Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2009.
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ______________
TO________________.
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COMMISSION
FILE NO. 333-134987
TETRAGENEX
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
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22-3781895
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer I.D No.)
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6901
JERICHO TPKE STE 221
SYOSSET
NY 11791
(Address
of Principal Executive Offices)
(516)
855 4425
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes þNo
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. oYes þ No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed under Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90
days. þ Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). o Yes o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company þ
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act).
oYes þ No
The
issuer’s revenues for the fiscal year ended December 31, 2009 were
$0.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 30, 2010, based on the closing price of the
Over-The-Counter Bulletin Board of $0.08 per share was $1,054,829.
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes þ; No o
The
number of the registrant’s common stock, $0.001 par value, outstanding as of
April 12, 2010 is 15,926,126.
Documents
Incorporated by Reference: NONE
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Page
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PART
I
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1
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ITEM
1.
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BUSINESS
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1
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ITEM
1A.
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RISK
FACTORS
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10
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ITEM
1B.
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UNRESOLVED
STAFF COMMENTS
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10
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ITEM
2.
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PROPERTIES
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10
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ITEM
3.
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LEGAL
PROCEEDINGS
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10
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PART II |
11
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ITEM
5.
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MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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11
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ITEM
6.
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SELECT
FINANCIAL DATA
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12
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ITEM
7.
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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12
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ITEM
7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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17
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ITEM
8.
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FINANCIAL
STATEMENTS
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18
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ITEM
9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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19
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ITEM
9A(T).
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CONTROLS
AND PROCEDURES
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19
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ITEM
9B.
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OTHER
INFORMATION
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20
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PART
III
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21
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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21
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ITEM
11.
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EXECUTIVE
COMPENSATION
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25
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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29
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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32
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ITEM
14.
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PRINCIPAL
ACCOUNTING FEES AND SERVICES
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33
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ITEM
15.
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EXHIBITS
AND REPORTS ON FORM 8-K
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33
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SIGNATURES
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34
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ii
FORWARD-LOOKING STATEMENTS
This
Annual Report on form 10-K contains forward-looking statements. The
forward-looking statements relate to future events or the future financial
performance of Tetragenex Pharmaceuticals, Inc. including, but not limited to,
statements contained in: Item 1. “Business” and Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.” Readers are cautioned that such statements, which may be
identified by words including ‘‘anticipates,’’ ‘‘believes,’’ ‘‘intends,’’
‘‘estimates,’’ ‘‘expects,’’ and similar expressions, are only predictions or
estimations and are subject to known and unknown risks and
uncertainties. In evaluating such statements, readers should consider
the various factors identified in this Annual Report on Form 10-K which could
cause actual events, performance or results to differ materially from those
indicated by such statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by
Tetragenex Pharmaceuticals, Inc. or any other person that its objectives or
plans will be achieved. Tetragenex Pharmaceuticals, Inc. does not
undertake and specifically declines any obligation to update any forward-looking
statements or to publicly announce the results of any revisions to any
statements to reflect new information or future events or
developments.
PART
I
ITEM
1.
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BUSINESS
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GENERAL
OVERVIEW
Tetragenex
Pharmaceuticals, Inc. (referred to herein as “we”, “our” or “us”) is
headquartered in Syosset NY, and we were a wholly owned subsidiary of
Innapharma, Inc. (“Innapharma”). Innapharma was founded in 1989 in the State of
Delaware as a biotechnology company that has discovered and intends to
commercialize proprietary pharmaceutical products for use in treatment resistant
depression and other central nervous system diseases.
Tetragenex
was formerly known as Innapharma, Inc, which filed for protection Chapter 11 of
the United States Bankruptcy Code on April 15, 2003. Effective
November 23, 2004 the company emerged from bankruptcy under the name Tetragenex
Pharmaceuticals. Tetragenex is headquartered in Syosset New
York with a satellite office in Englewood Cliffs, New
Jersey. Tetragenex has a platform of peptides which have shown
activity in the treatment of CNS diseases. Nemifitide, the company’s
lead compound, was initially entered into human clinical trials in the late
1990’s. Thirteen clinical trials have been conducted with Nemifitide
for various types of depression. Tetragenex believes that Nemifitide is active
in refractory or treatment resistant patients. Treatment resistant
patients are typically difficult to treat and normally don’t respond to other
CNS treatments. Nemifitide has shown a rapid and robust onset of action with
lasting benefits of approximately four to six months following treatment.
Nemifitide is well tolerated, without any current evidence of significant side
effects as compared to the current drugs that are used in the treatment of major
depressive disorder.
On August 10, 2009 we filed for relief
under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”)
in the United States Bankruptcy Court for the District of New Jersey (the
“Bankruptcy Court”), Case No. 09-30775. However, on November 2,
2009, we received notice that the Bankruptcy Court dismissed our request for
relief under Chapter 11 of the Bankruptcy Code (the “Order”).
1
The
company was looking for a licensing partner for Nemifitide but it is highly
unlikely for several reasons so it has switched focus. . First and foremost the
patents expire in 2014. This would make it difficult for a potential licensor to
finish the development of and register Nemifitide before the patent expired.
This in turn would exclude Nemifitide from a possible five year extension for
protection. The likelihood of a licensing partner stepping in, while at the same
time receiving little or no protection if the drug was to get registered is very
small. Additionally, most pharmaceutical companies are looking for worldwide
rights when seeking a license. Because we no longer have protection
in most countries outside of the United States, it makes it even more unlikely
we would find a partner for Nemifitide. Nemifitide is given
intermittently and being it has shown to be effective in patients that are
treatment resistant, we believe that a program to seek registration in several
smaller countries outside the US would possibly allow us to establish a small
but viable market for patients willing to leave the US to be treated and then
return when retreatment is needed.
ANTIDEPRESSANT
DEVELOPMENT PROGRAM (“Central Nervous System”)
Depression
The
Diagnostic and Statistical Manual of Mental Disorders (Fourth Edition) defines
depression as a common psychobiological disorder that manifests itself through
symptoms such as a pervasive low mood and loss of ability to enjoy usual
activities, a change in weight, a change in appetite and/or sleep activity, a
decrease in energy, a feeling of worthlessness or guilt, difficulty in thinking
or making decisions, and/or recurring thoughts of death or suicide. In 2008, the
World Health Organization (“WHO”), indicated that up to 20% of the world’s
population will suffer from severe depression at one point in their lifetime of
sufficient degree to require medical and/or psychotherapeutic intervention
According to the National Depressive and Manic Depressive Association, it is
estimated that more than 22,000,000 American adults and 121 million people
worldwide suffer from depression and result in approximately 30,000 suicides
annually. Fewer than 25% of those affected receive adequate care. The United
States government estimates that depression costs approximately $17 billion in
lost work days each year. Both the WHO and the National Institutes of Mental
Health (“NIMH”) recognize that depression is a major global health concern and
they have encouraged increasing resources to be devoted to improving currently
available treatments, as only about 20% to 30% of patients with major depressive
disorder are appropriately diagnosed and adequately treated. The United States
Preventative Task Force, a group sponsored by an office of the United States
Department of Health and Human Services, has recommended that physicians
formally screen patients for depression during routine physical examinations and
establish appropriate systems to ensure treatment and follow-up.
Antidepressant
Market
According
to the WHO’s current website, an estimated 121 million people around the world
suffer from a depressive disorder for which they require treatment. More women
than men suffer from depression. It is estimated that 5.8% of all men and 9.5%
of all women will suffer from a depressive disorder in any given year. Many
people will be afflicted by a depressive disorder at some point in their lives.
The WHO projects that 17% of all men and women will suffer from a depressive
disorder at some point in their lives. Depression is a major health problem and
the WHO predicts that by 2020 depression will be the second largest cause of the
global health burden. Major depressive disorder accounts for 4.4 percent of the
total overall global disease burden, a contribution similar to that of ischemic
heart disease or diarrheal diseases.
According
to LeadDiscovery Ltd., the antidepressant market is set to undergo a period of
rapid change as seven out of the eight leading brands suffered US patent
expirations in 2008 which are now offered generically. With only a handful of
new products anticipated to replace these blockbuster products, the market is
expected to decrease by 21.5% to $13.5 billion by 2011, as physicians are
encouraged to utilize cheaper generics. Brand players must look towards
maximizing revenues through product differentiation and innovative lifecycle
strategies. According to the Journal of Clinical Psychiatry (J.F. Greden),
treatment is often challenging; an estimated 20%-40% of patients do not benefit
sufficiently from existing antidepressant interventions including trials of
medication and psychotherapy. Because of the clinical profile of Nemifitide
which shows rapid onset of action, minimal side effects, maintenance of efficacy
of 2-4 months following initial dosing period, and level of response in serious
depressive disorder, the Company feels that it will have rapid entry into this
market.
2
Nemifitide
Although
we have a number of product candidates in different stages of development for
the treatment of various categories of disease, our major focus is on our lead
antidepressant compound, Nemifitide. Nemifitide has shown the potential for a
rapid onset of action with long-lasting benefits. Minimal side effects have been
observed to date in clinical trials with a similar incidence when compared to
placebo in our placebo-controlled double-blind trials. We believe this may
represent a major paradigm shift for the treatment of major depressive disorder
because currently available anti-depressants: (i) require two to six weeks
before the patient begins to experience significant symptomatic relief;
(ii) have a large number of side effects that often result in the premature
discontinuation of treatment (almost half of all patients for whom
anti-depressants are currently prescribed never fill their second prescription);
and (iii) require daily dosing for months and often times, years. In
contrast, Nemifitide often requires only 6 to 9 doses via subcutaneous injection
over a ten day period for a sustained clinical effect (approximately 4 months).
It is our belief that Nemifitide will become the treatment of choice for a broad
spectrum of depressive disorders, including patients who do not respond to
available antidepressants (refractory patients).
We
completed preclinical testing necessary for the conduct of our clinical program,
Phase 1 clinical testing (testing for safety and tolerance in healthy
volunteers), and substantial Phase 2 clinical testing (small-scale testing for
safety and efficacy in depressed patients) of Nemifitide. The only significant
drug-related side effect observed to date for Nemifitide was an allergic
reaction in one patient, which resulted in the subject being withdrawn from the
study. All other side effects observed to date in the over 400 subjects dosed to
date in our clinical trials have been non-serious as defined by the
FDA.
Nemifitide
was discovered and developed by our scientists and is based upon a model of
naturally occurring brain peptide. By modifying these naturally occurring
substances, we have been able to develop a platform of unique synthetic
peptides, which we believe has a rapid onset of action with minimal side effects
as compared to the current drugs that treat depression. The side effects of
Nemifitide observed in human clinical trials are reported to be minimal and of
short duration, and include dizziness, mild headaches, transient drowsiness,
constipation, a metallic taste and mild skin irritation at the site of the
injection, with a similar incidence when compared to placebo.
We
continue to synthesize, test and add peptides to our platform. To date, we have
evaluated more than 200 of these compounds, and our efforts are ongoing. This
work has already identified several drug candidates that show even greater
activity in preclinical testing than did Nemifitide, and these compounds have
been designated as second-generation drugs. We have been granted patents that
cover our extensive library of peptides and we will continue to seek additional
patent protection as new peptides are developed.
OVERVIEW
OF NEMIFITIDE
In April
2003 the FDA informed us that they were placing Nemifitide on clinical hold due
to brain and muscle lesions found during a routine 3-month dog study. We
completed additional canine and monkey studies which prompted the FDA to remove
the clinical hold. On March 29, 2006, the FDA confirmed that they had completed
their review of our complete response to the clinical hold and that the clinical
hold had been lifted. To date we have seen no evidence of similar problems in
the 400 humans who have received Nemifitide. We believe Nemifitide has shown
several advantages over the drugs currently marketed to treat depression. These
advantages include:
3
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1.
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RAPID
ONSET OF ACTION AND SYMPTOMATIC
RELIEF
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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.
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2.
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MANY
PATIENTS EXPERIENCE COMPLETE SYMPTOMATIC
RELIEF
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Many
patients who respond to Nemifitide enter into remission from their
depression.
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3.
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FREEDOM
FROM REGULAR DAILY TREATMENT
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Nemifitide
is administered via 6-9 subcutaneous injections on average over a week to 2 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.
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4.
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MINIMAL
SIDE EFFECTS IN PHASE 1 AND 2
STUDIES
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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.
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5.
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LITTLE
OR NO POTENTIAL FOR ADVERSE INTERACTIONS WITH OTHER
DRUGS
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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.
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6.
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POTENTIAL
FOR ALTERNATIVE FORMS OF
ADMINISTRATION
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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.
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7.
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POTENTIAL
TO TREAT OTHER CNS DISORDERS
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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.
4
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. A responder was
defined as a patient who’s psychiatric test scores dropped by 50% or
more. There were additional responders as well that did not quite
reach that mark. These results have generated a considerable amount of interest
among the clinical/scientific community and the FDA. We believe this reflects
the novel activity of Nemifitide and the potential to treat this debilitating
disorder. According to the National Institute of Mental Health, approximately
10% of patients suffering from major depressive disorder have the refractory
form of the illness. We believe that refractory depression will be
the general future of our company. There is currently limited medical treatment
for this type of depression.
Unique
Mechanism of Action
We
believe that the mechanism of action of Nemifitide is different from that of
other antidepressants. Studies regarding specific aspects of the mechanism of
action of Nemifitide are part of the development program. The results of rat
studies conducted to date indicate that Nemifitide crosses the blood brain
barrier rapidly and is concentrated in key brain areas related to depression,
especially the hippocampus, amygdala and pre-frontal cortex. In vitro studies
(studies conducted in the laboratory rather than in animals) show that
Nemifitide is not significantly metabolized by the brain tissue of rats.
Following in vivo studies (studies conducted in live animals), unchanged
Nemifitide, as well as our active metabolite, were found in the brains of the
rats. This data suggests that the antidepressant activity of Nemifitide is due,
at least in part, to unchanged Nemifitide in the brain.
In vitro
studies were conducted to determine the specific brain receptors to which
Nemifitide binds. The results indicate that Nemifitide binds to certain
serotonin receptors, such as 5HT2A and 5HTT. Other in vivo studies in rats
confirmed these results. This is a strong indication that Nemifitide is
interacting with the serotonergic pathway in the body, in a manner that differs
from that of the selective serotonin reuptake inhibitors (SSRIs), such as
Prozac, Paxil, Zoloft and others. This unique mechanism of action, in
conjunction with the advantages of Nemifitide observed in the clinic, supports
management’s belief that Nemifitide represents a new treatment paradigm for
depression.
CLINICAL
AND PRECLINICAL DEVELOPMENT PROGRAMS
Clinical
Trials – Nemifitide
Our
clinical trial program has been designed to produce information about the
efficacy and safety of Nemifitide. Patients who desired to participate in our
trials were first screened by trained physicians and determined to be eligible.
Eligibility criteria were evaluated during the screening, with an emphasis on
the degree of depression, as measured by standardized tests, and the appropriate
depressive diagnosis, as determined by the screening physicians. Those patients
found to be suffering from major depressive disorders and who met standard,
well-defined inclusion and exclusion criteria were included in our
studies.
