin F. Schacker(3)                                          1,898,679                        10.70%
David Abel(4)                                                  2,143,622                        12.29
John P. Feighner, M.D.(5)                                      2,765,306                        15.48
Robert P. Budetti(6)                                           1,142,817                         6.72
Alf E.  F. Akerman(7)                                            432,708                         2.65
Bruce J. Bergman, Esq.(8)                                        460,521                         2.82
Kenneth Cartwright(9)                                            733,925                         4.42
William T. Comer(10)                                             555,089                         3.40
Aaron Cohen(11)                                                  500,155                         3.07
Neil Martucci(12)                                                307,643                         1.90
The William Shenk 1996 Revocable Trust(13)                     1,681,088                        10.14
All directors and officers as a group (__ persons)            12,621,550                        48.91
*less than one percent
</TABLE>

(1)  Unless otherwise indicated,  the address of each person listed below is c/o
     Tetragenex  Pharmaceuticals,  Inc.,  at 1 Maynard  Drive,  Suite 205,  Park
     Ridge, New Jersey.
(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 the  Chairman  and Co-CEO of  Tetragenex.  His holdings
     consist of 49,833 common shares of Tetragenex  stock which  represents .31%
     of the  outstanding  common  shares  which was  received  from  acting as a
     placement agent for the Company's early stage financing as Chairman of M.S.
     Farrell. Additionally, as the 1,712,000 options exercisable at $1 per share
     expiring in the year 2020 were granted to Mr. Shacker as consideration  for
     services  provided  to the  company as well as the  forgiveness  of accrued
     salaries due to Mr.  Schacker.  Additionally  the executive  currently owns
     62,169  warrants  to  purchase  Tetragenex  common  shares  at $1 per share
     expiring  November  30,  2009,  and 74,677 non voting  warrants to purchase
     Tetragenex  common shares 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 the
     company's private placements. Mr. Schacker is the nephew of David Abel
(4)  Mr. Abel is Vice Chairman and Co-CEO of Tetragenex. His holdings consist of
     606,341  common  shares  of  Tetragenex  stock  which  represents  3.8%  of
     outstanding common shares and was obtained from investments into several of
     the company's private placements. Additionally Mr. Abel holds 1,138,187 non
     voting immediately  vesting options exercisable at $1 per share expiring in
     the year 2020 which were  granted for  services  rendered to the company as
     Vice Chairman and Co-CEO as well as the forgiveness of accrued salaries due
     to Mr.  Abel.  He also  holds  262,864  non  voting  warrants  to  purchase
     Tetragenex  common shares at $1 per share  expiring  November 30, 2009, and
     136,230 non voting warrants to purchase  Tetragenex common shares at $6 per
     share  expiring   November  30,  2011  which  were  obtained  from  various
     investments  into the company's  private  placements as well as for being a
     partial  owner in the  investment  bank which was the  placement  agent for
     several  of the  company's  offerings.  David  Abel is the  uncle of Martin
     Schacker
(5)  Dr.  Feighner was a consultant for the company and a member of its board of
     directors.  His holdings  consist of 807,816  shares of  Tetragenex  common
     stock which represents 5.06% of outstanding common shares which he received
     from several investments in company's private placements. Secondly he holds
     1,010,976  non voting  immediately  vested  options to purchase  Tetragenex
     common  stock at $1 per share  expiring  in the year 2020 which he received
     for  services  provided to the  company as  President  and  director of the
     company as well as forgiveness of accrued salaries due to Dr. Feighner.  He
     holds 691,438 non voting warrants to purchase  Tetragenex  common shares at
     $1 per share expiring November 30, 2009, and 255,076 nonvoting  warrants to
     purchase  Tetragenex  common shares at $6 per share  expiring  November 30,
     2011 that were  obtained  as part of  investments  made in the  company  in
     several  private  placements  as well as from the  conversion  of  previous
     options  granted to Dr.  Feighner for  services  provided to the company as
     President.  Dr  Feighner  was a member of the Board of  Tetragenex  and its
     former President
(6)  Consists of 35,000 common shares of Tetragenex  stock which represents .22%
     of  outstanding  common  shares  as  well as  829,588  non  voting  options
     exercisable  at $1 per share  expiring in the year 2020,  10,000 non voting
     warrants  to purchase  Tetragenex  common  shares at $1 per share  expiring
     November 30, 2009, and 268,229 non voting warrants to purchase


                                       33
<PAGE>

     Tetragenex  common shares at $6 per share  expiring  November 30, 2011. Mr.
     Budetti is a member of the Board of Tetragenex
(7)  Alf  Akerman is a director of the  company  and his  holdings  consist of 0
     common  shares of  Tetragenex  stock as well as 418,125 non voting  options
     exercisable  at $1 per  share  expiring  in the year  2020  granted  to Mr.
     Akerman for services provided to the company as a director,  and 14,583 non
     voting  warrants  to  purchase  Tetragenex  common  shares  at $6 per share
     expiring  November 30, 2011  received  from  converting  previously  issued
     options received for service provided as director of the company.
(8)  Bruce  Bergman is a director of the company and his  holdings  consist of 0
     common  shares of  Tetragenex  stock as well as 408,125 non voting  options
     exercisable  at $1 per  share  expiring  in the year  2020  granted  to Mr.
     Bergman for services provided to the company as a director. Additionally he
     holds 20,000  warrants  exercisable at $1 per share  expiring  November 30,
     2009 and 32,396 non voting warrants to purchase Tetragenex common shares at
     $6 per share expiring November 30, 2011 received from converting previously
     issued options received for service provided as director of the company.
(9)  Dr.  Cartwright  is the  Chief  Scientific  Officer  and a Board  member of
     Tetragenex  and his holdings  consist of 27,500 common shares of Tetragenex
     stock which represents .17% of the outstanding  common shares obtained from
     an  investment  in the start up of the company.  He also holds  537,500 non
     voting  options  exercisable  at $1 per  share  expiring  in the year  2020
     received for services provided as Director and Chief Scientific  Officer as
     well as 135,502 non voting warrants to purchase Tetragenex common shares at
     $1 per share expiring  November 30, 2009, and 33,423 non voting warrants to
     purchase  Tetragenex  common shares at $6 per share  expiring  November 30,
     2011  received  from  converting  previously  issued  options  received for
     service provided as director of the company.
(10) William Comer is a Board member of Tetragenex  and his holdings  consist of
     147,172  common  shares  of  Tetragenex  stock  which  represents  .92%  of
     outstanding  common  shares  received  from  investments  in the  company's
     private placements as well as 293,125 non voting options  exercisable at $1
     per share  expiring in the year 2020 for  services  provided as director of
     the company.  Additionally he holds 112,500 non voting warrants to purchase
     Tetragenex  common shares at $1 per share  expiring  November 30, 2009, and
     2,292 non voting  warrants to purchase  Tetragenex  common shares at $6 per
     share expiring November 30, 2011 received from several investments into the
     company as well as for  converting  previously  issued  options  granted as
     director of the company.
(11) Aaron Cohen is a board member of  Tetragenex  and his  holdings  consist of
     111,092  common  shares  of  Tetragenex  stock  which  represents  .70%  of
     outstanding  common  shares  received  from  investments  in the  company's
     private placements as well as 293,125 non voting options  exercisable at $1
     per share  expiring  in the year 2020 issued for  services  provided to the
     company as director.  Additionally  he holds 91,250 non voting  warrants to
     purchase  Tetragenex  common shares at $1 per share  expiring  November 30,
     2009, and 4,688 non voting warrants to purchase Tetragenex common shares at
     $6 per share expiring November 30, 2011.
(12) Neil  Martucci is the CFO of Tetragenex  and his holdings  consist of 2,750
     common  shares of Tetragenex  stock which  represents  .01% of  outstanding
     common shares received from assisting with the company's private placements
     as a  representative  of M.S. Farrell as well as 295,000 non voting options
     exercisable at $1 per share expiring in the year 2020 received for services
     provided  to the  company  as CFP,  Additionally,  he  holds  0 non  voting
     warrants  to purchase  Tetragenex  common  shares at $1 per share  expiring
     November 30,  2009,  and 9,893 non voting  warrants to purchase  Tetragenex
     common shares at $6 per share expiring  November 30, 2011 for assisting the
     company in fund  raisings as a  representative  of the  placement  agent of
     several of the company's fundings.
(13) William  Shenk,  P.O.  Box  1991  La  Jolla  CA is a  beneficial  owner  of
     Tetragenex  and  his  holdings   consist  of  1,000,000  common  shares  of
     Tetragenex  stock which  represents  6.28% of outstanding  common shares as
     well as 650,000 non voting  warrants  exercisable  at $1 per share expiring
     November 30, 2009, 667 non voting  warrants to purchase  Tetragenex  common
     shares at $6 per share  expiring  November 30, 2011,  and 30,421 non voting
     warrants to purchase  Tetragenex  common shares at $1.65 per share expiring
     November 30, 2009