Our lead
compound, Nemifitide, is well advanced in Phase 2 clinical trial testing in
depressed patients and has demonstrated potential significant advantages over
existing therapies. These include a rapid onset of action (3-5 days vs. weeks),
a long-acting response (approximately 4 month to 6 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 a total of 13 phase one and phase two clinical trials. wiith
Nemifitide, including a study of extremely difficult to treat (refractory)
patients. We have performed both blinded and open-label studies. Blinded trials
include a group of patients who are randomly assigned to receive either placebo
(sugar) or Nemifitide. During a blinded trial, neither the patient nor the
examining physician knows which patients are receiving the placebo and which are
receiving Nemifitide. Upon completion of the study, the study is unblinded and
the effectiveness of the treatment is determined. Placebo-controlled studies
provide the most reliable information about the efficacy of a new antidepressant
and are required by the FDA and other international regulatory agencies in order
to approve the commercialization of a new drug.
5
The data
from our first two blinded studies provided evidence indicating that Nemifitide
is an active antidepressant that is safe and well tolerated in human patients.
The data from the two blinded studies gave us information regarding the optimal
doses and treatment regimen (i.e., daily doses, alternate day dosing, 10 doses,
15 doses, etc.), as well as demonstrating a dose response. Since the FDA lifted
the clinical hold imposed on our research, we may precede with expansion of our
Phase 2/Phase 3 pivotal clinical programs required for FDA approval. 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.
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.
Due to
various setbacks we have endured relating to our clinical trials and financial
situation; management believes that it is unlikely that Nemifitide will be
granted FDA approval for use in the United States. Therefore,
management intends to seek approval for Nemifitide in several, Central American,
Eastern European, and Caribbean countries and treat refractory patients in those
areas.
CLINICAL
TRIALS-REFRACTORY DEPRESSION
Our
second open-label trial was conducted in a patient population with severe
refractory depression, who had not responded to available antidepressant
therapy. Refractory patients make up 5% to 10% of the total depressed patient
population. Management believes that any medication that would help this
population would be of great clinical utility and would become the treatment of
choice almost immediately. In this 25 patient study there was a significant
improvement in 11 of the patients, representing a 44% response
rate.
Our
clinical studies are conducted under internationally accepted protocols that
will enable us to submit the results to regulatory authorities in all important
world marketplaces, including the United States, Europe and Japan.
6
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
currently have under development a large number of central nervous systems
active peptides that we believe may have clinical utility. Two of these
compounds, INN 01134 and INN 00955, are shown to be more active in preclinical
models than Nemifitide. INN 01134 is a pharmacologically active metabolite of
Nemifitide. It is our goal to pursue the development of these compounds as
second-generation medications for the treatment of depression, anxiety and other
major psychiatric disorders. Depression is a heterogeneous disorder and as a
result patients often respond very differently to psychotropic drugs (drugs that
are active in psychiatric disorders) that even have a similar mechanism of
action. Physicians are aware of this possibility and commonly utilize several
drugs of a given class when treating individual patients. The availability of
alternate therapeutics related to Nemifitide would therefore greatly improve the
likelihood of central nervous system peptides becoming the treatment of choice
among physicians.
The
methods we use to evaluate the activity and toxicity of Nemifitide are equally
applicable to the testing of other central nervous system active peptides.
Accordingly, the development of a second-generation antidepressant peptide is
greatly facilitated by our previous experience. Several drug candidates are
currently under evaluation in animal models.
MANUFACTURING
We do not
own or operate any manufacturing facilities. We contract with qualified third
parties for the manufacture of bulk active pharmaceutical ingredients and
production of clinical and commercial supplies. The ingredients and supplies
comply with current good manufacturing practices reviewed by the FDA. We have
entered into agreements with three overseas manufacturers for production of
clinical and commercial supplies of Nemifitide. We believe the prices charged by
these overseas manufacturers are competitive. We plan to continue to outsource
the manufacture of our products throughout the stages of commercialization and
expect the cost of purchasing them will be significantly reduced as they are
manufactured in bulk. We do not own or operate any manufacturing
and/or lab facilities. We maintain confidentiality agreements with potential and
existing contract manufacturers for both active drug and formulated product in
order to protect our proprietary rights. We currently synthesize our early stage
chemical compounds (the chemical compounds used for study prior to our
preclinical testing). However, scale-up quantities and materials for preclinical
toxicology evaluations are manufactured by qualified third parties in strict
compliance with current good manufacturing practices.
7
MARKETING
AND DISTRIBUTION STRATEGY
Because
so much time has passed since the company started to develop its lead compound
Nemifitide, and because it is no longer practical to attempt to develop the drug
in the US due to the limited patent time remaining in the countries that we
still hold valid patents, the distribution strategy has completely changed. The
company is currently pursuing the registration of its drug in a number of small
foreign countries that do have the overbearing regulatory mandates that exist in
the US. Because of our extensive safety data and the fact that there have been
over 430 patients our prior phase one and phase two trials, we believe that our
current data package is enough to register our drug in small regional countries
in other parts of the world that would make Nemifitide accessable to patients
that are not resoponding to the medications that are available in their country.
Because Nemifitide is given intermittently, patients will travel be treated of a
two week period and then return home. Treatment can be given again in 6 months
or when needed which would be determined be the caring doctor.
PATENTS
AND PROPRIETARY INFORMATION
Our
patents have now expired in a signifigant number of countries outside of the US
and will expire in the US in 2014. We will be seeking exclusivity for 15 or 20
years in the countries that we intend to register our drug in.
CORE
PROGRAM IN ANTIDEPRESSANT THERAPEUTICS
We
currently hold four issued patents in the United States and eight issued patents
abroad, including a European patent, which relate to our core program in
peptide-based neurological therapeutics. In addition, five applications are
pending abroad in connection with this program. We were issued United
States Patent No. 5,589,460 for our primary platform of peptide-based compounds
on December 31, 1996, from an application filed in 1994. This patent includes
claims directed at both compounds (compositions of matter) and methods of
treating depression using the compounds. The expiration date of this patent is
May 4, 2014. However, the patent term may be extended by as much as five years
pursuant to the Patent Term Restoration Act, 35 United States Code ss.156,
providing that the appropriate conditions are met, a timely application is made
and the provisions of the act are not changed.
Further
to our initial patent, we sequentially filed three continuation-in-part (“CIP”)
applications that have also been issued as United States patents. We filed a
first CIP application in 1995 to cover additional peptide-based compounds and
issued as United States Patent No. 5,767,083 on June 16, 1998. We filed a second
CIP application in 1997 to cover additional new peptide derivatives and issued
as United States Patent No. 6,093,797 on July 25, 2000. We filed a third CIP
application in 2002 to cover the use of the compounds in treating additional
neurological and psychiatric disorders and new routes of administration for our
compounds and issued as U.S. Patent No. 6,767,897 on July 27, 2004.
Due to
serious financial constraints and the unlikelihood of a licensor, most of our
patents outside of the US have been relinquished.
CORE
PROGRAM IN TETRACYCLINE DERIVATIVE THERAPEUTICS
Our core
program in these areas have been discontinued.
8
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.
Antidepressant
Peptide Patent Family Status
Country
|
Application
No.
|
Filing
Date
|
Related
Application Information
|
Status
|
Patent
no.
|
United
States
|
08/238,089
|
05/04/94
|
Granted
12/31/9
|
5,589,460
|
|
1st CIP-US
|
08/432,651
|
05/02/95
|
Continuation-in-part
of US 08/238,089
|
Granted
06/16/98
|
5,767,083
|
2nd CIP-US
|
08/962,962
|
11/04/97
|
Continuation-in-part
of US 08/432,651
|
Granted
07/25/00
|
6,093,797
|
3rd CIP-US
|
10/122,246
|
04/11/02
|
Continuation-in-part
of US 08/962,962
|
Granted
07/27/04
|
6,767,897
|
Divisional
of 3rd
CIP-US
|
10/900,026
|
07/27/04
|
Divisional
of US 10/122,246
|
Pending
|
|
Patent
Cooperation Treaty (PCT)
|
PCT/US95/05560
|
05/02/95
|
Based
on US 08/238,089
|
Completed:
entered national phase
|
|
Patent
Cooperation Treaty (PCT)
|
PCT/US03/11403
|
04/10/03
|
Based
on US 10/122,246
|
Completed:
entered national phase
|
|
Australia
|
2813995
|
11/04/96
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
|
685292
|
Canada
|
2,189,145
|
10/29/96
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
|
*
|
China
(PRC)
|
CN
95193885.1
|
12/26/96
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
|
CN1150028C
|
European
Patent Convention
|
95
92 3659.7
|
11/04/96
|
Regional
Phase of PCT/US95/05560
|
Lapsed
|
EP0759772
|
European
Patent Convention
|
03
72 4013.2-2404
|
04/10/03
|
Regional
Phase of PCT/US03/11403
|
Lapsed
|
|
Finland
|
FI
964363
|
11/04/96
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
|
|
India
|
198CAL2001
|
04/04/01
|
Priority
to US 08/432,651 (Divisional of 786CAL96)
|
Lapsed
|
191479
|
India
|
237CAL2001
|
04/20/01
|
Priority
to US 08/432,651 (Divisional of 786CAL96)
|
Lapsed
|
|
India
|
483CAL2002
|
08/16/02
|
Divisional
of 198CAL2001
|
Lapsed
|
*
|
Indonesia
|
P-9526222
|
12/08/95
|
Based
on US 08/432,651
|
Pending
|
|
Indonesia
|
P-00200500377
|
07/11/05
|
Divisional
of Indonesian Application No. P-9526222 (Priority to US
08/432,651)
|
Lapsed
|
|
Japan
|
529076/1995
|
11/05/95
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
|
3878983
|
Malaysia
|
PI
9503240
|
10/27/95
|
Based
on PCT/US95/05560
|
Lapsed
|
MYI13407
A
|
Malaysia
|
PI
20031342
|
04/10/03
|
Based
on US 10/122,246
|
Lapsed
|
|
Norway
|
P964561
|
11/04/96
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
/05
|
317919
|
Russia
|
96
123 269
|
12/04/96
|
Nat’l
Phase of PCT/US95/05560
|
Lapsed
|
2,182,910
|
Taiwan
(ROC)
|
84111543
|
11/01/95
|
Based
on PCT/US95/05560
|
Lapsed
|
167954
|
Taiwan
(ROC)
|
92108419
|
04/11/03
|
Based
on US 10/122,246
|
Lapsed
/07
|
I
275398
|
9
Dermatological
Use of Peptides Patent Family
Country
|
Application
No.
|
Filing
Date
|
Related
Application Information
|
Status
|
Patent
no.
|
Patent
Cooperation Treaty (PCT)
|
PCT/US2007/068827
|
05/12/07
|
Earliest
priority claimed is to 60/801,128 filed 05/17/06
|
Pending
|
|
United
States
|
11/747,762
|
05/11/07
|
Priority
claimed to: 60/801,128 filed 05/17/06; 60/825,070 filed 09/08/06; and
60/825,077 filed 09/08/06, and CIP of 10/900,026
|
Provisional,
now abandoned
|
|
United
States
|
11/747,748
|
05/11/07
|
Priority
claimed to: 60/825,070 filed 09/08/06; and 60/801,128 filed
05/17/06
|
Provisional
now abandoned
|
EMPLOYEES
AND CONSULTANTS
As of
March 31, 2010, we had a workforce of 4 employees. We have 2
full-time employees and 2 part-time scientific employees. None of our employees
are represented by a collective bargaining agreement, nor have we experienced
work stoppages.
ITEM
1A.
|
RISK
FACTORS
|
Not
applicable.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not
applicable.
ITEM
2.
|
PROPERTIES
|
Effective
November 15, 2008, we entered into a new lease to rent approximately 1,100
square feet in a multi tenant office building at 560 Sylvan Ave, Englewood
Cliffs, New Jersey. The lease has a term of two years with an option for a third
year and has a monthly rent of $1,919. Management believes this space will be
adequate for our needs for the duration of our lease. We also maintain offices
in Melville, New York and Syosset, New York and incur a combined monthly rent
for these two offices of $300. Both New York properties are leased on
a month to month basis and can be cancelled at any time. The Syosset,
New York office is where our headquarters are located.
The
approximate aggregate minimum rental commitments on these leases are as
follows:
Our
rental expense was $27,666 and $103,606 for the years ended December
31, 2009 and 2008, respectively.
ITEM
3.
|
LEGAL
PROCEEDINGS
|
We are
not a party to any material legal proceedings.
10
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
MARKET
INFORMATION
Shares of
our common stock are currently quoted on the Over-the-Counter Bulletin Board
under the symbol “TTRX.”
There is
a limited trading market for our common stock. There is no assurance that a
regular trading market for our common stock will develop or if developed that it
will be sustained. Furthermore, it is unlikely that a lending institution will
accept our securities as pledged collateral for loans unless a regular trading
market develops.
The
following table sets forth the range of the high and low bid quotations of our
common stock for the 2008 and 2009 fiscal years and for the first quarter of
2010. The quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions.
Period
|
Low
|
High
|
||||||
2010
|
||||||||
First
Quarter
|
$ | 0.02 | $ | 0.04 | ||||
2009
|
||||||||
Fourth
Quarter
|
$ | 0.03 | $ | 0.05 | ||||
Third
Quarter
|
$ | 0.03 | $ | 0 .08 | ||||
Second
Quarter
|
$ | 0 .05 | $ | 0.14 | ||||
First
Quarter
|
$ | 0 .04 | $ | 0.13 | ||||
2008
|
||||||||
Fourth
Quarter
|
$ | 0.03 | $ | 0.30 | ||||
Third
Quarter
|
$ | 0.20 | $ | 0.45 | ||||
Second
Quarter
|
$ | 0.25 | $ | 0.55 | ||||
First
Quarter
|
$ | 0 .30 | $ | 1.00 |
HOLDERS
On April
11, 2010 there were 731 holders of record of our common stock.
DIVIDENDS
No cash
dividends were declared in the fiscal year ended December 31, 2009 or December
31, 2008, and management does not intend to pay cash dividends in the
foreseeable future.
11
ITEM
6.
|
SELECT
FINANCIAL DATA
|
Not
applicable.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion and analysis should be read in conjunction with the
Financial Statements and notes thereto appearing elsewhere in this Annual
Report.
Certain
statements contained herein may constitute forward-looking
statements. Because such statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results
to differ materially include, but are not limited to, the availability of
financing in the short term, our lack of revenue, and our inability to maintain
working capital requirements to fund future operations or our inability to
attract and retain highly qualified management.
You
should read the following discussion and analysis in conjunction with the
audited Financial Statements and Notes attached thereto, and the other financial
information appearing elsewhere in this Annual Report
RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The
Year Ended December 31, 2009 As Compared to the Year Ended December 31,
2008
REVENUE -
We did not generate revenue from any source during fiscal years 2009 and
2008.
RESEARCH
AND DEVELOPMENT - Our research and development costs decreased by 73.6% to
$2,081 for the year ended December 31, 2009, as compared to $7,894 for the year
ended December 31, 2008. The decrease was attributable to their having been no
additional studies performed during 2009, all costs were
incidental.
COMPENSATION
EXPENSE - Our compensation expense increased 78.7% to $1,187,703 for the year
ended December 31, 2009, as compared to $664,827 for the year ended December 31,
2008. The increase is attributable to the accruing of salaries and interest
being reinstated. Actual cash compensation decreased as all cash
compensation ceased in August 2009.
PROFESSIONAL
FEES - Professional fees decreased by 31% to $71,639 for the year ended December
31, 2009, as compared to $103,682 for the year ended December 31, 2008. This
decrease is attributable to our performing more work in-house.
CONSULTING
FEES - Consulting expenses decreased by 80% to $5,963 for the year ended
December 31, 2009, as compared to $29,859 for the year ended December 31, 2008.
This decrease was attributable to our not issuing options to consultants as well
as our eliminating all monthly consulting agreements during the year ended
December 31, 2009.
DIRECTORS
FEES - Directors fees increased by 299% to approximately $156,114 for the year
ended December 31, 2009, as compared to $39,100 for the year ended December 31,
2008. This increase was attributable to our accruing director’s
fees. No options or cash was issued to any director during
2009.
PAYROLL
TAXES – Payroll taxes decreased by approximately 64.7% to approximately $10,378
for the year ended December 31, 2009, as compared to $29,368 for the year ended
December 31, 2008. This decrease was attributable to much lower cash
compensation during the year.
TRAVEL
AND ENTERTAINENT EXPENSE- Travel and entertainment expenses decreased by 24% to
$41,774 for the year ended December 31, 2009, as compared to $54,634 for year
ended December 31, 2008. The decrease was due to our not conducting
any securities offerings during 2009.
12
INSURANCE
EXPENSE- Insurance expense decreased by 59.6% to $40,064 for the year ended
December 31, 2009, as compared to $99,106 for year ended December 31,
2008. The decrease was attributable to our renegotiating insurance
coverages.
RENT AND
OCCUPANCY- Rent and occupancy expense decreased by 68% to $36,153 for the year
ended December 31, 2009, as compared to $113,026 for the year ended December 31,
2008. The decrease was attributable to the lower rent of our
Englewood Cliffs office.
INTEREST
INCOME- Interest income decreased by 100% to $332 for the year ended December
31, 2009, as compared to $275,375 for year ended December 31,
2008. The decrease was due to the proceeds from our sale of our tax
loss to the State of New Jersey not being received until 2010.
INTEREST
EXPENSE- Interest expense increased by 100% to $153,734 for the year ended
December 31, 2009, as compared to $75,526 for year ended December 31,
2008. The increase was due to default interest being paid on a
promissory note which matured in April 2009.
LIQUIDITY
AND CAPITAL RESOURCES
We have
experienced recurring losses from operations and negative cash
flows. As of December 31, 2009, we had a working capital deficiency
of $ 3,177,533, short term debt of $411,994 plus accrued interest and a
deficiency in stockholder’s equity of $3,208,412. The report from our
independent registered public accounting firm on our audited financial
statements at December 31, 2009 contains an explanatory paragraph regarding
doubt as to our ability to continue as a going concern. We are
considering a variety of options to improve our liquidity including equity
offerings, asset sales, debt financing, sales of Nemifitide in foreign
countries, entry into a licensing agreement with a pharmaceutical company, and
the sale of our state tax losses through the New Jersey Development Plan;
however; we can offer no assurance that we will be successful in identifying,
obtaining or negotiating any of the foregoing opportunities. If
adequate funds are not available or are not available on terms acceptable to us,
we will be required to further cut costs and may not be able to continue as a
going concern.
As of
December 31, 2009, we had cash and cash equivalents of $21,420 and a working
capital deficit of $3,177,633. As of March 15, 2010, we have
approximately $80,000 cash on hand, which is adequate for approximately ten
months of operations. Our monthly burn rate is $8,000. We
do not have any working capital commitments nor do we presently have any
external sources of working capital.
Our
financial statements for the twelve months ended December 31, 2009 do not give
effect to any adjustments to recorded amounts and their classifications, which
would be necessary should we be unable to continue as a going concern and
therefore, be required to realize our assets and discharge our liabilities in
other than the normal course of business and at amounts different from those
reflected in the financial statements.
13
SUBSEQUENT
EVENTS
In
January 2010 we issued a secured promissory note to one of our directors, with a
principal face value of $85,000, in exchange for cash advance
payments in the amount of $50,000 in November 2009 and $35,000 in
January 2010.
On
January 11, 2010, the company entered into a Settlement, Release and
Compromise Agreement (the “Settlement Agreement”) with KBC Private Equity NV
(“KBC”). Pursuant to the Settlement Agreement, in
acknowledgement of our financial situation, KBC accepted $50,000 as settlement
(the “Settlement”) for a $2,227,000 in debt, which included accrued interest of
$345,922.. Upon payment of the Settlement, KBC released its preferred
equity interest in our intellectual property, as well as any other secured or
unsecured claim it may have against us.
The above
transactions have been reflected in the company’s records as of December 31,
2009, as. the company was in serious negotiations with both partiesf in 2009.
The transaction was consummated in 2010 and as a result of the settlement the
company recorded a gain of $2,177,000
OFF
BALANCE SHEET ARRANGEMENTS
We are
not a party to any off balance sheet arrangements.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial
Instruments
Our
financial instruments include cash and cash equivalents, restricted cash,
accounts payable and accrued expenses and notes payable. These financial
instruments are carried at cost, which unless otherwise disclosed, approximates
fair value due to their short maturities.
Cash
and Cash Equivalents
We
consider all highly liquid investments with original maturities of three months
or less when purchased to be cash equivalents.
Our cash
and cash equivalents are held principally at one financial institution and at
times may exceed insured limits.
Property
and Equipment
Our
property and equipment are stated at cost and are depreciated on a straight-line
basis over the estimated useful lives of the related assets, which is generally
five years. Expenditures for maintenance and repairs are charged to operations
at the time the expense is incurred. Expenditures determined to represent
additions are capitalized.
14
Impairment
of Long-Lived Assets
As of
December 31, 2009, our patents had a value on our balance sheet of
$419,280. Due to recent events we feel that this amount does not
reflect the true current value of the patents and therefore made an adjusting
entry for the impairment of this asset. We believe the true value of
the patents to be no greater than $10,000. We believe this because
the patents expire on the last day of 2014. In order to obtain FDA
clearance for Nemifitide we would need to immediately raise adequate funding to
commence a pivotal trial which would take longer than 18 months, at which point
it would be the middle of 2011. We would then need to find a
licensing partner who would need to perform additional trials in order to file
an application for approval with the FDA. We believe that meeting
this time frame will be extremely difficult or
impossible. Additionally several patents have lapsed
because the maintenance fees for these patents were too expensive for us to
maintain.
Patents
We
capitalize our expenditures relating to the filing and maintenance of our
patents and amortize such costs over the estimated useful life of the patent,
which generally approximates fifteen years. Accumulated amortization was
$479,752 at December 31, 2009. Amortization expense related to patents was
$37,606 and $42,885 for the years ended December 31, 2009 and 2008,
respectively.
Income
Taxes
We
account for income taxes using the liability method. The liability method
requires the determination of deferred tax assets and liabilities based on the
differences between the financial statements and income tax bases of assets and
liabilities, using enacted tax rates. Additionally, net deferred tax assets are
adjusted by a valuation allowance, if, based on the weight of available
evidence, we are uncertain whether some portion or all of the net deferred tax
assets will be realized.
Research
and Development
We expend
funds on research and development to develop new products or processes, to
improve present products, and to discover new knowledge that may be valuable at
some future date. Costs incurred for research and development activities are
expensed as incurred.
Basic
and Diluted Loss Per Common Share
We
display earnings per share in a dual presentation of basic and diluted earnings
per share. Basic earnings per share includes no dilution and is computed by
dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding for the period.
Outstanding
common stock options, warrants, convertible preferred shares and convertible
notes payable have not been considered in the computation of diluted earnings
per share amounts, since the effect of their inclusion would be anti-dilutive.
Accordingly, basic and diluted earnings per share are identical.
15
RECENTLY
ISSUED ACCOUNTING STANDARDS
In
October 2009, the Financial Accounting Standards Board (the “FASB”) issued
Accounting Standards Update (“ASU”) 2009-14, “Certain Revenue Arrangements that
Include Software Elements,” an update to ASC 985-605, “Software-Revenue Recognition,”
and formerly known as EITF 09-3, “Revenue Arrangements that Include
Software Elements” (“ASU 2009-14”). ASU 2009-14 amends ASC
Subtopic 985-605 to exclude from its scope tangible products that contain both
software and non-software components that function together to deliver a
product’s essential functionality. ASU 2009-14 will be effective prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. We are
currently evaluating the impact of adopting ASU 2009-14 on our financial
position, results of operations and cash flows, but have not completed our
assessment.
In
October 2009, the FASB issued ASU 2009-13, “Multiple Deliverable Revenue
Arrangements,” an update to ASC Topic 605, “Revenue Recognition,” and
formerly known as EITF 08-1, “Revenue Arrangements with Multiple
Deliverables” (“ASU 2009-13”). ASU 2009-13 amends ASC
650-25 to eliminate the requirement that all undelivered elements have
vendor-specific objective evidence (“VSOE”) or third-party evidence
(“TPE”) before an entity can recognize the portion of an overall
arrangement fee that is attributable to items that already have been delivered.
The overall arrangement fee will be allocated to each element (both delivered
and undelivered items) based on their relative selling prices, regardless of
whether those selling prices are evidenced by VSOE or TPE or are based on the
entity’s estimated selling price. ASU 2009-13 will be effective prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. We are
currently evaluating the impact of adopting ASU 2009-13 on our financial
position, results of operations and cash flows, but have not to completed our
assessment.
In
August 2009, the FASB issued ASU 2009-05, “Fair Value Measurements and
Disclosures (Topic 820) – Measuring Liabilities at Fair Value” (“ASU
2009-05”). ASU
2009-05 amends ASC Topic 820, “Fair Value Measurements.”
The update addresses practice difficulties caused by tension between
fair-value measurements based on the price that would be paid to transfer a
liability to a new obligor and contractual or legal requirements that prevent
such transfers from taking place. ASU 2009-05 is effective for interim and
annual periods beginning
after August 27, 2009, and applies to all fair value measurements of
liabilities required by U.S. Generally Accepted Accounting Principles (“GAAP”).
No new fair-value requirements are required by the standard. We do not expect
the adoption of ASU 2009-05 to have a material impact on our financial position,
results of operations and cash flows.
In
June 2009, the FASB issued an update to ASC 105, previously referred to as
SFAS No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162” (“ASC
105”). The FASB
Accounting Standards Codification (“Codification”) will become the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of the
update to ASC 105, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative. Following the update to ASC 105, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The
FASB will not consider Accounting Standards Updates as authoritative in their
own right. Accounting Standards Updates will serve only to update the
Codification, provide background information about the guidance, and provide the
bases for conclusions on the change(s) in the Codification. The update to ASC
105 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. We do not expect the adoption of ASC 105
to have a material impact on our financial position, results of operations and
cash flows.
16
In
June 2009, the FASB issued an update to ASC 810, previously referred to as
SFAS No. 167, “Amendments
to FASB Interpretation No. 46(R),” which requires an enterprise to
perform an analysis to determine whether the enterprise’s variable interest or
interests give it a controlling financial interest in a variable interest entity
(“ASC 810”). The update to ASC 810 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. We do not
expect the adoption of ASC 810 to have a material impact on our financial
position, results of operations and cash flows.
In
May 2009, the FASB issued an update to ASC 855, previously referred to as
SFAS No. 165, “Subsequent
Events,” which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued (“ASC 855”). In
particular, ASC 855 sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements;
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The update to ASC 855 is effective for
interim or annual financial periods ending after June 15, 2009. The impact
of adopting the update to ASC 855 was not material our financial position,
results of operations or cash flows.
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
17
ITEM
8.
|
FINANCIAL
STATEMENTS
|
TETRAGENEX
PHARMACEUTICAL, INC.
INDEX
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F–1
|
Balance
Sheet as of December 31, 2009 and 2008
|
F–2
|
Statements
of Operations for the Years Ended December 31, 2009 and
2008
|
F–3
|
Statements
of Stockholders’ Deficit for the Years Ended December 31, 2009 and
2008
|
F–4
|
Statements
of Cash Flows for the Years Ended December 31, 2009 and
2008
|
F–5
|
Notes
to the Financial Statements
|
F–6
|
18
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2009 and 2008, and the related statements of operations, changes in
stockholders’ deficit, and cash flows for each of the two years in the periods
ended December 31, 2009. Tetragenex Pharmaceuticals, Inc’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Tetragenex Pharmaceuticals, Inc. as
of December 31, 2009 and 2008, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in the notes to the
financial statements, the Company has suffered recurring operating losses and
has a net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management’s plans concerning these matters are
also disclosed in the notes. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
/s/
DEMETRIUS & COMPANY, L.L.C.
Wayne,
New Jersey
April 15,
2010
F-1
TETRAGENEX
PHARMACEUTICALS, INC.
BALANCE
SHEET
AS
OF DECEMBER 31, 2009 and 2008
Year
Ended December 31,
|
||||||||
ASSETS
|
2009
|
2008
|
||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 21,420 | $ | 329,863 | ||||
Other Receivable | 133,079 | 0 | ||||||
Prepaid
insurance and other current assets
|
4,034 | 18,780 | ||||||
158,533 | 348,643 | |||||||
Property
and equipment, net
|
4,933 | 6,255 | ||||||
Security
Deposit
|
4,188 | 4,188 | ||||||
Patents,
net
|
10,000 | 449,671 | ||||||
$ | 177,654 | $ | 808,757 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Notes
payable
|
411,994 | 1,882,362 | ||||||
Accounts
payable and accrued expenses
|
2,860,516 | 1,610,729 | ||||||
Accrued
interest
|
63,556 | 254,354 | ||||||
Total current liabilities | 3,336,066 | 3,747,445 | ||||||
Long
term liability
|
||||||||
Notes
payable
|
50,000 | 308,823 | ||||||
Total liabilities
|
3,386,066 | 4,056,268 | ||||||
Commitments and
contingencies
|
||||||||
Stockholders'
deficit
|
||||||||
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 15,926,126
shares issued and outstanding
|
15,926 | 15,926 | ||||||
Additional
paid-in capital
|
101,840,856 | 101,836,042 | ||||||
Accumulated
deficit
|
(105,065,194 | ) | (105,099,479 | ) | ||||
Total
stockholders' deficit
|
(3,208,412 | ) | (3,247,511 | ) | ||||
$ | 177,654 | $ | 808,757 |
The
accompanying footnotes are an integral part of the financial
statements
F-2
TETRAGENEX
PHARMACEUTICALS, INC.