                                       34
<PAGE>


                               COMPENSATION PLANS
                               OPTIONS/SAR GRANTS

<TABLE>
<CAPTION>
                                                      % OF               % OF
                               NUMBER OF         TOTAL OPTIONS       TOTAL OPTIONS
                              SECURITIES            GRANTED             GRANTED
NAME AND                      UNDERLYING          TO EMPLOYEES        TO EMPLOYEES       EXERCISE     EXPIRATION
PRINCIPLE POSITION              OPTIONS             IN 2005             IN 2006            PRICE          DATE
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>                 <C>                 <C>         <C>
Martin Schacker                  115,000(1)                               12.9%            $1.00     January 2020
Chairman/Co-CEO                1,420,000(2)          19.87%                                 1.00     January 2020
                                 177,000(3)           2.48                                  1.00     January 2020
--------------------------------------------------------------------------------------------------------------------
David Abel                       110,000(4)                               12.33%           $1.00     January 2020
Co-CEO/Vice Chairman of          745,000(5)          10.42%                                 1.00     January 2020
the Board                        283,187(6)           3.96                                  1.00     January 2020
--------------------------------------------------------------------------------------------------------------------
Dr. John Feighner                 55,000(7)                                6.17%           $1.00     January 2020
Director/Former President        225,000(8)           3.15%                                 1.00     January 2020
                                 530,976(9)           7.43                                  1.00     January 2020
--------------------------------------------------------------------------------------------------------------------
Robert Budetti                   150,000(10)                              16.82%           $1.00     January 2020
Director                         530,500(11)          7.42%                                 1.00     January 2020
                                 259,588(12)          3.63                                  1.00     January 2020
--------------------------------------------------------------------------------------------------------------------
Dr. Kenneth Cartwright            55,000(13)                               6.17%           $1.00     January 2020
Chief Scientific                 110,502(14)          1.54%                                 1.00     January 2020
Officer/Director                 272,000(15)          3.80                                  1.00     January 2020
--------------------------------------------------------------------------------------------------------------------
Neil Martucci                     55,000(16)                               6.17%           $1.00     January 2020
Chief Financial Officer          240,000(17)          3.36%                                 1.00     January 2020
--------------------------------------------------------------------------------------------------------------------
Other Employees and Board        451,000                                  50.56%           $1.00     January 2020
                               2,354,700             32.94%                                 1.00     January 2020
</TABLE>

(1)  In 2006 the company issued 115,000  options to acquire shares of our common
     stock to Mr.  Schacker.  These  options  were  issued to Mr.  Schacker  for
     services  rendered  by 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 stock.  These  options are vested
     immediately and expire 15 years after issuance.
(2)  In 2005, we issued 1,420,000  options to acquire shares of our common stock
     to Mr.  Schacker.  These  options were issued to Mr.  Schacker for services
     rendered by 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 stock.  These options are vested  immediately
     and expire 15 years after issuance.
(3)  On December  20, 2005 Mr.  Schacker  agreed to forego  $177,000 in deferred
     salary and was issued  177,000  options  exercisable at $1.00 per share and
     expiring January 6, 2020 and vest immediately.
(4)  In 2006 we issued 110,000 options to purchase shares of our common stock to
     Mr. Able. These options were issued to Mr. Able for services rendered by as
     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 15
     years after issuance.
(5)  In 2005, we issued 745,000 options to acquire shares of our common stock to
     Mr. Able. These options were issued to Mr. Abel for services rendered by as
     the 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 15
     years after issuance
(6)  On December 20, 2005 Mr. Abel agreed to forego  $283,187 in deferred salary
     and was issued 283,187 options  exercisable at $1.00 per share and expiring
     January 6, 2020 and vest immediately.
(7)  In 2006 the company  issued 55,000  options to acquire shares of our common
     stock to Dr.  Feighner.  These  options  were  issued to Dr.  Feighner  for
     services rendered by President and as a member of the board.  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 15
     years after issuance.
(8)  In 2005, we issued 225,000 options to acquire shares of our common stock to
     Dr.  Feighner.  These  options  were issued to Dr.  Feighner  for  services
     rendered  by  President  and as a member of the board.  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 15
     years after issuance.


                                       35
<PAGE>


(9)  On December  20, 2005 Dr.  Feighner  agreed to forego  $530,976 in deferred
     salary and was issued  530,976  options  exercisable at $1.00 per share and
     expiring January 6, 2020 and vest immediately.
(10) In 2006, we issued 150,000 options to acquire shares of our common stock to
     Mr. Budetti. These options were issued to Mr. Budetti for services rendered
     by as the Chief  Operating  officer  and as  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 15
     years after issuance.
(11) In 2005, we issued 530,500 options to acquire shares of our common stock to
     Mr. Budetti. These options were issued to Mr. Budetti for services rendered
     by as the Chief  Operating  officer  and as  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 15
     years after issuance.
(12) On December  20,  2005 Mr.  Budetti  agreed to forego  $259,588 in deferred
     salary and was issued  259,588  options  exercisable at $1.00 per share and
     expiring January 6, 2020 and vest immediately.
(13) In 2006, we issued 55,000  options to acquire shares of our common stock to
     Dr.  Cartwright.  These options were issued to Dr.  Cartwright for services
     rendered by as the Chief Scientific officer and as 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 15
     years after issuance.
(14) On December 20, 2005 Dr.  Cartwright  agreed to forego $110,502 in deferred
     salary and was issued  110,502  options  exercisable at $1.00 per share and
     expiring January 6, 2020 and vest immediately.
(15) In 2005, we issued 530,500 options to acquire shares of our common stock to
     Dr.  Cartwright.  These options were issued to Dr.  Cartwright for services
     rendered by as the Chief Scientific officer and as 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 15
     years after issuance.
(16) In 2006, we issued 55,000  options to acquire shares of our common stock to
     Mr.  Martucci.  These  options  were issued to Neil  Martucci  for services
     rendered by as the 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 15 years  after
     issuance.
(17) In 2005,  we  issued  240,000 options to acquire shares of our common stock
     to  Mr. Martucci. These  options  were issued to Neil Martucci for services
     rendered  by  as the 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 15 years after
     issuance.

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, 2006.  None of
the named  executive  officers  exercised any of their stock options  during the
period from inception.



                                  OPTION AWARDS

<TABLE>
<CAPTION>
                            NUMBER OF         NUMBER OF
                            SECURITIES        SECURITIES
                            UNDERLYING        UNDERLYING
                           UNEXERCISED       UNEXERCISED          EQUITY            OPTION
                             OPTIONS           OPTIONS          INCENTIVE          EXERCISE           OPTION
                           EXERCISABLE       EXERCISABLE           PLAN             PRICE            EXERCISE
NAME                           (#)               (#)              AWARDS             ($)               DATE
-------------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>                <C>                <C>           <C>
Martin Schacker              1,712,000             0                 0               $1.00       January 6, 2020
David Abel                   1,138,187             0                 0                1.00       January 6, 2020
Kenneth Cartwright             437,502             0                 0                1.00       January 6, 2020
Neil Martucci                  295,000             0                 0                1.00       January 6, 2020
</TABLE>


                                       36
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On May 2004 the company  entered into an  agreement  with the holders of the 725
shares of Class D preferred  stock to eliminate the class D preferred  shares in
exchange for 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  comprise the preferred D  shareholders  agreed to convert their portion of
the $600,000  payment into equity.  A total of  $143,967.60  was converted  into
179,960  shares of Tetragenex  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 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 common stock. An aggregate of 1,066,722  shares of common stock was issued to
the former note holders and approximately $1,800,000 plus interest is due in May
2009. The long-term note due to the former Preferred D holders is secured by the
patents of the Company.

Executive  officers or persons nominated or charged by us to become directors or
executive officers. The Co-CEO and Chairman of the Board, Martin Schacker is the
nephew of the Co-CEO and Vice Chairman, David Abel.

The  Company  utilized  office  space  and  personnel  at the  Feigner  Research
Institute ("Institute"),  which then became owned by John P. Feighner MD Inc for
which it reimbursed  the Institute  under a cost  reimbursement  agreement.  The
Company also utilized the  institute to perform some  contract  research for the
Company.  The Company's former President was also an owner and a director of the
Institute.  In 2006 and 2005 the  company  reimbursed  John P  Feighner  MD Inc.
$8,773 and $31,651 for rent and  insurance.  As of December 31, 2006 the company
is no longer reimbursing John P Feighner MD, Inc. for any space leased.

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

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

* Filed herewith.

(b) Reports on Form 8-K: N/A


                                       37
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The company has appointed Demetrius & Company, L.L.C. as independent auditors to
audit the  financial  statements of the company.  The aggregate  fees billed for
services rendered by Demetrius & Company, L.L.C. for 2006 and 2005 are described
below:

     o    Audit Fees. Fees fro audit services totaled  approximately $54,000 and
          $80,000 for 2006 and 2005 respectively. Fees also include fees for the
          reviews of the company's quarterly financials.

     o    Tax Fees.  Fees for tax  services  totaled  approximately  $13,000 for
          2006.


                                       38
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, as amended,  the Company has duly caused this  annual  report to be
signed on its behalf by the  undersigned,  thereunto duly authorized on the 30th
day of March 2007.

                                          TETRAGENEX PHARMACEUTICALS, INC.


                                          By: /s/ MARTIN F. SCHACKER
                                              ----------------------------------
                                              Martin F. Schacker,
                                              Co-Chief Executive Officer,
                                              Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this amended  report has been signed by the following  persons in the capacities
and on the dates indicated.

         Signatures                      Title                        Date
---------------------------    ---------------------------------   ----------

/s/ DAVID ABEL                 Vice Chairman of the Board         March 30, 2007
----------------------         Co-Chief Executive Officer
    David Abel

/s/ ROBERT P. BUDETTI          Chief Operating Officer &          March 30, 2007
----------------------         Director
    Robert P. Budetti

/s/ KENNETH CARTWRIGHT         Senior Vice President of           March 30, 2007
----------------------         Drug Development
    Kenneth Cartwright         & Director

/s/ ALF E. AKERMAN             Director                           March 30, 2007
----------------------
    Alf E. Akerman

/s/ BRUCE J. BERGMAN ESQ.      Director                           March 30, 2007
-------------------------
    Bruce J. Bergman Esq.

/s/ WILLIAM T. COMER, PHD.     Director                           March 30, 2007
--------------------------
    William T. Comer, Phd.

/s/ AARON COHEN                Director                           March 30, 2007
----------------------
    Aaron Cohen



                                       39
<PAGE>


                         TETRAGENEX PHARMACEUTICAL, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                            NUMBER
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                                         <C>

Report of Independent Registered Public Accounting Firm..............................................         F-1

Balance Sheets as of December 31, 2006 and 2005......................................................         F-2

Statements of Operations for the Year Ended December 31, 2006 and for the Period from ___________             F-3
(Date of Inception) Through December 31, 2005........................................................

Statements of Stockholders' Deficit for the Year Ended December 31, 2006 and for the year end period          F-4
from December 31, 2005...............................................................................

Statements of Cash Flows for the Year Ended December 31, 2006 and for the year end period from                F-5
December 31, 2005....................................................................................

Notes to the Financial Statements....................................................................         F-7-15
</TABLE>

                                       40


<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

March 27, 2007

To the Board of Directors and Stockholders of
Tetragenex Pharmaceuticals, Inc.

We have audited the  accompanying  balance sheet of Tetragenex  Pharmaceuticals,
Inc. as of December 31, 2006, and the related statements of operations,  changes
in stockholders' deficit, and cash flows for each of the two years in the period
ended December 31, 2006. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our 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, 2006,  and the results of its operations and cash flows for each
of the two years in the period  ended  December  31, 2006,  in  conformity  with
accounting principles generally accepted in the United States of America.


/s/ Demetrius & Company, L.L.C.

Wayne, New Jersey
March 27, 2007



                                       F-1


<PAGE>

                 TETRAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARY

                                 BALANCE SHEETS

                                DECEMBER 31, 2006

<TABLE>
<S>                                                         <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                      $     1,965,960
Prepaid insurance and other current assets                              18,169
                                                            ---------------------
                                                               $     1,984,129

Property and equipment, net                                    $         9,647
Security Deposit                                                        18,958
Patents, net                                                           399,595
                                                            ---------------------
         Total assets                                          $     2,412,329
                                                            =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses                          $       873,206
Accrued interest                                                       120,955
                                                            ---------------------
         Total current liabilities                             $       994,161

LONG TERM LIABILITY
Notes payable                                                  $     1,882,362
                                                            ---------------------
         Total liabilities                                     $     2,876,523
                                                            ---------------------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A preferred stock - $.01 par value:
  5,000,000 shares authorized;
  0 shares outstanding                                                       -
Common stock - $.001 par value:
  50,000,000 shares authorized
  15,901,126 shares issued and outstanding                     $        15,901
Additional paid-in capital                                          98,932,619
Accumulated deficit                                                (99,412,714)
                                                            ---------------------
         Total stockholders' equity                            $      (464,194)
                                                            ---------------------
                                                               $     2,412,329
                                                            =====================
</TABLE>


   The accompanying footnotes are an integral part of the financial statements

                                       F-2


<PAGE>

                 TETRAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARY
                            STATEMENTS OF OPERATIONS
                        TETRAGENEX PHARMACEUTICALS, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                ------------------------------------
                                                                                      2006              2005
--------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>
REVENUE
Contract revenue                                                                   $           -    $           -
                                                                                ------------------------------------
                                                                                   $           -    $           -
                                                                                ------------------------------------
OPERATING EXPENSES
Research and development                                                                 $41,068       $1,220,935
Compensation expense                                                                   1,818,029        7,132,234
Compensation incurred from Warrant Restructuring                                               -        2,451,419
Travel                                                                                    90,507           43,524
General and administrative                                                               305,059          305,487
Professional fees                                                                        165,981          243,396
Payroll taxes and employee benefits                                                       80,920          136,636
Consulting fees                                                                          333,841          387,202
Rent and occupancy                                                                       120,561          133,829
Depreciation and amortization                                                             43,854           61,943
                                                                                ------------------------------------
LOSS BEFORE OTHER INCOME(EXPENSE) AND TAX BENEFIT                                  $  (2,999,820)   $ (12,116,605)

OTHER INCOME (EXPENSE)
Relief from liabilities                                                                        -    $      56,314
Interest income and other                                                          $      88,053           23,443
Interest expense                                                                         (57,872)         (59,148)
                                                                                ------------------------------------

LOSS BEFORE TAX BENEFIT                                                               (2,969,639)     (12,095,996)
Sales of tax losses                                                                        5,638          315,278
                                                                                ------------------------------------
NET LOSS                                                                           $  (2,964,001)   $ (11,780,718)
                                                                                ------------------------------------