STATEMENTS
OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Year
ended December 31,
|
|||||||||
2009
|
2008
|
||||||||
Revenue
|
|||||||||
Contract
revenue
|
$ | - | $ | - | |||||
- | - | ||||||||
Operating
expenses
|
|||||||||
Research
and development
|
$ | 2,081 | $ | 7,894 | |||||
Compensation
expense
|
1,187,703 | 664,827 | |||||||
Travel
|
41,774 | 54,634 | |||||||
General
and administrative
|
229,664 | 194,317 | |||||||
Professional
fees
|
71,639 | 103,682 | |||||||
Payroll
taxes and employee benefits
|
62,772 | 75,325 | |||||||
Consulting
fees
|
5,963 | 29,859 | |||||||
Rent
and occupancy
|
36,153 | 113,026 | |||||||
Depreciation
and amortization
|
39,772 | 45,672 | |||||||
Loss
before other income(expense) and tax benefit
|
(1,677,521 | ) | (1,289,236 | ) | |||||
Other
income (expense)
|
|||||||||
Gain
on settlement of long term debt
|
2,176,894 | ||||||||
Impairment
of asset
|
(409,280 | ) | |||||||
Interest
income and other
|
(2,168 | ) | 275,375 | ||||||
Interest
expense
|
(186,719 | ) | (92,946 | ) | |||||
Loss Before Tax Benefit | (98,794 | ) | (1,379,050 | ) | |||||
Sale of Tax Losses | 133,079 | 272,243 | |||||||
Net
loss
|
$ | 34,285 | $ | (1,106,807 | ) | ||||
Basic
and diluted net loss per share
|
$ | (0.00 | ) | $ | (0.07 | ) | |||
Weighted
average common shares outstanding
|
15,926,126 | 15,926,126 |
The
accompanying footnotes are an integral part of the financial
statements
F-3
TETRAGENEX
PHARMACEUTICALS, INC
STATEMENTS
OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Shares
issued
|
||||||||||||||||||||
and oustanding
|
Additional
|
|||||||||||||||||||
Common
|
Common
|
paid-in
|
Accumulated
|
|||||||||||||||||
stock
|
stock
|
capital
|
deficit
|
Total
|
||||||||||||||||
Balance,
December 31, 2007
|
15,926,126 | 15,926 | 101,775,845 | (103,992,672 | ) | (2,200,901 | ) | |||||||||||||
Warrants
to bridge loan financing
|
58,597 | 58,597 | ||||||||||||||||||
Issuance
of common stock options for services
|
1,600 | 1,600 | ||||||||||||||||||
Net
Loss
|
(1,106,807 | ) | (1,106,807 | ) | ||||||||||||||||
Balance,
December 31, 2008
|
15,926,126 | 15,926 | 101,836,042 | (105,099,479 | ) | (3,247,511 | ) | |||||||||||||
Bridge
loan warrant discount
|
4,814 | 4,814 | ||||||||||||||||||
Net
Loss
|
34,285 | 34,285 | ||||||||||||||||||
Balance
December 31, 2009
|
15,926,126 | 15,926 | 101,840,856 | (105,065,194 | ) | (3,208,412 | ) |
The
accompanying footnotes are an integral part of the financial
statements
F-4
TETRAGENEX
PHARMACEUTICALS, INC
STATEMENTS
OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | 34,285 | $ | (1,106,807 | ) | |||
Adjustments
to reconcile net loss to net cash used
in operating activities
|
||||||||
Amortization
of debt discount
|
32,985 | 17,420 | ||||||
Depreciation
and amortization
|
39,772 | 45,672 | ||||||
Impairment
of patent asset
|
409,280 | - | ||||||
Gain
on settlement of long-term debt
|
(2,176,894 | ) | - | |||||
Stock,
option and warrant compensation
|
- | 1,600 | ||||||
Changes
in operating assets and liabilities
|
||||||||
Other receivables | (133,079 | ) | - | |||||
Prepaid
insurance and other current assets
|
14,746 | 14,997 | ||||||
Security
deposits
|
- | 14,770 | ||||||
Accounts
payable and accrued expenses
|
1,249,787 | 457,090 | ||||||
Accrued
interest payable
|
153,734 | 75,526 | ||||||
Net
cash used in operating activities
|
(375,384 | ) | (479,732 | ) | ||||
Cash
flows from investing activities
|
||||||||
Cash
paid for property and equipment
|
(844 | ) | (4,854 | ) | ||||
Patent
costs
|
(7,215 | ) | (63,288 | ) | ||||
Net
cash used in investing activities
|
(8,059 | ) | (68,142 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from notes payable
|
75,000 | 350,000 | ||||||
Net
cash provided by financing activities
|
75,000 | 350,000 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(308,443 | ) | (197,874 | ) | ||||
Cash
and cash equivalents, beginning of year
|
329,863 | 527,737 | ||||||
Cash
and cash equivalents, end of year
|
$ | 21,420 | $ | 329,863 | ||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid for taxes
|
$ | 1,651 | $ | 811 | ||||
Cash
paid for interest
|
$ | - | $ | - | ||||
Non
Cash Transactions
|
||||||||
Stock,
options, and warants issued for compensation
|
$ | - | $ | 1,600 |
The
accompanying footnotes are an integral part of the financial
statements
F-5
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
1.
|
THE
COMPANY
|
Tetragenex
Pharmaceuticals, Inc. (the “Company” or “Tetragenex”) is headquartered in
Englewood Cliffs, New Jersey, and we were a wholly owned subsidiary of
Innapharma, Inc. (“Innapharma”). Innapharma was founded in 1989 in the State of
Delaware as a biotechnology company that has discovered and intends to
commercialize proprietary pharmaceutical products for use in treatment resistant
depression and other central nervous system diseases
Tetragenex
has a platform of peptides which have shown activity in the treatment of CNS
diseases. Nemifitide, the company’s lead compound, was initially
entered into human clinical trials in the late 1990’s. Over 12
clinical trials have been conducted with Nemifitide for various types of
depression. Tetragenex believes that Nemifitide is active in refractory or
treatment resistant patients. Treatment resistant patients are
typically difficult to treat and normally don’t respond to other CNS
treatments., Nemifitide has shown a rapid and robust onset of action with
lasting benefits of approximately four months following treatment. Nemifitide is
well tolerated, without any current evidence of significant side effects as
compared to the current drugs that are used in the treatment of major depressive
disorder.
The
Company had hoped to find a licensing partner to continue the development of
Nemifitide, primarily in treatment resistant patients which currently represents
approximately 5 to 10 percent of the overall patient population suffering from
the disease. Nemifitide is currently administered thru subcutaneous
injection and is given intermittently with 6 to 9 doses over 1 to 2 weeks.
Patients who respond tend to stay healthy for several months after the initial
dosing regimen. Due to several setbacks and difficult economic environment, it
seems unlikely that the company will be able to obtain FDA approval for
Nemifitide to be administered in the United States. Therefore,
the company will now seek to obtain approval to sell Nemifitide in several
Central American, Eastern Eurpopean and Caribbean nations based on its current
data. Patients will then be treated at centers located in those
countries.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
GOING
CONCERN AND LIQUIDITY
The
financial statements of the Company have been prepared assuming the Company will
continue as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company
had income of $34,285 and a loss of $1,106,807 for the years ended December 31,
2009 and 2008 respectively As of December 31, 2009, we had a working capital
deficiency of $ 3,177,533, short term debt of $411,494 plus accrued interest and
a deficiency in stockholder’s equity of $3,208,412. The Company has less than 12
months working capital in the bank currently and its main source of funds has
been private investments. These factors raise doubt about the Company’s ability
to continue as a going concern. To address the company’s immediate cash
requirements which are necessary for the Company to continue in business,
several members of the board of directors made an aggregate investment into a
bridge loan to the Company of $175,000 in 2008. Several other individuals
participated in t his offering and the company raised an additional $200,000.
One director loaned $85,000 to the company. The proceeds of this loan
were used to settle the KBC note as well as for general
operations. The Company’s low stock price and its continuing losses
may make it difficult to obtain either equity or debt financing, and, there can
be no assurances that additional financing which is necessary for the company to
continue its business will be available to the company on acceptable terms, or
at all. The Company believes that its lead compound, Nemifitide is a
revolutionary treatment for depression and should it reach the market or become
licensed to a pharmaceutical company, could prove extremely lucrative to the
company. The Company’s ability to continue its operations is dependent upon its
ability to generate sufficient funds from financings to meet its obligations on
a timely basis and to further develop and market its products. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
F-6
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FINANCIAL
INSTRUMENTS
The
Company’s financial instruments include cash and cash equivalents, accounts
payable and accrued expenses and notes payable. These financial instruments are
carried at cost, which unless otherwise disclosed, approximates fair value due
to their short maturities.
CASH
AND CASH EQUIVALENTS
The
Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents. The Company’s cash
and cash equivalents are held principally at one financial institution and at
times may exceed insured limits.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost and depreciated on a straight-line basis over
the estimated useful lives of the related assets, which is generally five years.
Expenditures for maintenance and repairs are charged to operations at the time
the expense is incurred. Expenditures determined to represent additions are
capitalized.
IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Impairment is determined to exist if estimated undiscounted
future cash flows are less than the carrying amount of the asset. If such assets
are considered to be impaired, the impairment recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
In
February 2010 the company had its patent attorney perform a patent valuation of
its patent assts. The valuation determined the value of the patents
is no greater than $10,000. As a result the company recorded an
impairment loss of $409,280 on this asset. The Company believes
this because the patents expire on the last day of 2014. In order to
obtain FDA clearance for Nemifitide, the Company would need to immediately raise
adequate funding to commence a pivotal trial which would take longer than 18
months, at which point it would be the middle of 2011. The Company
would then need to find a licensing partner who would need to perform additional
trials in order to file an application for approval with the FDA. The
Company believes that meeting this time frame will be extremely difficult or
impossible. Additionally several patents have lapsed
because the maintenance fees for these patents were too expensive for us to
maintain.
F-7
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
INCOME
TAXES
The
Company accounts for income taxes using the liability method. The liability
method requires the determination of deferred tax assets and liabilities based
on the differences between the financial statements and income tax bases of
assets and liabilities, using enacted tax rates. Additionally, net deferred tax
assets are adjusted by a valuation allowance, if, based on the weight of
available evidence, it is uncertain whether some portion or all of the net
deferred tax assets will be realized.
RESEARCH
AND DEVELOPMENT
The
Company expends funds on research and development to develop new products or
processes, to improve present products, and to discover new knowledge that may
be valuable at some future date. Costs incurred for research and development
activities are expensed as incurred.
BASIC
AND DILUTED LOSS PER COMMON SHARE
The
Company displays earnings per share in a dual presentation of basic and diluted
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing net income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Outstanding
common stock options, warrants, convertible preferred shares and convertible
notes payable have not been considered in the computation of diluted earnings
per share amounts, since the effect of their inclusion would be ant dilutive.
Accordingly, basic and diluted earnings per share are identical.
RECENTLY
ISSUED ACCOUNTING STANDARDS
In
October 2009, the Financial Accounting Standards Board (the “FASB”) issued
Accounting Standards Update (“ASU”) 2009-14, “Certain Revenue Arrangements that
Include Software Elements,” an update to ASC 985-605, “Software-Revenue Recognition,”
and formerly known as EITF 09-3, “Revenue Arrangements that Include
Software Elements” (“ASU 2009-14”). ASU 2009-14 amends ASC
Subtopic 985-605 to exclude from its scope tangible products that contain both
software and non-software components that function together to deliver a
product’s essential functionality. ASU 2009-14 will be effective prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. The
Company is currently evaluating the impact of adopting ASU 2009-14 on its
financial position, results of operations and cash flows, but has yet to
complete its assessment.
F-8
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
In
October 2009, the FASB issued ASU 2009-13, “Multiple Deliverable Revenue
Arrangements,” an update to ASC Topic 605, “Revenue Recognition,” and
formerly known as EITF 08-1, “Revenue Arrangements with Multiple
Deliverables” (“ASU 2009-13”). ASU 2009-13 amends ASC
650-25 to eliminate the requirement that all undelivered elements have
vendor-specific objective evidence (“VSOE”) or third-party evidence
(“TPE”) before an entity can recognize the portion of an overall
arrangement fee that is attributable to items that already have been delivered.
The overall arrangement fee will be allocated to each element (both delivered
and undelivered items) based on their relative selling prices, regardless of
whether those selling prices are evidenced by VSOE or TPE or are based on the
entity’s estimated selling price. ASU 2009-13 will be effective prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. The
Company is currently evaluating the impact of adopting ASU 2009-13 on its
financial position, results of operations and cash flows, but has yet to
complete its assessment.
In
August 2009, the FASB issued ASU 2009-05, “Fair Value Measurements and
Disclosures (Topic 820) – Measuring Liabilities at Fair Value” (“ASU
2009-05”). ASU
2009-05 amends ASC Topic 820, “Fair Value Measurements.”
The update addresses practice difficulties caused by tension between
fair-value measurements based on the price that would be paid to transfer a
liability to a new obligor and contractual or legal requirements that prevent
such transfers from taking place. ASU 2009-05 is effective for interim and
annual periods beginning
after August 27, 2009, and applies to all fair value measurements of
liabilities required by U.S. Generally Accepted Accounting Principles (“GAAP”).
No new fair-value requirements are required by the standard. The Company does
not expect the adoption of ASU 2009-05 to have a material impact on its
financial position, results of operations and cash flows.
In
June 2009, the FASB issued an update to ASC 105, previously referred to as
SFAS No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162” (“ASC
105”). The FASB
Accounting Standards Codification (“Codification”) will become the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of the
update to ASC 105, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative. Following the update to ASC 105, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The
FASB will not consider Accounting Standards Updates as authoritative in their
own right. Accounting Standards Updates will serve only to update the
Codification, provide background information about the guidance, and provide the
bases for conclusions on the change(s) in the Codification. The update to ASC
105 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company does not expect the adoption
of ASC 105 to have a material impact on its financial position, results of
operations and cash flows.
F-9
In
June 2009, the FASB issued an update to ASC 810, previously referred to as
SFAS No. 167, “Amendments
to FASB Interpretation No. 46(R),” which requires an enterprise to
perform an analysis to determine whether the enterprise’s variable interest or
interests give it a controlling financial interest in a variable interest entity
(“ASC 810”). The update to ASC 810 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. The Company
does not expect the adoption of ASC 810 to have a material impact on its
financial position, results of operations and cash flows.
In
May 2009, the FASB issued an update to ASC 855, previously referred to as
SFAS No. 165, “Subsequent
Events,” which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued (“ASC 855”). In
particular, ASC 855 sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements;
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The update to ASC 855 is effective for
interim or annual financial periods ending after June 15, 2009. The impact
of adopting the update to ASC 855 was not material to the Company’s financial
position, results of operations and cash flows.
3.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment are summarized as follows:
December
31,
2009
|
December
31,
2008
|
|||||||
Furniture
and fixtures
|
$ | 1,833 | $ | 1,833 | ||||
Machinery
and equipment
|
16,280 | 15,437 | ||||||
18,113 | 17,270 | |||||||
Less
accumulated depreciation
|
13,180 | 11,015 | ||||||
$ | 4,933 | $ | 6,255 |
Depreciation
expense for the years ended December 31, 2009 and 2008 was 2,166 and $2,787
respectively. The decrease was due to certain assets becoming fully
depreciated.
F-10
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
4.
|
INCOME
TAXES
|
The income tax benefit for the
year ended, December 31, 2009 and 2008, includes:
2009
|
2008
|
|||||||
Federal
|
– | – | ||||||
State
|
$ | 133,079 | $ | 272,243 | ||||
$ | 133,079 | $ | 272,243 | |||||
DEFERRED
|
||||||||
Federal
|
– | – | ||||||
State
|
– | – | ||||||
$ | – | $ | – |
There is
no current provision for corporate income taxes for the years ended December 31,
2009, and 2008 as the Company generated net losses for income tax purposes. At
December 31, 2009, the Company had available for federal income tax purposes net
operating loss carry forwards of approximately $70,748,000 that expire through
2029. At December 31, 2009, the Company had credits for increasing research
activities of approximately $825,000 that expire from the years 2015 through
2022.
The tax
effects of temporary differences that give rise to deferred tax assets and
liabilities are summarized as follows:
DECEMBER
31,
2009
|
DECEMBER
31,
2008
|
|||||||
DEFERRED
TAX ASSETS:
|
||||||||
Net
operating loss carry forwards
|
$ | 24,352,000 | $ | 24,911,00 | ||||
Research
and development credits
|
825,000 | 825,000 | ||||||
TOTAL DEFERRED TAX
ASSETS
|
25,177,000 | 25,760,000 | ||||||
Valuation
allowance
|
(25,177,000 | ) | (25,760,000 | ) | ||||
Net deferred tax
assets
|
$ | – | $ | – |
The net
change in the valuation allowance was a (decrease) of $(24,340) and $(300,000)
for the years ending 2009 and 2008 respectively.
The
reconciliation of estimated income taxes attributed to operations, at the
statutory tax rates, to the reported income tax benefit is as
follows:
2009
|
2008
|
|||||||
Expected
federal tax at statutory rate
|
$ | 526,246 | $ | (521,000 | ||||
State
taxes, net of federal tax rate
|
(133,079 | ) | (380,000 | ) | ||||
Change
in valuation allowance
|
(393,167 | ) | 901,000 | |||||
$ | -- | $ | -- |
F-11
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
As of
December 31, 2009 the Company had net operating loss carry forwards for federal
income tax purposes of approximately $70,811,754 which expire in the years 2009
through 2029 and federal research and development tax credits of approximately
$825,000 which expire in the years 2015 through 2022.
As of
December 31, 2009 The Company had net operating loss carry forwards for state
income tax purposes of approximately $1,995,000 which expire through
2029.
Utilization
of the Company’s net operating loss and credit carry forwards may be subject to
substantial annual limitation due to the ownership change imitations provided by
the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss and credits
before utilization
During
2009 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 $133,000.
5.
|
NOTES
PAYABLE
|
The
Company had $1,882,362 in notes payable plus 3% interest due on April 23, 2009.
The notes were convertible into common shares at $5 per share at the discretion
of the holders of the notes. The notes are secured by the patents of the
company. On January 19, 2010 the company completed a settlement
agreement and mutual release with KBC Bank NV as administrative
agent. In exchange for the consideration of $50,000, KBC will release
its interest in the KBC Collateral as well as any interest in the Secured Claim
or any unsecured claim it may have. KBC will execute any and all
documents that may be reasonably necessary to release its claims in the KBC
Collateral. This includes amongst others to execute a document
releasing the UCC on all Tetragenex patents and the return of the original note
documentation. Tetragenex has completed payment in good form. The company
elected to record the transaction in 2009 due to the fact that it was in
negotiations with the note holder in 2009 and believed a transaction would occur
early in 2010. The gain on the extinguishing of the note was recorded
as well as the extinguishing of the interest payable.
During
2008 and into 2009 the Company raised $375,000 as part of a bridge
loan. In exchange for the funds the Company issued promissory notes
payable totaling $375,000 plus 12% interest per annum. The notes are
due in 2 years or upon the closing of at least $2 million in
funding. The promissory notes were accompanied by an aggregate of
1,500,000 warrants exercisable at $0.40 per share expiring in
2013. Due to the warrants a discount of $4,814 and $58,597 was
recorded in 2009 and 2008 respectively. The warrants were valued
using the black scholes method.
The
Company issued promissory note with a face value of $85,000 to one of its
directors in January 2010. The promissory note has 12% interest per annum and
matures in 2 years but is expected to be converted into equity.
STOCKHOLDERS’
EQUITY
STOCK
OPTIONS
TETRAGENEX STOCK
OPTIONS
On
December 31, 2008 an aggregate of 40,000 options were granted to outside
directors for participation on board committees exercisable at $1 per share
expiring 10 years from issuance. Expenses totaling $1,600 were
charged to “Board Expense” in 2008.
F-12
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
All
options are vested immediately. The options are not actively trading and the
fair market value is not readily ascertainable, the options are taxable at the
time of exercise as opposed to the time of the grant.
The
following table presents the combined activity of the plan and non-plan stock
option issuances for the years ended December 31, 2008 and 2009:
OPTIONS
|
WEIGHTED
AVERAGE EXERCISE PRICE
|
|||||||
OUTSTANDING
AT DECEMBER 31, 2007
|
11,798,253 | $ | 1.00 | |||||
Granted
during 2008
|
40,000 | $ | 1.00 | |||||
OUTSTANDING
AT DECEMBER 31, 2008
|
11,838,253 | $ | 1.00 | |||||
Granted
during 2009
|
- | - | ||||||
OUTSTANDING DECEMBER 31, 2009 | 11.838.253 | $ | 1.00 |
The
following table presents, for each of the following classes of options, as
determined by range of exercise price, the information regarding
weighted-average exercise price and weighted average remaining contractual life
as of December 31, 2009:
Options
Outstanding and Exercisable
|
|||
Range
of Exercise Price
|
Number
of Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life
|
$1.00
|
11,838,253
|
$1.00
|
8.7
|
The
grant-date fair values of options granted were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
years ended December 31:
2008
|
2009
|
|||||||
Expected
life (years)
|
9.7 | 8.7 | ||||||
Risk-free
interest rate
|
1.434 | % | 3.7 | % | ||||
Volatility
|
96 | % | 96 | % |
PROMISSORY
NOTES/WARRANTS
On May
28, 2008, the Company issued promissory notes carrying 12% interest per annum
having an aggregate face value of $175,000, together with warrants to purchase
an aggregate of 350,000 shares of the Company’s common stock at $0.50 per share,
to seven individuals. Further and as part of the same financing, on
July 28, 2008 the Company issued promissory notes carrying 12% interest per
annum having an aggregate face value of $75,000, together with warrants to
purchase an aggregate of 150,000 shares of the Company’s common stock at $0.50
per share, to three individuals. The Company had a third closing in
October 2008. The Company issued promissory notes carrying 12%
interest per annum having an aggregate face value of $100,000, together with
warrants to purchase an aggregate of 400,000 shares of the Company’s common
stock at $0.40 per share, to two individuals.
F-13
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
Additionally,
the Company issued an aggregate of 1,000,000 warrants exercisable at $.40 per
share expiring 5 years of issuance to the ten individuals who participated in
the May 28, 2008 and July 28, 2008 closings. These warrants replace
the previously issued 500,000 warrants exercisable at $.50 per share expiring 5
years from issuance. The terms of the bridge loan were changed and
thus previous investor’s holdings were adjusted to the new terms which were 4
warrants for every $1 issued. The warrants are exercisable at $.40
per share and expire 5 years from issuance.
During
2009 an aggregate of 8,103,796 warrants expired valueless.
At
December 31, 2009, the Company had outstanding warrants to purchase 5,329,718
shares of the Company’s common stock at exercise prices of $.40, $1.65 and $6
per share. These warrants have expirations of July 2013, March 30, 2012, and
November 30, 2011 respectively.
The
following table presents, for each of the following classes of warrants as
determined by range of exercise price, information regarding warrants
outstanding and weighted-average exercise price as of December 31,
2009.
Warrants
Outstanding
|
||
Range
of Exercise Price
|
Number
of Warrants
|
Weighted
Average Exercise Price
|
$1.65
|
645,322
|
$1.65
|
$6.00
|
3,284,396
|
$6.00
|
$0.40
|
1,400,000
|
$0.40
|
COMMON
STOCK TRANSACTIONS
At
December 31, 2009, the Company had authorized 50,000,000 shares of common stock,
$.001 stated value. The following table represents the approximate allocation of
reserved shares at December 31, 2009:
Common
Stock
|
15,926,126 | |||
Stock
Options
|
11,838,253 | |||
Warrants
|
5,329,718 | |||
33,094,097 |
EMPLOYMENT
AGREEMENTS
On
December 15, 1999, the Company entered into a three-year employment agreement
with its co-Chief Executive Officer and Chairman of the Board, Martin F.
Schacker (“Co-CEO”). The agreement provided for an annual base salary of
$160,000, subject to a minimum ten percent annual increase. On February 6, 2001,
in view of the 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. At December
31, 2009 the executive had deferred compensation totaling $1,001,000. The Co-CEO
is the nephew of the company’s other co-Chief Executive Officer, David
Abel.
F-14
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
All
officers, Directors and employees of the Company at the time of the bankruptcy
case which commenced April 15, 2003 agreed to defer a portion or all of their
compensation.. In April 2008 at the Board’s request, all salaried
employees of the Company were subject to a minimum of 50% temporary cash salary
reduction while the Company sought financing for its operations. In
October 2008 the Company ceased accruing salary reductions for all officers,
directors and employees. In August 2009 the company ceased all cash
compensation to employees and commenced accruing salaries. On
December 31, 2009, there was $2,342,183 deferred from officers and employees and
$268,750 from directors. It is anticipated that the majority of
accrued salaries will be converted into equity in the Company
6.
|
LITIGATION
|
At
December 31, 2009 and December 31, 2008 the Company was not involved in any
ongoing litigation.
7.
|
RISKS
AND UNCERTAINTIES
|
The
Company is subject to risks common to companies in the biopharmaceutical
industry, including, but not limited to, successful commercialization of product
candidates, protection of proprietary technology and compliance with Food and
Drug Administration regulations.
As
reflected in the accompanying consolidated financial statements, the Company has
incurred significant recurring losses from operations and negative operating
cash flows, which have been financed primarily by proceeds from stock and debt
issuances. As a result, the Company had an accumulated deficit of $105,198,273
and $105,099,479 on December 31, 2009 and 2008, respectively.
The
Company plans to provide for additional working capital and funds for the
continued development of its products through private or public sale of the
Company’s common stock. The Company’s ability to obtain such financing is
contingent upon continued progress in its efforts to bring its lead compound to
market and its ability to access capital resources. The Company is also
attempting to enter into an agreement with a major pharmaceutical company to
co-develop its antidepressant drug, which may generate significant cash flows
for the Company. No assurance can be given as to the Company’s ability to enter
into such an agreement or successfully complete future funding.
F-15
8.
|
LEASE
OBLIGATIONS
|
The
Company leases approximately 1,100 square feet of office space at 560 Sylvan
Ave, Englewood Cliffs, New Jersey, pursuant to a lease it entered into on
November 15, 2008 and which expires November 15,
2010. Pursuant to the terms of the lease, the monthly rental payments
are $1,919. The Company also has office space at 200 Broad Hollow Road,
Melville, New York which and on 6901 Jericho Tpke in Syosset NY which we incur a
cash rent of $300 per month on a month to month basis. Management
believes our existing facilities are adequate to meet our requirements through
the year 2010.
The
approximate aggregate minimum rental commitments on these leases are as
follows:
Year
Ending December 31,
|
||||
2010
|
$ | 19,190 | ||
Total
|
$ | 19,190 |
Our
rental expense was $27,666 and $103,605 for the years ended December 31, 2009
and 2008, respectively
9.
|
RELATED
PARTY TRANSACTIONS
|
Several
board members invested in the Company’s bridge loan in 2008 and
2009. Five board members invested an aggregate of $125,000 into the
bridge offering ($25,000 per director) and in exchange received a two year
promissory note with a stated interest rate of 12% per
annum. Additionally, each director received 100,000 warrants
exercisable at $.40 per share expiring 5 years from issuance.
One board
member invested $85,000 in exchange for a secured promissory note in January
2010 which was used by the Company to settle with the holder of a promissory
note as well as for working capital to operate the company. The
transaction was recorded in 2009 due to the fact it was used for the KBC
settlement
10.
|
SUBSEQUENT
EVENTS
|
In
January 2010 we issued a secured promissory note to one of our directors, with a
principal face value of $85,000, in exchange for cash advance
payments in the amount of $50,000 in November 2009 and $35,000 in
January 2010.
On
January 11, 2010, the company entered into a Settlement, Release and
Compromise Agreement (the “Settlement Agreement”) with KBC Private Equity NV
(“KBC”). Pursuant to the Settlement Agreement, in
acknowledgement of our financial situation, KBC accepted $50,000 as settlement
(the “Settlement”) for a $2,227,000 in debt, which included accrued interest of
$345,922.. Upon payment of the Settlement, KBC released its preferred
equity interest in our intellectual property, as well as any other secured or
unsecured claim it may have against us.
The
above transactions have been reflected in the company’s records as of December
31, 2009, as. the company was in serious negotiations with both parties in 2009.
The transaction was consummated in 2010 and as a result of the settlement the
company recorded a gain of $2,177,000
F-16
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
There
have been no changes or disagreements with our accountants on accounting and
financial disclosure.
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES
|
(A)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We
maintain a system of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that
information required to be disclosed in our Securities and Exchange Commission
reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and to
ensure that such information is accumulated and communicated to our management,
including the Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Management
necessarily applied its judgment in assessing the costs and benefits of such
controls and procedures, which, by their nature, can provide only reasonable
assurance regarding management’s control objectives.
Management,
with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures, as of the end of the period covered by this Annual Report on Form
10-K. Based upon this evaluation, management concluded that our disclosure
controls and procedures were not effective as of the end of the fiscal year. In
making this evaluation, the Chief Executive Officer and Chief Financial Officer
considered, among other matters, the material weakness in our internal control
over financial reporting described below.
(B)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our management with the
participation of the Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework. Based on this evaluation,
our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2009 we did not maintain
effective internal controls over financial reporting due to our limited number
of employees which resulted in our inability to effectively segregate all
conflicting duties. Currently we employ one individual who is in charge of our
accounting and financial duties on a day-to-day basis and we also use one
consultant to assist in the preparation of the financial statements and
accompanying footnotes.
To remedy
this material weakness, we will, to the extent possible, implement procedures to
assure the initiation of transactions, the custody of assets and the recording
of transactions will be performed by separate individuals. Further, concurrent
with having sufficient resources we will engage additional individuals to assist
us in remedying this material weakness.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in the
Annual Report.