Basic and diluted net loss per share                                               $       (0.19)   $       (0.92)
                                                                                ====================================

Weighted average common shares outstanding                                            15,490,298       12,811,243
                                                                                ------------------------------------
</TABLE>


   The accompanying footnotes are an integral part of the financial statements

                                       F-3


<PAGE>

                 TETRAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARY
                        TETRAGENEX PHARMACEUTICALS, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2005 AND 2006


<TABLE>
<CAPTION>
                                                             SHARES ISSUED
                                                                   AND                                 ADDITIONAL
                                                              OUTSTANDING                               PAID-IN
                                                              COMMON STOCK        COMMON STOCK          CAPITAL
------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                    <C>                 <C>
BALANCE, DECEMBER 31, 2004                                      10,827,927       $      10,828       $  82,410,819
                                                          --------------------------------------------------------------

Issuance of common stock for cash                                3,708,961               3,708           3,582,012
Conversion of Dip Notes and interest into common stock              64,932                  65              51,881
Warrant restructuring                                                                                    2,433,041
Issuance of common stock and options for services                   36,218                  37           7,877,433
Cancellation of Preferred A stock dividends                                            146,701             146,701
                                                          --------------------------------------------------------------
Net income
                                                          --------------------------------------------------------------

BALANCE, DECEMBER 31, 2005                                      14,638,038       $      14,638       $  96,501,887
Issuance of common stock for cash                                1,249,138               1,249           1,372,245
Issuance of common stock and options for services                   13,950                  14           1,058,487
Net income
                                                          --------------------------------------------------------------

BALANCE, DECEMBER 31, 2006                                      15,901,126       $      15,901       $  98,932,619
                                                          ==============================================================


<CAPTION>
                                                            ACCUMULATED
                                                              DEFICIT               TOTAL
--------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>
BALANCE, DECEMBER 31, 2004                                 $ (84,667,995)      $  (2,246,348)
                                                           ---------------------------------------

Issuance of common stock for cash                                                  3,585,720
Conversion of Dip Notes and interest into common stock                                51,946
Warrant restructuring                                                              2,433,041
Issuance of common stock and options for services                                  7,877,470
Cancellation of Preferred A stock dividends
                                                           ---------------------------------------
Net income                                                 $ (11,780,718)      $ (11,780,718)
                                                           ---------------------------------------

BALANCE, DECEMBER 31, 2005                                 $ (96,448,713)      $      67,812
Issuance of common stock for cash                                                  1,373,494
Issuance of common stock and options for services                                  1,058,501
Net income                                                    (2,964,001)         (2,964,001)
                                                           ---------------------------------------

BALANCE, DECEMBER 31, 2006                                 $ (99,412,714)      $    (464,194)
                                                           =======================================
</TABLE>


   The accompanying footnotes are an integral part of the financial statements

                                       F-4


<PAGE>

                 TETRAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARY
                        TETRAGENEX PHARMACEUTICALS, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                       ---------------------------------------------
                                                                                2006                  2005
--------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                                   $  (2,964,001)        $ (11,780,718)
     ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING
       ACTIVITIES
     DIP interest added to notes payable                                               -                     -
     Warrant restructuring                                                             -             2,433,041
     Depreciation and amortization                                                43,854                61,943
     Stock, option and warrant compensation                                    1,097,368             7,920,940
     CHANGES IN OPERATING ASSETS AND LIABILITIES
     Prepaid insurance and other current assets                                   57,403               135,275
     Accounts payable and accrued expenses                                       132,413            (1,172,459)
     Accrued interest payable                                                     57,872                57,203
                                                                       ---------------------------------------------
         Net cash used in operating activities                             $  (1,575,091)        $  (2,344,775)
                                                                       ---------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment                                              (3,485)               (4,372)
Cash paid for patents                                                            (63,793)              (82,773)
                                                                       ---------------------------------------------
         Net cash (used in) provided by investing activities                     (67,278)              (87,145)
                                                                       ---------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                                         1,334,627             3,542,251
Payment of notes payable                                                               -              (446,305)
                                                                       ---------------------------------------------
         Net cash provided by financing activities                             1,334,627             3,095,946
                                                                       ---------------------------------------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            (307,742)              664,026

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                   2,273,702             1,609,676
                                                                       ---------------------------------------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                     $   1,965,960         $   2,273,702
                                                                       =============================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for taxes                                                        $           -         $           -
                                                                       ---------------------------------------------
Cash paid for interest                                                     $           -         $           -

NON CASH TRANSACTIONS
Stock, options, and warrants issued for compensation                           1,097,368             7,920,940
</TABLE>


   The accompanying footnotes are an integral part of the financial statements

                                       F-5


<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

THE COMPANY

     Tetragenex  Pharmaceuticals  Inc. was  incorporated in 2000 in the State of
     Delaware while  Innapharma,  Inc, its predecessor was  incorporated in 1989
     also in the State of Delaware.  The corporate  headquarters  for Tetragenex
     are located in Park Ridge, New Jersey.  On November 23, 2004 Innapharma Inc
     merged into its wholly owned subsidiary Tetragenex Pharmaceuticals, Inc. As
     part of the merger all existing shares, options and warrants converted into
     securities of Tetragenex on a 1 for 4 basis. All numbers relating to shares
     of the Company have been restated to reflect the 1 for 4 conversion ratio.

     Tetragenex   Pharmaceuticals  Inc.   ("Tetragenex")("The   Company")  is  a
     biopharmaceutical  company working to discover,  develop and  commercialize
     proprietary  pharmaceutical  products that treat serious diseases for which
     current  therapies are inadequate.  Innapharma has developed and patented a
     novel  platform  of  pharmaceutical   "small  chain"  peptides  that  treat
     depression,  anxiety  and  other  central  nervous  system  disorders.  The
     Company's   leading  product   candidate,   the   antidepressant   compound
     Nemifitide, is currently in human clinical trials.

     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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES

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

     The  Company's  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.

     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.


                                      F-6

<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


     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 2005 and 2006 and thus
     no impairment loss was taken in those years.

     PATENTS

     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 $360,315 at December 31, 2006.  Amortization
     expense  related to patents  was  $34,538  and  $51,007 for the years ended
     December 31, 2006 and 2005 respectively.

     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  antidilutive.  Accordingly,  basic and diluted earnings per share
     are identical.


                                      F-7


<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


     STOCK BASED COMPENSATION

     On December 16, 2004 immediately  following the revised pronouncement 123-R
     we early 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 the company to treat  employees and
     others on an equal basis.  Had we not adopted  123-R the company 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.   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 May  2005,  the  FASB  issued  SFAS 154  Accounting  Changes  and  Error
     Corrections which requires  accounting changes to be applied  retroactively
     as of the  earliest  practicable  date  and all  financial  statements  for
     periods  subsequent to that date to reflect the adopted  principle as if it
     had been in effect for all periods.  SFAS 154 is effective for fiscal years
     beginning after December 15, 2005. Company does not believe the adoption of
     SFAS No. 154 will have a material impact on its financial statements.

     In  February  2006,  the FASB  issued  Statement  of  Financial  Accounting
     Standard  (SFAS) No. 155 (SFAS No.  155),  ACCOUNTING  FOR  CERTAIN  HYBRID
     FINANCIAL  INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140, to
     simplify and make more  consistent  the  accounting  for certain  financial
     instruments. Specifically, SFAS No. 155 amends SFAS No. 133, ACCOUNTING FOR
     DERIVATIVE  INSTRUMENTS  AND  HEDGING  ACTIVITIES,  to  permit  fair  value
     re-measurement  for  any  hybrid  financial  instrument  with  an  embedded
     derivative that otherwise would require bifurcation provided that the whole
     instrument  is  accounted  for on a fair value  basis.  Prior to fair value
     measurement,  however,  interests in securitized  financial  assets must be
     evaluated to identify interests containing embedded  derivatives  requiring
     bifurcation. The amendments to SFAS No. 133 also clarify that interest-only
     and principal-only  strips are not subject to the requirements of the SFAS,
     and that concentrations of credit risk in the form of subordination are not
     embedded derivatives. Finally, SFAS No. 155 amends SFAS No. 140, ACCOUNTING
     FOR THE IMPAIRMENT OR DISPOSAL FOR LONG-LIVED ASSETS, to allow a qualifying
     special-purpose entity (SPE) to hold a derivative financial instrument that
     pertains to a beneficial  interest other than another derivative  financial
     instrument.  SFAS No. 155 applies to all financial  instruments acquired or
     issued  after the  beginning  of an entity's  first fiscal year that begins
     after September 15, 2006,


                                      F-8


<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


     with earlier application  allowed. The Company does not anticipate that the
     adoption of this  statement to have a material  impact on its  consolidated
     financial statements.