19
TETRAGENEX
PHARMACEUTICALS, INC.
NOTES
TO THE FINANCIAL STATEMENTS (cont’d)
LIMITATIONS
ON THE EFFECTIVENESS OF INTERNAL CONTROLS
Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will necessarily prevent all fraud and material
errors. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
(C)
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There
have been no significant changes in our internal controls over financial
reporting during the period ended December 31, 2009 that have altered our
conclusion as to the ineffectiveness of such controls.
ITEM 9B.
|
OTHER
INFORMATION
|
Issuance
of Promissory Note
In
January 2010 we issued a secured promissory note to one of our directors, with a
principal face value of $85,000, in exchange for $85,000. The
majority of the funds were used to settle a dispute with the holder of one our
promissory notes and the remainder for working capital.
These
securities were issued in transactions not registered under the Securities Act
in reliance upon the exemption provided under Section 4(2) of the Securities Act
and/or Regulation D promulgated by the Securities and Exchange
Commission. We believed that the exemption was available because the
offer and sale of the securities did not involve a public offering and because
of the limited number of recipients, each purchaser’s representation of
sophistication in financial matters, and his access to information concerning
our business.
20
PART
III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
DIRECTORS
AND EXECUTIVE OFFICERS
Biographical
descriptions of each of our Directors and executive officers can be found
below:
NAME
|
AGE
|
POSITION
|
Martin
F. Schacker
|
53
|
Chairman
of the Board and Co-Chief Executive Officer
|
David
Abel
|
67
|
Vice
Chairman of the Board, Co-Chief Executive Officer
|
Neil
Martucci
|
37
|
Chief
Financial Officer
|
Robert
P. Budetti
|
67
|
Chief
Operating Officer and Director
|
Kenneth
Cartwright
|
74
|
Senior
Vice President of Drug Developments Regulatory Affairs and
Director
|
Alf
E. F. Akerman
|
46
|
Director
|
Bruce
J. Bergman, Esq.
|
64
|
Director
|
William
T. Comer, Ph.D
|
73
|
Director
|
Aaron
Cohen
|
73
|
Director
|
MARTIN F.
SCHACKER currently serves as Chairman of the Board and Co-CEO. Mr. Schacker
served as our Co-Chairman of the Board of Directors from 1998 to 2004 and as
Chairman of the Board since 2004. He has served as Co-Chief Executive Officer
since March 1999. Mr. Schacker was appointed as a Director in November 1994.
With extensive biotechnology and investment banking experience, Mr. Schacker has
helped raise approximately $60,000,000 for us to date. From August 1991 through
February 2001, Mr. Schacker served as Chairman of the Board of M.S. Farrell
& Co., Inc., an investment banking and brokerage firm, and was its Chief
Executive Officer from 1991 to 2000. From June 1987 through December 1991, Mr.
Schacker was a Senior Vice President of D.H. Blair & Company, Inc., an
investment banking and brokerage firm that focuses on biotechnology companies.
From 1982 to May 1987, Mr. Schacker was employed in various capacities,
including as Senior Vice President at Shearson Lehman Brothers, an international
investment banking and brokerage firm. Mr. Schacker received a B.A. in Business
from Hofstra University in 1982. Mr. Schacker is the nephew of David
Abel. Mr. Schacker is not a director of any public company or any
investment company, and has not been a member of the board of directors for such
companies for the past five years. The Board
believes that Mr. Schacker has the experience, qualifications, attributes and
skills necessary to serve as our Director because of his close to thirty years
of general experience, over fifteen years of experience with our company, and
his having provided leadership and strategic direction to us and his
unparalleled knowledge of the Company and its business.
DAVID
ABEL has served as our Co-Chief Executive Officer since March 1998 and as Vice
Chairman of the Board since 2004. He was Co-Chairman of the Board from 1999
through 2004. Mr. Abel has served as a Director since November 1994. Mr. Abel is
the President and Founder of United Realty, Inc., a commercial and industrial
real estate company headquartered in Melville, New York, and is a general
partner of Triangle Properties, a partnership that owns and operates over 50
commercial properties throughout the greater New York metropolitan area. Mr.
Abel received a B.B.A. from City College of New York (C.C.N.Y.) in 1962. Mr.
Abel is the uncle of Martin F. Schacker. Mr. Abel is not a director
of any public company, and has not been a member of the board of directors for
any public company for the past five years. The Board believes that
Mr. Abel has the experience, qualifications, attributes and skills necessary to
serve as our Director because of over fifteen years of experience with our
company and his knowledge of our operations.
21
NEIL
MARTUCCI has served as our Chief Financial Officer since 2004. In 2003, he
joined Innapharma, Inc. as Controller and was appointed Chief Financial Officer
in 2004. From 2001 through 2003 Mr. Martucci served as Vice President of
Investments for Kirlin Securities, a publicly traded investment bank. From 1994
through 2001, Mr. Martucci served as Vice President of Investments for M.S.
Farrell and Co, a small Wall Street Investment firm. In addition, he served as
an investment banker for M.S. Farrell and Co. from 1999 through 2001. Mr.
Martucci graduated from Miami (Ohio) University with a degree in finance in
1994. Mr. Martucci is not a director of any public company or
any investment company, and has not been a member of the board of directors for
any such companies for the past five years. The Board believes that
Mr. Martucci has the financial experience to serve as an integral member of our
company
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. From 1992 to 1994, Mr. Budetti served as the Chief Financial
Officer of the ICR division of Quintiles. 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. Since 1979, Mr.
Budetti has served as the Chief Executive Officer of the Feighner Research
Institute, a clinical neuropsychopharmacologic research center. 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. Mr.
Budetti is not a director of any public company or investment company, and has
not been a member of the board of directors for any such companies for the past
five years. The
Board believes that Mr. Budetti has the experience, qualifications, attributes
and skills necessary to serve as our Director because of his extensive
experience with neuropsychopharmacologic research.
KENNETH
CARTWRIGHT, M.B., CH.B., M.R.C.P. has served as our Director since 1989 and
Senior Vice President, Drug Development and Regulatory Affairs since 2003. Dr.
Cartwright is currently President of CMRC Consulting Services, an independent
scientific consulting firm. Dr. Cartwright served as Senior Vice President of
Development and Regulatory Affairs of Alteon, Inc., a biopharmaceutical company,
from 1994 until he retired in 1999. During his tenure at Alteon, Dr. Cartwright
served as a member of the management committee and was involved in the initial
IPO. In addition Dr. Cartwright was responsible for overall product development
including strategic clinical development planning, subsequent compilation of
NDAs and product registration and maintaining compliance within our company and
interaction with the FDA. Prior to joining Alteon, he served as the Director of
Clinical Research (U.S.A.) and as Vice President of Global Clinical Research of
American Cyanamid Company, Lederle Laboratories from 1982 to 1989. During his
tenure with American Cyanamid, Dr. Cartwright was responsible for overall global
strategic clinical plans and worldwide clinical development of phase 1, 2 and 3
programs. He subsequently established a worldwide clinical research organization
with regional offices in Australia, Canada, and England. Prior to joining
American Cyanamid, Dr. Cartwright held the positions of Medical Director,
Directory of Marketing and Deputy Vice President of the Pharmaceutical Division
of Ciba-Geigy, Canada. Dr. Cartwright received his M.B., Ch.B. in 1959 from
Liverpool University Medical School, his D.P.M. from Wessex Regional
Post-Graduate School of Psychiatry in 1969, his M.F.C.M. from the Faculty of
Community Medicine, Royal College of Physicians in 1971 and his M.R.C., Psych
from the Royal Colleges of Psychiatrists in 1973. Dr. Cartwright is not a
director of any public company or investment company, and has not been a member
of the board of directors for any such companies for the past five years. The Board believes that
Dr. Cartwright has the experience, qualifications, attributes and skills
necessary to serve as our Director because of his extensive
clinical research and product development
experience.
22
ALF E. F.
AKERMAN has served as our Director of the Company since March 1999. Mr. Akerman
served as the Director of Business Integration of Volvo Car Finance, a
subsidiary of Ford Motor Company, based in Belgium from 1994 to 2000. From
December 1997 through June 1999, Mr. Akerman served as the Risk Manager of Volvo
Car Finance Holdings. Mr. Akerman received a B.Sc. in Banking and Finance at
Loughborough University in England. Mr. Akerman currently works for a financial
institution in Sydney, Australia. Mr. Akerman is not a director of
any public company or investment company, and has not been a member of the board
of directors for any such companies for the past five years. The Board believes that
Mr. Akerman has the financial and banking experience, qualifications, attributes
and skills necessary to serve as our Director.
BRUCE J.
BERGMAN, ESQ. has served as our Director since November 1994. He is a member of
the New York law firm of Berkman, Henoch, Peterson & Peddy, P.C., where he
practices real estate litigation and mortgage foreclosure. Previously, Mr.
Bergman was a Deputy Attorney for Nassau County and a Deputy Bureau Chief for
Special Litigation in Nassau County. Mr. Bergman currently serves as an adjunct
associate professor of real estate at New York University Real Estate Institute
and a special lecturer in law at Hofstra Law School. He is a member of the
American College of Real Estate Lawyers, the American College of Mortgage
Attorneys and was three times elected City Councilman in Long Beach, New York,
serving in that capacity from 1980 through 1988. His biography appears in WHO’S
WHO IN AMERICAN LAW and he is listed in AMERICA’S BEST LAWYERS. Mr. Bergman
received a B.S. from Cornell University in 1966 and a J.D. from Fordham Law
School in 1969. Mr. Bergman is not a director of any public company
or investment company, and has not been a member of the board of directors for
any such companies for the past five years. The Board believes that
Mr. Bergman’s legal experience and skills are beneficial for the company and
that he has the experience, qualifications, attributes and skills necessary for
him to serve as our Director.
WILLIAM
T. COMER, PH.D. has served as our Director since February 2001. Since 2000 Dr.
Comer has also served as Director of TorreyPines Therapeutics (formerly known as
Neurogenetics Inc.), a company which he founded. From 1991 through 1999, Dr.
Comer served as President, CEO and Director of SIBIA Neurosciences, Inc., a
company focusing on drug discovery and the development of neurodegenerative
disease therapeutics, which was acquired by Merck & Co. From 1961 through
1981 he served in various capacities at Mead Johnson & Co., including as
scientist and Vice President of Research. From 1982 through 1990 he served in
various capacities at Bristol-Meyers, including President of Research and
Licensing, and from 1990 - 1991 he was Senior Vice President, Strategic
Management for Bristol-Myers Squibb. Dr. Comer was a member of the Board of
Directors of Epimmune (formerly Cytel Corporation) from 1994 through 2005, and
Trega Biosciences (formerly Houghton Pharmaceuticals) from 1993 through 1996. He
has served on the Board of the University of California San Diego Foundation
since 1993 and the Board of La Jolla Institute of Molecular Medicine since 2000.
Dr. Comer received a B.A. in Chemistry from Carleton College in 1957, and a
Ph.D. in Organic Chemistry and Pharmacology from University of Iowa in 1961. Dr.
Comer is not a director of any public company or investment company, and has not
been a member of the board of directors for any such companies for the past five
years. The Board
believes that Dr. Comer’s scientific experience and skills are beneficial for
the company and that he has the experience, qualifications, attributes and
skills necessary for him to serve as our Director.
23
AARON
COHEN has served as a Director since February 2001. Mr. Cohen, founded National
Technical Systems in 1961, a publicly traded company and is currently a
Vice-Chairman of the Board of Directors; Mr. Cohen has served as the President
of Smithway Associates, Inc., a property management company, since 1991. He is
the Chief Financial Officer and Director of Intelligent Optical Systems. Mr.
Cohen is a Member of the Deans Adivsory Board of the Henry Samueli UCLA School
of Engineering and Applied Sciences, the American Society of Quality Control,
the Institute of Environmental Sciences and a Professional Member of the
International Conference of Building Officials. In addition, Mr. Cohen is a
Director of the Sephardic Education Center and the Vice President of Sephardic
Temple Tifereth Israel. Mr. Cohen is a Registered Professional Engineer in the
State of California, and received his B.S. in Engineering from UCLA in 1958.
There are no family relationships among any of our Directors or executive
officers, other than David Abel is Martin Schacker’s uncle. Mr. Cohen
is t an officer and director of National Technical Systems, Inc which
is a public company and he has served in such capacity since 1961.. The Board believes that
Mr. Cohen’s has the experience, qualifications, attributes and skills necessary
to serve on the Board because of his over nine years of experience with our
company and his knowledge of our business.
COMPOSITION
AND ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
Our Board
of Directors currently consists of nine members. In June 2004, our Board of
Directors was divided into three classes, designated as Class I, Class II and
Class III. The Board of Directors currently consists of three Class I Directors
(William T. Comer, Ph.D., Aaron Cohen and Alf E. Akerman), three Class II
Directors (Bruce J. Bergman, Esq., Kenneth Cartwright and Robert P. Budetti),
and three Class III Directors (Martin F. Schacker, David Abel and John P.
Feighner, M.D.). The Class I Directors shall 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 expired,
each Director serves for a staggered three-year term. At each annual meeting of
stockholders, a class of Directors will be elected for a three-year term to
succeed the Directors of the same class whose terms are then expiring. A
Director holds office until the annual meeting of shareholders for the year in
which such Director’s term expires and until such Director’s successor shall be
duly elected and qualified, subject, however to prior death, resignation,
retirement, disqualification or removal from office.
Our
executive officers are appointed by our Board of Directors.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
requires the Company’s Officers and Directors, and persons who own more than 10%
of the Company’s common stock to file reports of ownership and changes in
ownership of the Company’s common stock with the Securities and Exchange
Commission. Based solely on a review of the copies of such reports
and written representations from the reporting persons that no other reports
were required, the Company believes that during the fiscal year ended October
31, 2009, our Executive Officers, Directors and greater than ten percent
shareholders filed on a timely basis all reports due under Section 16(a) of the
Exchange Act.
CODE
OF ETHICS
We have
adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K.
This Code of Ethics applies to our principal executive officer, our principal
financial officer and principal accounting officer, as well as all other
employees, and is filed herewith. The Code of Ethics increases the fiduciary
duties of our financial management team. If we make substantive amendments to
this Code of Ethics or grant any waiver, including any implicit waiver, we will
disclose the nature of such amendment or waiver on our website or in a current
report within four days of such amendment or waiver.
24
DIRECTOR
INDEPENDENCE
The Board
has determined that Messrs. Cohen, Bergman, Comer and Akerman, are independent
Directors as defined in Nasdaq Marketplace Rule 4200.
CHANGES
IN PROCEDURES BY WHICH SECURITY HOLDERS MAY RECOMMEND NOMINEES TO THE BOARD OF
DIRECTORS
There
have been no changes to the procedures by which security holders may recommend
nominees to our board of directors.
BOARD
COMMITTEES
The audit
committee is comprised of Messrs. Akerman, Bergman, and Cohen. Our audit
committee financial expert is Mr. Akerman. The compensation committee
is comprised of Messrs. Cohen, Abel and Bergman. Mr. Cartwright serves as an
advisor to the compensation committee . There were 4 meetings of the Board of
Directors held during 2008. Each director attended at least 75% of
the meetings held.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table sets forth the aggregate cash compensation paid by us to:
(i) our Chief Executive Officer, Chairman and Chief Financial Officer; and
(ii) our most highly compensated officers whose cash compensation exceeded
$100,000 for services performed during the year ended December 31, 2009.
Effective January 1, 2002, each non-employee and non-consultant member of our
Board of Directors received the following annual compensation in consideration
for services rendered as a Director: (i) a five-year option to purchase up
to 40,000 shares of our common stock, which options vest quarterly and were
issued annually in arrears, and were exercisable at an exercise price equal to
(a) a 15% discount to the fair market value at the end of the year in which
such option is granted, if our common stock is publicly traded, unless such
percentage reduction shall have a deleterious tax consequence upon us, in which
event the exercise price shall be equal to the fair market value, or
(b) such dollar amount as is set by our Board of Directors at the end of
the year in which such option is granted, if our common stock is not publicly
traded; (ii) a cash stipend of $12,500 per annum, paid on a quarterly
basis; and (iii) reimbursement of reasonable and ordinary expenses incurred
in connection with such member’s attendance at Board or committee meetings. In
2005 all existing options were converted into warrants to purchase shares of our
common stock exercisable at either $1 per share or $6 per share expiring either
in November 2009 or 2011. At the Board’s request all Board stipends were
deferred to a later date. In December 2005 all deferred Board stipends were
converted into options to purchase our common stock. In July 2006 it was decided
that all Board members serving on a Board committee would be entitled to an
additional $10,000 per year to be paid in options until it was determined that
we had sufficient funds to pay the fee in cash.
If
Directors provide additional consulting services outside of their duties as
Board members, they may receive additional compensation above their cash
stipend. In 2005 we issued employees, officers, and Directors a one-time option
grant of approximately 25% of our fully diluted outstanding shares of common
stock. The amount and breakdown was determined by the Board.
25
EXECUTIVE
COMPENSATION
Name
and
Principal
Position
(A)
|
Year
(B)
|
Salary
($)
(C)
|
Bonus
($)
(D)
|
Stock
Awards
($)
(E)
|
Option
Awards
($)
(F)
|
Non-equity
Incentive Plan Compensation
($)
(G)
|
Non-qualified
Deferred Compensation Earnings
($)
(H)
|
All
Other Compensation
($)
(H)
|
Total4
($)
(I)
|
||||||||||||||||||||||||
Martin
Schacker(1)
|
2009
|
300,000 | -- | – | -- | – | – | 14,000 | 314,000 | ||||||||||||||||||||||||
Co-CEO/
Chairman
|
2008
|
300,000 | -- | – | -- | – | – | 14,000 | 314,000 | ||||||||||||||||||||||||
David
Abel(2)
|
2009
|
110,000 | – | – | 0 | – | – | – | 110,000 | ||||||||||||||||||||||||
Co-CEO/Vice-Chairman
|
2008
|
110,000 | – | – | -- | – | – | – | 110,000 | ||||||||||||||||||||||||
Neil
Martucci(3)
|
2009
|
80,000 | -- | – | -- | – | – | – | 80,000 | ||||||||||||||||||||||||
Chief
Financial Officer
|
2008
|
100,000 | – | – | -- | – | – | – | 100,000 |
(1)
|
As
per his employment agreement, Mr. Schacker is due an annual salary of
$300,000 per year. In April 2008, at the Board’s request, Mr. Schacker
agreed to defer 50% of his salary. In August 2009, at the
Board’s direction, all employees began deferring 100% of their salary. Mr.
Schacker is currently not drawing a cash salary. During the 2007 fiscal
year, Mr. Schacker received options to purchase 850,000 shares of common
stock exercisable at $1 per share expiring 10 years from the date of
issuance issuance. In 2009 the board issued Mr. Schacker a non
cash bonus in the amount of $14,000 as interest on his accrued salary. At
December 31, 2009 Mr Schacker has accrued $1,001,000 in deferred
salary.
|
(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 our bankruptcy in 2003, Mr. Abel at
the Board’s request agreed to defer 100% of his annual salary and has thus
has received no cash compensation since then. In 2007 Mr. Abel received an
additional 300,000 options, exercisable at $1 per share expiring 10 years
from issuance At December 31, 2009 Mr. Abel has accrued $691,201 of
deferred salary
|
(3)
|
Neil
Martucci is our Chief Financial Officer. He received 300,000
options in 2007, exercisable at $1 per share expiring 10 years from the
date of issuance. Mr Martucci, as of December 31, 2009 has accrued
$140,000 in accrued salary. Upon board’s request he has not
received any cash compensation since August
2009.
|
(4)
|
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.
|
NARRATIVE
DISCLOSURE TO EXECUTIVE COMPENSATION TABLE
Our
compensation program is intended to enable us to attract, motivate, reward and
retain the management talent required to achieve corporate objectives, and
thereby increase stockholder value. To attain these objectives, the executive
compensation program includes four components:
Base
Salary. Base salary for our executives is intended
to provide competitive remuneration for services provided to us over a one-year
period. Base salaries are set at levels designed to attract and retain the most
appropriately qualified individuals for each of the key management level
positions within our company. Upon the recommendation of our Board of
Directors, our executives have been accruing 100 percent of their base salaries
since August 2009 until such time as we enough financing for
which the board feels comfortable reinstating cash compensation.
26
Cash
Incentive Bonuses. Our
bonus programs are intended to reward executive officers for the achievement of
various annual performance goals approved by our Board of Directors. For fiscal
2009, no performance based bonus was approved for our executive officers in
light of our need for additional working capital.
We
anticipate that a performance based bonus plan will be established for certain
of our executive officers, once we are able to meet our minimum working capital
requirements. The bonus plan will likely be comprised of a
specified profit based bonus pool which will be based upon our achievement of
certain annual profit targets.
Equity-based
Compensation. Equity-based
compensation is designed to provide incentives to our executive officers to
build shareholder value over the long term by aligning their interests with the
interest of shareholders. Among our executive officers, the number of shares of
stock awarded or common stock subject to options granted to each individual
generally depends upon the level of that officer's responsibility. In 2009 the
executives were granted a bonus equal to the amount of interest owed to them on
their accrued salary to be paid in equity of the company.
Health
and Welfare Benefits and Other Perquisites. Our full time
executive officers are entitled to participate in the company’s health insurance
plan
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, 2009. None of
the named executive officers exercised any of their stock options during the
period from inception
Option
awards
|
Stock
awards
|
||||||||||||||||||||||||||||||||
Name
|
Number
of securities underlying unexercised options
(#)
exercisable
|
Number
of securities
underlying
unexercised
options
(#)
unexercisable
|
Equity
incentive
plan
awards: Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
exercise
price
($)
|
Option
expiration date
|
Number
of shares or units of stock that have not vested
(#)
|
Market
value of shares of units of stock that have not vested
($)
|
Equity
incentive
plan
awards: Number of
unearned
shares,
units or other rights that have not vested
(#)
|
Equity
incentive
plan
awards: Market or payout value of
unearned
shares,
units or other rights that have not vested
($)
|
||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
Martin
Schacker
Co-CEO/
Chairman
|
1,712,000 850,000 | 0 0 | 0 0 | $ | 1.00 $1.00 |
1/6/20
8/31/17
|
0 0 | 0 0 | 0 0 | 0 0 | |||||||||||||||||||||||
David
Abel
Co-CEO/Vice-Chairman
|
1,138,187 300,000 | 0 0 | 0 0 | $ | 1.00 $1.00 |
1/6/20
8/31/17
|
0 0 | 0 0 | 0 0 | 0 0 | |||||||||||||||||||||||
Robert
Budetti
Board
Member
|
570,000 350,000 | 0 0 | 0 0 | $ | 1.00 $1.00 |
1/6/20
8/31/17
|
0 0 | 0 0 | 0 0 | 0 0 | |||||||||||||||||||||||
Neil
Martucci
Chief
Financial Officer
|
295,000 300,000 | 0 0 | 0 0 | $ | 1.00 $1.00 |
1/6/20
8/31/17
|
0 0 | 0 0 | 0 0 | 0 | |||||||||||||||||||||||
Dr.
Kenneth Cartwright
Chief
Scientific Officer
|
437,502 500,000 | 0 0 | 0 0 | $ | 1.00 $1.00 |
1/6/20
8/31/17
|
0 0 | 0 0 | 0 0 | 0 0 |
27
DIRECTORS
COMPENSATION
Name
|
Fees
Earned or Paid in Cash
|
Stock
Award
|
Option
Awards
|
Non-equity
Incentive Plan Compensation
|
Nonqualified
Deferred Compensation Earnings
|
All
Other Compensation
|
Total1
|
|||||||||||||||||||||
William
Comer
|
$ | 12,500 | 0 | 0 | 0 | 0 | 0 | $ | 12,500 | |||||||||||||||||||
Aaron
Cohen
|
$ | 12,500 | 0 | 0 | 0 | 0 | 0 | $ | 12,500 | |||||||||||||||||||
Alf
Akerman
|
$ | 12,500 | 0 | 0 | 0 | 0 | 0 | $ | 12,500 | |||||||||||||||||||
Bruce
Bergman
|
$ | 12,500 | 0 | 0 | 0 | 0 | 0 | $ | 12,500 |
|
1.
|
Each
outside Director is due to receive an annual stipend of $12,500 per year
for serving on the Board of Directors. Compensation to board members was
accrued in 2009 in an effort to conserve
capital.
|
EMPLOYMENT
AGREEMENTS AND CONSULTING AGREEMENTS
EMPLOYMENT
AGREEMENTS
On
December 15, 1999, we entered into a three-year employment agreement with our
co-Chief Executive Officer and co-Chairman of the Board, Mr. Martin Schacker.
The agreement provided for an annual base salary of $160,000, subject to a
minimum ten percent annual increase. On February 6, 2001, in view of Mr.
Schacker’s efforts on our behalf and his performance, our Board of Directors:
(i) increased his annual salary to $250,000 with no automatic annual
increases, and extended the term of his employment agreement for an additional
two years, and (ii) granted Mr. Schacker a ten-year option to acquire
125,000 shares of our common stock at an exercise price of $17 per share, one
third of which vested immediately, one third of which vested on February 6,
2002, and the final third vested on February 6, 2003. On December 11, 2001, in
consideration of services provided to us, the Board of Directors:
(x) further increased his annual salary to $300,000, (y) further
extended the term of the agreement by one year, through and including December
15, 2005, and (z) granted the executive an additional, immediately vested
five-year option to acquire 125,000 shares of our common stock at an exercise
price of $17 per share. In December 2005, the executive’s contract was extended
by an additional 3 years by the Board under the same terms as the previous
agreement. On April 6, 2003 as a result of our cost reduction, Mr. Schacker
agreed to defer half of his $300,000 yearly salary. In December 2005, Mr.
Schacker agreed to convert $177,000 of his deferred salary into 177,000 options
to purchase shares of our common stock at $1 per share expiring December 20,
2020. In April 2008 at the Board’s request Mr. Schacker’s salary was reduced by
another 50% to $75,000 per annum. At December 31, 2009, Mr. Schacker
had deferred compensation totaling $1,001,000. Mr. Schacker was granted an
aggregate of 850,000 options exercisable at $1 per share and expiring in 2017
during 2007.
28
CONSULTING
AGREEMENTS
All
consultants are paid on an hourly basis as needed. We do not have any
agreements in place with our consultants.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
following tables set forth certain information regarding beneficial ownership of
our capital stock as of the date of the filing March 31, 2010 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 31, 2010, there were 15,926,126 shares of our common stock
outstanding, all of which were fully paid, non-assessable and entitled to vote.
Each share of our common stock entitles its holder to one vote on each matter
submitted to our stockholders. As of the date hereof, there were no shares of
preferred stock issued and outstanding.
Title
of Class
|
Name and Address of Beneficial
Owner(1)
|
Amount and Nature of Beneficial
Ownership(2)
|
Percentage
of Class
|
||||||
Common
Stock
|
Martin
F. Schacker(3)
|
2,686,510 | 14.7 | % | |||||
Common
Stock
|
David
Abel(4)
|
2,280,758 | 12.96 | % | |||||
Common
Stock
|
Feighner
Family.(5)
|
2,173,868 | 12.57 | % | |||||
Common
Stock
|
Robert
P. Budetti(6)
|
1,582,817 | 9.09 | % | |||||
Common
Stock
|
Alf
E. F. Akerman(7)
|
677,708 | 4.08 | % | |||||
Common
Stock
|
Bruce
J. Bergman, Esq.(8)
|
685,521 | 4.13 | % | |||||
Common
Stock
|
Kenneth
Cartwright(9)
|
1,198,423 | 7.01 | % | |||||
Common
Stock
|
William
T. Comer(10)
|
912,589 | 5.47 | % | |||||
Common
Stock
|
Aaron
Cohen(11)
|
893,905 | 5.4 | % | |||||
Common
Stock
|
Neil
Martucci(12)
|
607,643 | 3.68 | % | |||||
Common
Stock
|
The
William Shenk 1996 Revocable Trust(13)
|
1,000,667 | 6.28 | % | |||||
All
Directors and officers as a group (9) persons)
|
14,700,409 | 53.07 | % |
*
|
less
than one percent
|
29
(1)
|
Unless
otherwise indicated, the address of each person listed below is c/o
Tetragenex Pharmaceuticals, Inc., 560 Sylvan Ave Englewood Cliffs NJ
07632.
|
(2)
|
Pursuant
to the rules and regulations of the Securities and Exchange Commission,
shares of common stock that an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are deemed
to be outstanding for the purposes of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purposes of computing the percentage ownership of any other person shown
in the table.
|
(3)
|
Martin
Schacker is our Chairman and Co-CEO. His holdings consist of 49,833 common
shares which represents .31% of our total outstanding common stock as of
3/30/09, based on 15,926,126 shares outstanding, which was received from
acting as a placement agent during our early stage financing as Chairman
of M.S. Farrell. Additionally, 2,562,000 options exercisable at $1 per
share expiring at different times between 2017 and 2020 were granted to
Mr. Shacker as consideration for services provided to us as well as the
forgiveness of accrued salaries due to Mr. Schacker. Additionally, Mr.
Schacker currently owns 74,677 non-voting warrants to purchase shares of
our common stock at $6 per share expiring November 30, 2011. The warrants
consist of options for services provided which were converted into
warrants as well as for acting as a placement agent over the years in our
private placements. Mr. Schacker is the nephew of David
Abel.
|
(4)
|
Mr.
Abel is our Vice Chairman and Co-CEO. His holdings consist of 606,341
shares of our common stock which represents 3.8% of our total outstanding
common stock as of 3/30/09, based on 15,926,126 shares outstanding, and
was obtained from investments in several of our private placements.