     The FASB has recently announced a new  interpretation,  FASB Interpretation
     No. 48,  "Accounting  for Uncertainty in Income Taxes" (FIN 48), which will
     be effective for fiscal years  beginning  after  December 15, 2006,  FIN 48
     clarifies the accounting for  uncertainty in income taxes  recognized in an
     enterprise's  financial  statements in accordance  with FASB  statement No.
     109,  "Accounting  for  Income  Taxes".  FIN 48  prescribes  a  recognition
     threshold and measurement attribute for the financial statement recognition
     and  measurement  of a tax position  taken or expected to be taken in a tax
     return.  FIN 48 also provides guidance on  de-recognition,  classification,
     interest and  penalties,  accounting  in interim  periods,  disclosure  and
     transition. The Company does not believe the adoption of FIN 48 will impact
     its consolidated financial statements.

     In September  2006, the FASB issued SFAS No. 157 "Fair Value  Measurements"
     ("SFAS 157").  SFAS 157 provides  accounting  guidance on the definition of
     fair value and  establishes a framework  for  measuring  fair value in U.S.
     GAAP and expands  disclosures  about fair value  measurements.  SFAS 157 is
     effective for financial  statements issued for fiscal years beginning after
     November 15, 2007. We plan to adopt the  provisions of SFAS 157 on November
     1, 2008. The  implementation of SFAS 157 is not expected to have a material
     impact on our results of operations or financial condition.

     QUANTIFYING AND EVALUATING THE MATERIALITY OF UNRECORDED MISSTATEMENTS.  In
     September 2006, the SEC issued SAB No. 108 ("SAB 108"), which addresses the
     process  for  considering  the  effects  of prior year  misstatements  when
     quantifying  misstatements  in current year financial  statements.  SAB 108
     expresses  the SEC  Staff's  views  regarding  the  process of  quantifying
     financial  statement  misstatements.  The  interpretations  in SAB  108 are
     intended  to  address  diversity  in  practice  in  quantifying   financial
     statement  misstatements  and the potential under current  practice for the
     build-up of improper  balance sheet amounts.  The application of SAB 108 is
     effective  for  financial  statements  issued for an interim  period of the
     first  fiscal  year  ending  after  November  15,  2006.  We will adopt the
     interpretations  of SAB 108 on November 1, 2006. The  implementation of SAB
     108 is not expected to have a material  impact on our results of operations
     or financial condition.


                                      F-9


<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


3    PROPERTY AND EQUIPMENT

     Property and equipment are summarized as follows:

                                          DECEMBER 31, 2006
     ---------------------------------------------------------
     Furniture and fixtures                  $    82,995
     Machinery and equipment                      78,761
                                         ---------------------
                                                 161,756

     Less accumulated depreciation               152,109
                                         ---------------------
                                             $     9,647
                                         =====================

     Depreciation  expense  for the years ended  December  31, 2006 and 2005 was
     $9,315 and 10,876 respectively.

4    INCOME TAXES

     The income tax  benefit  for the year  ended,  December  31, 2006 and 2005,
     includes:

                             2006              2005
     ------------------------------------------------------
     Federal                        -                -
     State                     $5,638         $315,278
                       ------------------------------------
                               $5,638         $315,278
     DEFERRED
     Federal                        -                -
     State                          -                -
                       ------------------------------------
                               $5,638         $315,278
                       ====================================

     There is no current  provision  for  corporate  income  taxes for the years
     ended December 31, 2006,  and 2005 as the Company  generated net losses for
     income tax  purposes.  At December 31, 2006,  the Company had available for
     federal   income  tax  purposes  net  operating   loss  carry  forwards  of
     approximately  $69,447,000  that expire through 2026. At December 31, 2006,
     the Company had credits for increasing research activities of approximately
     $825,000 that expire through the years 2015 through 2022.


                                      F-10


<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


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

                                            DECEMBER 31, 2006
     ----------------------------------------------------------
     DEFERRED TAX ASSETS:
     Net operating loss carry forwards         $24,617,000
     Research and development credits              825,000
                                           --------------------
              Total deferred tax assets         25,442,000
     Valuation allowance                       (25,442,000)
                                           --------------------
              Net deferred tax assets                   $0
                                           ====================

     The net change in the  valuation  allowance was an increase of $601,368 and
     $751,442 in 2006 and 2005 respectively.

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

<TABLE>
<CAPTION>
                                                        2006                  2005
     ---------------------------------------------------------------------------------------
<S>                                            <C>                      <C>
     Expected federal tax at statutory rate       $    (520,100)        $    (914,000)
     State taxes, net of federal tax rate               (86,900)             (152,700)
     Change in valuation allowance                      601,368               751,442
                                               ---------------------------------------------
                                                  $      (5,638)        $    (315,278)
                                               =============================================
</TABLE>

     As of  December  31,  2006 we had net  operating  loss carry  forwards  for
     federal income tax purposes of  approximately  $69,457,000  which expire in
     the years 2008  through  2026 and  federal  research  and  development  tax
     credits of  approximately  $825,000  which expire in the years 2015 through
     2022.

     As of December 31, 2006 we had net operation  loss carry forwards for state
     income tax purposes of approximately $5,241,000 which expire through 2012.

     Utilization  of our 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  2006  and 2005  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 $5,638
     and $315,278 respectively.


                                      F-11


<PAGE>


                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


NOTES PAYABLE

     The company has a  $1,882,362  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.  See note 7,  stockholder's
     equity-Class D preferred stock for additional details.

STOCKHOLDERS' EQUITY

     CLASS A CUMULATIVE PREFERRED STOCK

     During 1994,  the Company  authorized  305,325  shares of Class A Preferred
     Stock ("Class A  Preferred"),  $.001 par value and issued 305,325 shares in
     connection with a private placement offering. The liquidation preference of
     each share of Class A Preferred is $16.96 per share plus unpaid  dividends.
     On May 30, 1999, the Class A Preferred began to accrue  dividends at a rate
     of 15% per annum. The dividends are payable only when declared by the board
     of directors or upon conversion of the Class A Preferred shares.  All class
     A shares were converted into common stock and as of December 31, 2006 there
     are no Class A preferred shares outstanding.

     In December 2005 as per the terms of the Company's  plan of  Reorganization
     the company wrote off the $146,701 in accrued dividends from the Innapharma
     preferred A stock.

     STOCK OPTIONS

     The Company had options  outstanding  that were issued in  accordance  with
     three stock option plans,  the Special  Stock Option Plan (the "SSOP"),  an
     Incentive  Stock  Option  Plan (the  "ISOP")  and a Bonus  Share  Plan (the
     "BSP"),  each of which  have  been  authorized  by the  Company's  Board of
     Directors. The SSOP and the ISOP were adopted in July 1993, and the BSP was
     adopted in April 1994.