Additionally, Mr. Abel holds 1,438,187 nonvoting immediately vesting
options exercisable at $1 per share expiring at different times between
2017 and 2020 which were granted for services rendered to us as our Vice
Chairman and Co-CEO as well as the forgiveness of accrued salaries due to
him. Mr. Abel also holds 136,230 nonvoting warrants to purchase shares of
our common stock at $6 per share, expiring November 30, 2011 and 100,000
warrants exercisable at $.40 expiring October 2013 which were obtained
from various investments in our private placements, bridge loans, and for
being a partial owner in the investment bank which was the placement agent
for several of the our offerings. David Abel is the uncle of Martin
Schacker
|
(5)
|
Dr.
Feighner was a consultant for us and a member of our Board prior to his
passing in 2006. His holdings, which are now the holdings of his estate,
consist of 807,816 shares of our common stock that represents 5.06% of our
total outstanding common shares as of 3/30/09 based on15,926,126 shares
outstanding, which he received from several investments in our private
placements. Secondly he holds 1,010,976 non-voting immediately vested
options to purchase shares of our common stock at $1 per share, expiring
in the year 2020 which he received for services provided to us as our
President and Director as well as for forgiveness of accrued salaries due
to Dr. Feighner. He holds 255,076 non-voting warrants to purchase shares
of our common stock at $6 per share expiring November 30, 2011 and 100,000
warrants exercisable at $.40 per share expiring October 2013 that were
obtained as part of investments made in the our common stock in several
private placements and bridge loans as well as from the conversion of
previous options granted to Dr. Feighner for services rendered to us as
our President.
|
(6)
|
Consists
of 35,000 common shares of our common stock which represents .22% of our
total outstanding common shares as of 3/30/09, based on 15,926,126 shares
outstanding, as well as 1,179,588 non-voting options exercisable at $1 per
share expiring at different times between 2017 and 2020, 268,229 nonvoting
warrants to purchase shares of our common stock at $6 per share expiring
November 30, 2011 and 100,000 warrants exercisable at $.40 expiring
October 2013. Mr. Budetti is a member of our
Board.
|
(7)
|
Alf
Akerman serves as our Director and his holdings consist of options to
663,125 non-voting options exercisable at $1 per share expiring at
different times between 2017 to 2020 granted to Mr. Akerman for services
provided to us as our Director, and 14,583 non-voting warrants to purchase
shares of our common stock at $6 per share, expiring November 30, 2011,
received from converting previously issued options received for service
provided as our Director.
|
(8)
|
Bruce
Bergman is serves as our Director and his holdings consist of 653,125
non-voting options exercisable at $1 per share expiring at different times
between 2017 and 2020 granted to Mr. Bergman for services provided to us
as our Director. Additionally, he holds 32,396 non-voting warrants to
purchase shares of our common stock at $6 per share, expiring November 30,
2011 received from converting previously issued options received for
service provided as our Director.
|
(9)
|
Dr.
Cartwright is our Chief Scientific Officer and a Board member and his
holdings consist of 27,500 common shares of our common stock which
represents .17% of our total outstanding common shares as of 3/30/09,
based on 15,926,126 shares outstanding, obtained from an investment in our
start-up period. He also holds 1,037,500 non-voting options exercisable at
$1 per share expiring in the year 2020 received for services provided as
our Director and Chief Scientific Officer as well as , 100,000 warrants
exercisable at $.40 per share expiring October 2013, and 33,423 non-voting
warrants to purchase shares of our common stock at $6 per share expiring
November 30, 2011, received from converting previously issued options
received for service he provided as our
Director.
|
(10)
|
William
Comer is our Board member and his holdings consist of 147,172 shares of
common stock which represents .92% f our total outstanding common shares
as of 3/30/09, based on 15,926,126 shares outstanding, which were received
from investments in our private placements, as well as 663,125 nonvoting
options exercisable at $1 per share expiring at different times between
2017 and 2020, for services provided out Director. Additionally he holds
2,292 non-voting warrants to purchase shares of our common stock at $6 per
share, expiring November 30, 2011 and 100,000 warrants exercisable at $.40
expiring October 2013 received from several investments he made
in our securities as well as for converting previously issued options
granted to him as a Director.
|
(11)
|
Aaron
Cohen serves as our Director and his holdings consist of 151,092 common
shares of our common stock, which represents .95% of our total outstanding
common shares as of 3/30/09, based on 15,926,126 shares
outstanding, which he received from investments in our private placements
as well as 538,125 nonvoting options exercisable at $1 per share expiring
in the years 2017- 2020 issued for services provided to us as our
Director. Additionally he holds 4,688 non-voting warrants to purchase
shares of our common stock at $6 per share expiring November 30, 2011 as
well as 200,000 warrants exercisable at $.40 per share expiring October
2013.
|
(12)
|
Neil
Martucci our CFO and his holdings consist of 2,750 common shares of our
common stock, which represents .01% of our total outstanding common shares
as of 4/29/08, based on 15,926,126 shares outstanding, received from
assisting with our private placements as a representative of M.S. Farrell,
as well as 595,000 non-voting options exercisable at $1 per share expiring
at different times between 2017 to 2020, received for services provided to
us as CFO. Additionally, he holds 9,893 non-voting warrants to purchase
shares of our common stock at $6 per share, expiring November 30, 2011 for
assisting us in various fund raisings as a representative of our placement
agent in several of our financings.
|
(13)
|
William
Shenk, P.O. Box 1991 La Jolla, CA, is our beneficial owner and his
holdings consist of 1,000,000 shares of common stock which represents
6.28% of our total outstanding common shares as of 3/30/09, based on
15,926,126 shares outstanding, as well as, 667 non-voting warrants to
purchase shares of our common stock at $6 per share, expiring November 30,
2011,
|
30
COMPENSATION
PLANS
We
currently do not have any compensation plans in place.
OPTIONS/SAR
GRANTS
Name
and
Principal
Position
|
Number
of Securities Underlying Options
|
%
of Total Options Granted to Employees in 2007
|
%
of Total Options Granted to Employees in 2008
|
Exercise
Price
|
Expiration
Date
|
|||||||||||||||
Martin
Schacker
|
- | - | - | - | ||||||||||||||||
Chairman/Co-CEO
|
850,000 | (1) | 23.00 | % | $ | 1.00 |
August
2017
|
|||||||||||||
David
Abel
|
- | - | - | - | ||||||||||||||||
Co-CEO/Vice
Chairman of the Board
|
300,000 | (2) | 8.10 | % | $ | 1.00 |
August
2017
|
|||||||||||||
Robert
Budetti
|
- | - | - | - | ||||||||||||||||
Director
|
350,000 | (3) | 9.46 | % | $ | 1.00 |
August
2017
|
|||||||||||||
Dr.
Kenneth Cartwright
|
- | - | - | - | ||||||||||||||||
Chief
Scientific Officer/Director
|
500,000 | (4) | 13.51 | % | $ | 1.00 |
August
2017
|
|||||||||||||
Neil
Martucci
|
- | - | - | - | ||||||||||||||||
Chief
Financial Officer
|
300,000 | 8.1 | % | $ | 1.00 |
August
2017
|
||||||||||||||
Other
Employees and Board
|
40,000 | 100 | % | $ | 1.00 |
January
2018
|
||||||||||||||
1,400,000 | 37.83 | % | $ | 1.00 |
August
2017
|
(1)
|
In
2007, we issued 850,000 options to acquire shares of our common stock to
Mr. Schacker. These options were issued to Mr. Schacker for services
rendered by him as the Chairman of our Board of Directors and as Co-CEO.
These options are exercisable at a price of $1.00 per share. Each option
is convertible into one share of common stock. These options vested
immediately and expire 10 years after
issuance.
|
(2)
|
In
2007, we issued 300,000 options to acquire shares of our common stock to
Mr. Able. These options were issued to Mr. Abel for services rendered by
him as our Vice Chairman of our Board of Directors and as Co-CEO. These
options are exercisable at a price of $1.00 per share. Each option is
convertible into one share of stock. These options vested immediately and
expire 10 years after issuance which is August
2017
|
(3)
|
In
2007, we issued 350,000 options to acquire shares of our common stock to
Mr. Budetti. These options were issued to Mr. Budetti for services
rendered by him as our Chief Operating officer, as a Director, and for his
efforts to license Nemifitide to a pharmaceutical company. These options
are exercisable at a price of $1.00 per share. Each option is convertible
into one share of stock. These options vested immediately and expire 10
years after issuance which is August
2017
|
(4)
|
In
2007, we issued 500,000 options to acquire shares of our common stock to
Dr. Cartwright. These options were issued to Dr. Cartwright for services
rendered by him as our Chief Scientific officer and as our Director. These
options are exercisable at a price of $1.00 per share. Each option is
convertible into one share of stock. These options vested immediately and
expire 10 years after issuance which is August
2017.
|
(5)
|
In
2007, we issued 300,000 options to acquire shares of our common stock to
Mr. Martucci. These options were issued to Mr.Martucci for services
rendered by him as our Chief Financial Officer. These options are
exercisable at a price of $1.00 per share. Each option is convertible into
one share of stock. These options vested immediately and expire 10 years
after issuance.
|
31
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
On May
2004, we entered into an agreement with the holders of the 725 shares of 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
Class D preferred shareholders agreed to convert their portion of the $600,000
payment into equity. A total of $143,968 was converted into 179,960 shares of
our common stock and the remaining balance was paid. They agreed as well to
convert $165,480 of the amount due one year from the effective date into 206,850
shares of our common stock and on or about November 23, 2005 the remaining
balance of the second $600,000 was paid. In addition $717,241 of the $2.6
million note, plus accrued interest, was converted into 679,912 shares of our
common stock. An aggregate of 1,066,722 shares of our common stock was issued to
the former note holders and approximately $1,882,000 plus interest came due on
April 23, 2009. The long-term note due to the former Series D preferred holders
was secured by our patents. In January 2010 the Company settled the
outstanding note for a sum of $50,000. The note holders agreed to
cancel the note and release the company from all obligations and
collateral.
Several
members of the board participated in the company’s 2008/2009 bridge
loan. Six directors invested an aggregate of $175,000 in exchange for
a promissory note for the principal amount of loan plus 12% interest per annum
and an aggregate of 700,000 warrants exercisable at $.40 per share expiring in
2013.
Board
member loaned the company $85,000 in January 2010 in exchange for a secured
promissory note. The proceeds were used mainly to settle the
outstanding note matter as well as for working capital.
Our
Co-CEO and Chairman of the Board, Martin Schacker is the nephew of the Co-CEO
and Vice Chairman, David Abel.
There are
no arrangements or understandings between any two or more of our Directors or
executive officers. There is no arrangement or understanding between any of our
Directors or executive officers and any other person pursuant to which any
Director or officer was or is to be selected as a Director or officer, and there
is no arrangement, plan or understanding as to whether non-management
shareholders will exercise their voting rights to continue to elect the current
Board of Directors. There are also no arrangements, agreements or understanding
between non-management shareholders that may directly or indirectly participate
in or influence the management of our affairs
32
DIRECTOR
INDEPENDENCE
The information
regarding independence of directors is included under Item 10
above.
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
We have
appointed Demetrius & Company, LLC as our independent auditors to audit our
financial statements. The aggregate fees billed for services rendered by
Demetrius & Company, LLC for 2009 and 2008 are described below:
AUDIT
FEES. Fees from audit services totaled approximately $31,031 and $30,000 for
2009 and 2008, respectively. Fees also include fees for the reviews of the
company’s quarterly financials.
TAX FEES.
Fees for tax services totaled approximately $7,000 and $5,000 for 2009 and 2008,
respectively.
ITEM
15.
|
EXHIBITS
AND REPORTS ON FORM 8-K
|
Exhibit
No.
|
Description
|
1.1(1)
|
Placement
Agent Agreement between Equity Source Partners, LLC and Tetragenex
Pharmaceuticals, Inc.
|
2.1(1)
|
Final
order of the bankruptcy of Innapharma, Inc.
|
3.1.1(1)
|
Amended
and Restated Certificate of Incorporation of Tetragenex Pharmaceuticals,
Inc.
|
3.1.2(1)
|
Amended
and Restated By-laws of Tetragenex Pharmaceuticals,
Inc.
|
3.2(1)
|
Certificate
of Authority to do business in the State of New Jersey of Tetragenex
Pharmaceuticals, Inc.
|
3.2.1(1)
|
Certificate
of Correction of Certificate of Merger
|
4.1(1)
|
Promissory
Note
|
10.1(1)
|
Employment
Agreement with Martin Schacker dated October 28, 1999, as
amended.
|
10.2(2)
|
Definitive
Agreement with Dr. Stephen Stahl, dated May 29, 2007.
|
10.3
|
Settlement
Release and Compromise Agreement, dated January 11, 2010, entered into by
and among the Company, Martin Schacker and KBC Private Equity NV
(previously filed as Exhibit 99.1 to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on January 20, 2010, and
incorporated herein by reference).
|
14(1)
|
Code
of Ethics
|
16(1)
|
Letter
from Former Auditor
|
31.1
|
Certification
of Co-Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
99.1(1)
|
Patent
Security Agreement.
|
(1)
|
Previously
filed with our Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on June 13, 2006, and declared
effective on January 26, 2007, and incorporated herein by
reference.
|
(2)
|
Previously
filed with our Current Report on Form 8-K, filed with the Commission on
May 31, 2007, and incorporated herein by
reference.
|
33
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 report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 15th day
of April 2010.
TETRAGENEX
PHARMACEUTICALS, INC.
|
||
By:
|
/s/ MARTIN F. SCHACKER
|
|
Martin
F. Schacker, Chairman and
|
||
Co-Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons in the capacities and on the
dates indicated.
NAME
|
TITLE
|
DATE
|
/s/
Martin F. Schacker
|
Chairman
of the Board and
Co-Chief
Executive Officer
|
April
15, 20010
|
Martin
F. Schacker
|
||
/s/
David Abel
|
Vice
Chairman of the Board,
Co-Chief
Executive Officer
|
April
15, 2010
|
David
Abel
|
||
/s/
Neil Martucci
|
Chief
Financial Officer and Principal Accounting Officer
|
April
15, 2010
|
Neil
Martucci
|
||
/s/Robert
P. Budetti
|
Chief
Operating Officer and Director
|
April
15, 2010
|
Robert
P. Budetti
|
||
/s/Kenneth
Cartwright
|
Senior
Vice President of Drug Developments Regulatory Affairs and
Director
|
April
15, 2010
|
Kenneth
Cartwright
|
||
/s/Alf
E. F. Akerman
|
Director
|
April
15, 2010
|
Alf
E. F. Akerman
|
||
/s/Bruce
J. Bergman, Esq.
|
Director
|
April
15, 2010
|
Bruce
J. Bergman, Esq.
|
||
/s/William
T. Comer, Ph.D
|
Director
|
April
15, 2010
|
William
T. Comer, Ph.D
|
||
/s/Aaron
Cohen
|
Director
|
April
15, 2010
|
Aaron
Cohen
|
34