     The options granted under the SSOP were issued in a special  one-time grant
     on July 1, 1993 and are non-qualified stock options. No further options may
     be  granted  under the SSOP.  Under the SSOP as of  December  31,  2003 and
     December 31, 2004 there were outstanding  options to purchase 86,500 shares
     of the Company's  Common Stock.  All of such options were  exercisable at a
     price of $2 per share and they  expire no more than 10 years  from the date
     of grant.  As of December 31, 2005 there were no options  granted under the
     SSOP outstanding

     The ISOP permits the grant of options which may either be "incentive  stock
     options"  ("ISOs"),  within  the  meaning of  Section  422 of the  Internal
     Revenue Code of 1986,  as amended (the  "Code"),  or  "non-qualified  stock
     options" ("NSOs"), which do not meet the requirements of Section 422 of the
     Code. All employees,  officers, and directors, of the Company were eligible
     to be granted options under the ISOP.

     Within  the  limits  of the  ISOP,  the  Compensation  Committee,  which is
     selected by the  Company's  Board of Directors,  has  exclusive  authority,
     among other things,  to select those to whom options  shall be granted,  to
     determine  the  number  of shares of  Common  Stock to be  covered  by each
     option, and to determine the other terms of each option, including, but not
     limited to, the exercise price and duration.


                                      F-12


<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


     Options to  purchase  37,409  shares of Common  Stock of the  Company  were
     outstanding at December 31, 2003 and December 31, 2004 under the ISOP there
     were no options granted under the ISOP outstanding.

     The BSP options were issued to management  of the Company upon  achievement
     of certain performance targets.  There were 126,875 options that issued and
     outstanding at December 31, 2003 and 2004 respectively  under the BSP at an
     exercise price of $1.24 per share.  No further options may be granted under
     the BSP. As of December  31, 2005 there were no options  granted  under the
     BSP outstanding.

     As of December 31, 2003 there were outstanding non-plan options to purchase
     2,447,405  shares of the  Company's  Common  Stock.  All such  options  are
     exercisable  at prices  between  $0.20 and $26 per share and expire no more
     than 10 years  from the date of  grant.  There  were no  additional  grants
     during 2004 or 2005.

     On April 6, 2005 in connection  with the Company's  warrant  conversion all
     options  issued  prior to 2005  were  converted  into  Tetragenex  warrants
     exercisable either at $1 or $6. The Company incurred  compensation  expense
     due to the conversion of existing  options into warrants.  It was accounted
     for as a two  step  process.  The  value  of  the  existing  options  being
     converted was valued  immediately  before the modification  using the black
     scholes method and the value was credited to reduce  compensation  expense.
     The warrants,  which the options converted in to were also valued using the
     black scholes method and expensed to compensation.  The net amounts charged
     and credited to compensation expense ultimately  represents the incremental
     compensation  cost measured as the excess of the fair value of the modified
     options/warrants  determined in  accordance  with SFAS 123(R) over the fair
     value of the original options/warrants  immediately before their terms were
     modified.

     On January 5, 2005 the Company issued an aggregate of 3,787,500  options to
     officers,  directors  and  employees  of the  Company.  The options have an
     exercise price of $1 per share and expire April 6, 2021. On August 23, 2005
     an aggregate of 1,777,000  options were granted to officers,  directors and
     employees of the Company also with an exercise price of $1 per share and an
     expiration  date of April 6, 2021.  Additionally  in December  2005 several
     members of the  management  team,  employees  and board  members  agreed to
     convert either all or some of their deferred  salaries or deferred payments
     due into options of the company.  An  aggregate  of  $1,581,753  of accrued
     salaries was converted into 1,581,753 options to purchase Tetragenex common
     stock at $1 per share  expiring  December  2020. On December 31, 2005 there
     were 7,146,253  options  outstanding.  Expenses  totaling  $5,882,003  were
     charged to Compensation Expense representing the Black Scholes valuation of
     the  options  issued.  A credit of  $597,216  was  entered to  Compensation
     Expense  resulting from the cancellation of the existing  2,698,189 options
     during 2005.

     In 2006 an aggregate of 892,000 options were granted to officers, directors
     and employees of the company.  Expenses totaling  $1,028,965.74 was charged
     to compensation expense and board expense in 2006.


                                      F-13


<PAGE>


                        TETRAGENEX PHARMACEUTICALS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)


     The following table presents the combined activity of the plan and non-plan
     stock option issuances for the years ended December 31, 2005 and 2006:

<TABLE>
<CAPTION>
                                                  OPTIONS           WEIGHTED AVERAGE
                                                                     EXERCISE PRICE
     -----------------------------------------------------------------------------------
<S>                                        <C>                      <C>
     Outstanding at December 31, 2004              2,698,189           $   13.20
     Granted in 2005                               7,146,253                1.00
     Converted to equity                           2,698,189               13.20
                                           ---------------------------------------------
     Outstanding at December 31, 2005              7,146,253           $    1.00
     Granted during 2006                             892,000                1.00
                                           ---------------------------------------------
     Outstanding at December 31, 2006              8,038,253           $    1.00
                                           =============================================
</TABLE>

     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, 2006:

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                           -----------------------------------------   ------------------------------------------
                                          WEIGHTED    WEIGHTED                          WEIGHTED       WEIGHTED
            RANGE OF       NUMBER OF       AVERAGE     AVERAGE         NUMBER OF        AVERAGE        AVERAGE
         EXERCISE PRICE     OPTIONS   EXERCISE PRICE  REMAINING LIFE    OPTIONS    EXERCISE PRICE  REMAINING LIFE
         --------------------------------------------------------------------------------------------------------
<S>                       <C>         <C>             <C>              <C>         <C>             <C>
              $1.00        8,038,253        $1.00          13.3         8,038,253         $1.00          13.3
</TABLE>

     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:

                                        2006              2005
     -----------------------------------------------------------------
     Expected life (years)               13.3             14.3
     Risk-free interest rate             4.84            4.375%
     Volatility                            75%             117%

     On July 11,  2006 the Board  authorized  the  issuance  of 852,000  options
     exercisable  at $1 per share with an expiration of January 2020 to existing
     board  members,   officers  and  employees  of  the  company  for  services
     performed.  They also authorized the granting of 10,000 options per year to
     any board member who is part of a committee payable at the end of the year.
     On December 31, 2006 a total of 40,000 options were granted.

     WARRANTS

     On April 6, 2005 as part of the  Company's  private  placement  and warrant
     exchange all existing  employee options and all existing warrants that were
     not  previously  converted,   were  converted  into  warrants  to  purchase
     Tetragenex  common shares either at $1 per share expiring November 30, 2009
     or at $6 per share  expiring  November 30, 2011.  An aggregate  expense was
     issued  to  warrant  restructuring   totaling  $3,030,256  to  reflect  the
     cancellation of existing warrants and issuance of new warrants based on the
     Black Scholes calculation.


                                      F-14

<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

     On April 6, 2005 the Company agreed to issue 100,000  warrants  exercisable
     at $1 per share expiring 11/30/2009 to two separate law firms in connection
     with work performed on The Company's pending SB-2 as well as the settlement
     with its former patent attorneys respectively.  An expense to legal fees of
     $123,400  was entered to reflect the value of these  warrants  based on the
     Black Scholes calculation

     In May 2005 the company issued a total of 150,000  warrants to purchase the
     company's  common  stock at $1 per  share  expiring  November  30,  2009 as
     compensation  for  consulting  with  the  company  as well  as  introducing
     potential  investors  to the  company.  An  expense to  consulting  fees of
     $99,750  was entered to reflect  the value of these  warrants  based on the
     Black Scholes calculation.

     In the fourth quarter a total of 86,055 warrants were issued to consultants
     for aiding in the fundraising  process.  As a result a total of $54,452 was
     expensed to consulting  expenses for the quarter based on the black scholes
     calculation.

     At December  31,  2006,  the Company had  outstanding  warrants to purchase
     11,402,721  shares of the Company's  common stock at exercise prices of $1,
     $1.65 and $6 per share.  These  warrants have  expirations  of November 30,
     2009 and November 30, 2011.

     The following table presents, for each of the following classes of warrants
     as  determined  by range  of  exercise  price,  the  information  regarding
     warrants outstanding and weighted-average exercise price as of December 31,
     2006:



                        WARRANTS OUTSTANDING

     RANGE OF                NUMBER OF           WEIGHTED AVERAGE
     EXERCISE PRICE           WARRANT             EXERCISE PRICE
     ---------------------------------------------------------------
     $1.00                    7,150,898                 $1.00
     $1.65                      645,322                 $1.65
     $6.00                    3,606,501                 $6.00

     COMMON STOCK TRANSACTIONS

     On April 6, 2005 the company had the final closing of its private placement
     dated Aug 20, 2004.  The company  issued an  aggregate of 1,143,668  common
     shares of its stock and received cash proceeds of $914,934

     On September 23, 2005 as part of the company's  Placement  memorandum dated
     July 2005 the company issued  1,977,000  common shares of Tetragenex  stock
     and 1,977,000  warrants to purchase  additional shares of Tetragenex common
     stock in exchange  for gross  proceeds of  $1,977,000  The company  paid an
     aggregate  of $23,750  to  several  consultants  who  assisted  in the fund
     raising process.  Thus the net proceeds to the company totaled  $1,953,250.
     Investors  who  participated  in the deal  purchased  units for $25,000 per
     unit.  Each unit consisted of 25,000 shares of Tetragenex  common stock and
     25,000  warrants to purchase  shares of  Tetragenex  common stock at $1 per
     share expiring 11/30/09.


                                      F-15
<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

     On November 21, 2005 as part of the company's  Placement  memorandum  dated
     July 2005 the company issued 481,000 common shares of Tetragenex  stock and
     warrants to purchase an  additional  481,000  common  shares of  Tetragenex
     stock in  exchange  for gross  proceeds of  $481,000  The  company  paid an
     aggregate  of $16,100 to a  consultant  who  assisted  in the fund  raising
     process.  Thus the net proceeds to the company totaled $464,900.  Investors
     who  participated  in the deal purchased  units for $25,000 per unit.  Each
     unit  consisted  of 25,000  shares of  Tetragenex  common  stock and 25,000
     warrants  to purchase  shares of  Tetragenex  common  stock at $1 per share
     expiring 11/30/09.

     On November 28, 2005 as part of the company's  Placement  memorandum  dated
     July 2005 the company issued 175,000 common shares of stock and warrants to
     purchase an additional 175,000 common shares of stock in exchange for gross
     proceeds  of  $175,000  The  company  paid  an  aggregate  of  $5,000  to a
     consultant who assisted in the fund raising process.  Thus the net proceeds
     to the company  totaled  170,000.  Investors who  participated  in the deal
     purchased  units for $25,000 per unit. Each unit consisted of 25,000 shares
     of  Tetragenex  common  stock and 25,000  warrants  to  purchase  shares of
     Tetragenex common stock at $1 per share expiring 11/30/09.

     During  2005 a total of 40,318  common  shares  were  issued to our outside
     financial consultant as partial payment for services performed. As a result
     of this transaction $40,277 was charged to additional paid in capital.

     In March 2006 as part of the company's Placement memorandum dated July 2005
     the company issued  352,000  common shares of Tetragenex  stock and 352,000
     warrants  to  purchase  additional  shares of  Tetragenex  common  stock in
     exchange for gross  proceeds of $352,000.  The company paid an aggregate of
     $9,200 to several  consultants  who assisted in the fund  raising  process.
     Thus the net  proceeds  to the  company  totaled  $342,800.  Investors  who
     participated  in the deal purchased  units for $25,000 per unit.  Each unit
     consisted of 25,000 shares of Tetragenex  common stock and 25,000  warrants
     to purchase  shares of  Tetragenex  common  stock at $1 per share  expiring
     11/30/09.

     On April 4, 2006 as part of the company's  Placement  memorandum dated July
     2005 the company  issued  275,000  common  shares of  Tetragenex  stock and
     275,000 warrants to purchase  additional  shares of Tetragenex common stock
     in exchange for gross  proceeds of $275,000.  The company paid an aggregate
     of $5,000 to several  consultants who assisted in the fund raising process.
     Thus the net  proceeds  to the  company  totaled  $370,000.  Investors  who
     participated  in the deal purchased  units for $25,000 per unit.  Each unit
     consisted of 25,000 shares of Tetragenex  common stock and 25,000  warrants
     to purchase  shares of  Tetragenex  common  stock at $1 per share  expiring
     11/30/09.

     On May 21, 2006 as part of the company's  Placement  memorandum dated April
     2006 the company  issued  559,267  common  shares of  Tetragenex  stock and
     559,267 warrants to purchase  additional  shares of Tetragenex common stock
     in exchange for gross  proceeds of $727,047.  The company paid an aggregate
     of $30,000 to several consultants who assisted in the fund raising process.
     Thus the net  proceeds  to the  company  totaled  $697,047.  Investors  who
     participated  in the deal purchased  units for $100,000 per unit. Each unit
     consisted of 76,923 shares of



                                      F-16
<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

     Tetragenex   common  stock  and  76,923  warrants  to  purchase  shares  of
     Tetragenex common stock at $1.65 per share expiring 5/21/09.

     During  the first  quarter  of 2006 a total of 10,200  common  shares  were
     issued to our outside financial  consultant as partial payment for services
     performed.  As  a  result  of  this  transaction  $10,190  was  charged  to
     additional paid in capital.

     During the second  quarter 2006 a total of 3,750 common  shares were issued
     to our financial consultant as partial payment for services performed. As a
     result  of this  transaction  $3,746  was  charged  to  additional  paid in
     capital.

     In the fourth quarter a total of 86,055 warrants were issued to consultants
     for aiding in the fundraising  process.  As a result a total of $54,452 was
     expensed to consulting expenses for the quarter.

     At December  31,  2006,  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, 2006:

     Common Stock                    15,901,126
     Stock Options                    8,038,253
     Warrants                        11,402,721
                                --------------------
                                     35,342,100

COMMITMENTS AND CONTINGENCIES

     EMPLOYMENT AGREEMENTS

     On December 15,  1999,  the Company  entered  into a three-year  employment
     agreement with its co-Chief Executive Officer ("co-CEO") and co-Chairman of
     the Board.  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  executive'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  executive 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 executive  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.  On
     December  31,  2006  the  executive  had  deferred   compensation  totaling
     $226,707.  The



                                      F-17
<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

     executive was granted an aggregate of 1,420,000  options  exercisable at $1
     per share and  expiring in 2020  during  2005 and  another  115,000 in 2006
     under the same terms. The co-CEO is related to the Company's other co-CEO.

     On September  30, 1999,  the Company  entered into a three-year  employment
     agreement  with the  Company's  President.  The  agreement  provides for an
     annual  base  salary of  $180,000,  which is subject to increase to between
     $300,000 and $360,000  upon the  execution of a major  licensing  agreement
     with a  pharmaceutical  company  for  the  licensing  of one or more of the
     Company's  products.  In  connection  with the  employment  agreement,  the
     executive was granted a ten-year  option to acquire  390,625  shares of the
     Company's  common stock at an exercise price of $12.00 per share, one third
     of which vested upon  execution of the employment  agreement,  one third of
     which vested on September 30, 2000,  and the final third of which vested on
     September 30, 2001. On June 15, 2000, in consideration of services provided
     to the Company,  the Board of Directors granted the President an additional
     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 on June 15,
     2000,  one third of which vested on June 15,  2001,  and the final third of
     which vested on June 15, 2002.  On December 11, 2001, in  consideration  of
     services provided to the Company,  the Board of Directors (i) increased the
     executive's  annual  salary  to  $225,000,  (ii)  extended  the term of the
     agreement by three years,  through and including  September  30, 2005,  and
     (iii) granted the executive an  additional,  immediately  vested  five-year
     option  to  acquire  62,500  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  cutting the  executive  agreed to defer 100% of his yearly
     salary.  In December 2005 the executive  agreed to convert  $530,976 of his
     deferred  salary  into  530,976  options to purchase  shares of  Tetragenex
     common stock at $1 per share expiring December 20, 2020. As of December 31,
     2006 he had deferred  compensation  totaling  $124,046.  The  executive was
     granted an aggregate  of 425,000  options  exercisable  at $1 per share and
     expiring  in 2020  during  2005 and 55,000  more during 2006 under the same
     terms.  In April 2006,  the employee  resigned as President  and decided to
     remain as a chief consultant and board member thus nullifying the contract.
     On August 16, 2006 the company's  former President and current board member
     and scientific consultant, Dr. John Feighner passed away from complications
     of his illness

     On September  30, 1999,  the Company  entered into a three-year  employment
     agreement with the Company's Chief  Operating  Officer ("COO") for a period
     of three years,  subject to a unilateral  option  exercisable by the COO to
     become a  consultant  to the  Company  after  the  first  twelve  months of
     employment.  The  agreement  provided for an initial  annual base salary of
     $120,000. In connection with the employment agreement the COO was granted a
     ten-year option to acquire 234,375 shares of the Company's  common stock at
     an  exercise  price of $12.00 per  share,  one third of which  vested  upon
     execution  of the  employment  agreement,  one  third  of which  vested  on
     September  30, 2000 and the final third of which  vested on  September  30,
     2001.  On June 15,  2000,  in  consideration  of  services  provided to the
     Company,  the  Board of  Directors  granted  the  executive  an  additional
     ten-year  option to acquire 75,000



                                      F-18
<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

     shares of the Company's common stock at an exercise price of $17 per share,
     one third of which  vested on June 15,  2000,  one third of which vested on
     June 15, 2001,  and the final third of which  vested on June 15,  2002.  On
     December 11, 2001, in  consideration  of services  provided to the Company,
     the Board of  Directors  (i)  extended  the term of the  agreement by three
     years,  through and including September 30, 2005 and (ii) granted executive
     an additional, immediately vested five-year option to acquire 37,500 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  cutting  the  executive
     agreed to defer 100% of his yearly  salary.  In December 2005 the executive
     agreed to convert  $259,588 of his deferred  salary into 259,588 options to
     purchase  shares  of  Tetragenex  common  stock  at $1 per  share  expiring
     December  20,  2020.  The  executive  was granted an  aggregate  of 425,000
     options  exercisable  at $1 per share and  expiring in 2020 during 2005 and
     150,000  in 2006  under the same  terms.  As of  December  31,  2006 he had
     deferred compensation  totaling $8,658.27.  The contract was not renewed as
     of the expiration of the existing contract.

     All  officers,  directors  and  employees of the company at the time of the
     bankruptcy  agreed  to defer a  portion  or all of there  compensation.  On
     December 31, 2006 there was $707,109  deferred  from officers and employees
     and  $140,625  from board  members.  During 2006  additional  salaries  and
     compensation  in the amounts of  $341,124  was accrued  from  officers  and
     employees, $50,000 from directors.

     It is anticipated  that the majority of accrued  payments will be converted
     into warrants of the company on a 1 for 1 basis.

     CONSULTING AGREEMENTS

     The Company had entered into an agreement  with an individual to serve as a
     Senior  Medical  Consultant  to  the  Company  for a  period  of  one  year
     commencing  October 21, 1999. The  consultant  receives a fee of $3,000 per
     month, plus an additional non-accountable expense reimbursement of $500 per
     month for his services.  In connection  with the agreement,  the consultant
     received an immediately  vested ten-year option to acquire 10,000 shares of
     the  Company's  common stock at an exercise  price of $12.00 per share.  On
     December 10, 1999,  for services  provided to the Company to such date, the
     Company's Board of Directors granted the consultant an additional five-year
     option  to  acquire  10,000  shares  of the  Company's  common  stock at an
     exercise  price of $12.00 per share,  2,500 of which vested on December 10,
     1999,  and 2,500 of which vested each year  thereafter,  provided  that the
     consulting  agreement  is extended  beyond its original  term.  The Company
     extended the term of the consulting  agreement in both 2000 and 2001,  upon
     the same terms and conditions,  for an additional year, to October 21, 2001
     and  2002,  respectively.  The  Company  again  extended  the  term  of the
     consulting agreement in 2002 until October 21, 2003, at a fee of $4,000 per
     month, plus an additional non-accountable expense reimbursement of $500 per
     month for his services. The Company extended the contract until October 21,
     2004 at a rate of $3,250 per month.  He is currently  consulting on a month
     to month basis currently at a rate of $2,250 per month.

     On April 6th, 2003 several  employees of the company  resigned as employees
     to become part time consultants for the company.  Each is paid a consulting
     fee on a month to month basis ranging from $2,250 to $5,000 per month.

     On April 6th, 2003 the company  entered into ongoing  agreement  with the 5
     members of its  scientific  blue  ribbon  panel to be paid  hourly  fees of
     between $300 and $500 per hour for work  performed  for the company as well
     as reimbursement for expenses.


                                      F-19
<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

     Several individuals were signed as consultants for the company to assist in
     its fundraising efforts during 2006. Each individual is compensated in cash
     and warrants  based on performance in aiding the  fundraising  process.  An
     aggregate of $52,429 was paid to consultants as well as warrants as part of
     the fundraising process during 2006.

     LITIGATION

     At  December  31,  2006  the  Company  was  not  involved  in  any  ongoing
     litigation.

8    RISKS AND UNCERTAINTIES

     The Company is subject to risk 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 $99,412,714 and $96,448,713 at December 31, 2006 and
     2005, respectively.

     Management  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.  Management 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 an IPO, or complete future
     private placements.

     LEASE OBLIGATIONS

     On March 12,  2003 the  Company  entered  into an  operating  lease for its
     current  office  space in Park Ridge,  New Jersey.  The lease  commenced on
     March 31,  2003 and  expires on March 31, 2007 and  required  monthly  base
     rental payments of $10,200 plus certain annual escalation. In December 2006
     the company  entered into a 5 year lease  operating lease to rent different
     space in the same  building as it resides  now and  requires  monthly  base
     rental payments of $6,300 per month and expires in December 2011.


                                      F-20
<PAGE>

                        TETRAGENEX PHARMACEUTICALS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                    (YEARS ENDED DECEMBER 31, 2006 AND 2005)

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

     YEAR ENDING DECEMBER 31,
     --------------------------------------------------------
     2007                                       87,300
     2008                                       75,600
     2009                                       75,600
     2010                                       75,600
     2011                                       75,600
     Total minimum lease payments             $389,700

     Rental  expense was $124,039 and $133,504 for the years ended  December 31,
     2006 and 2005, respectively.

9.   RELATED PARTY TRANSACTIONS

     The Company  utilized  office space and  personnel at the Feigner  Research
     Institute ("Institute"), which then became owned by John P. Feighner MD Inc
     for which it reimbursed the Institute under a cost reimbursement agreement.
     The Company also utilized the  institute to perform some contract  research
     for the Company.  The  Company's  former  President was also an owner and a
     director of the Institute.  In 2006 and 2005 the company  reimbursed John P
     Feighner MD Inc. $8,773 and $31,651 for rent and insurance.  As of December
     31, 2006 the company is no longer  reimbursing John P Feighner MD, Inc. for
     any space leased.

10   401(K) PROFIT SHARING PLAN

     In December  1993,  the Company  adopted a 401(k) Profit  Sharing Plan (the
     "401(k)  Plan"),  effective  as of January 1, 1994.  All  employees  of the
     Company who have attained the age of 21 are eligible to  participate in the
     401(k) Plan. The 401(k) Plan permits  eligible  employees to make voluntary
     contributions  to the 401(k)  Plan up to the dollar  limit set by law.  The
     Company  may, but does not  currently,  contribute  discretionary  matching
     contributions  in any  amount to be  determined  on an annual  basis by the
     Board of  Directors.  Each  eligible  participant's  share of the Company's
     contribution  vests over a seven year period  beginning with the first full
     year of service at the rate of 15% per year.

SUBSEQUENT EVENTS

     On January 26, 2007 the  Securities  and Exchange  commission  declared our
     SB-2 effective


                                      F-21