UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007 |
o | RANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to________________ |
Commission file number 000-50960
Integrated Pharmaceuticals, Inc. |
(Exact name of small business issuer in its charter) |
Idaho | 04-3413196 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
310 Authority Drive Fitchburg, MA 01420 | ||
(Address of principal executive offices) (Zip Code) |
(978) 696-0020 | ||
(Issuer's telephone number, including area code) |
Securities registered under Section 12(g) of the Act:
Title of class | Name of Exchange on Which Registered |
Common Stock, par value $.01 per share | None |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o Noo
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 30, 2007 the Issuer had 40,754,770 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yeso Noþ
INTEGRATED PHARMACEUTICALS, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | PAGE | |
ITEM 1 | Financial Statements | 2 |
ITEM 2 | Plan of Operation; Management's Discussion and Analysis | 11 |
ITEM 3 | Controls and Procedures | 12 |
PART II. – OTHER INFORMATION | ||
ITEM 1 | Legal Proceedings | 12 |
ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
ITEM 3 | Default Upon Senior Securities | 13 |
ITEM 4 | Submission of Matters to a Vote of Security Holders | 13 |
ITEM 5 | Other Information | 13 |
ITEM 6 | Exhibits and Reports on Form 8-K | 13 |
SIGNATURES | 15 |
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical fact, certain information described in this document contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. You should read the statements that contain these words carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position or state other "forward-looking" information. Integrated Pharmaceuticals, Inc. believes that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control. The factors listed below in the section captioned "Risk Factors," within the section “Description of Business” as well as any cautionary language in this Form, provide examples of risks, uncertainties and events that may cause our actual results and achievements expressed or implied to differ materially from the expectations we described in our forward-looking statements. Integrated Pharmaceuticals, Inc. believes that before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form could have a material adverse effect on our business, results of operations and financial position.
1
PART I
ITEM 1. Financial Statements
Integrate Pharmaceuticals Inc.
Financial Statements
For The Quarter Ended March 31, 2007
(Unaudited)
CONTENTS
PAGE
3 | Balance Sheets As At March 31, 2007 And December 31, 2006 |
4 | Statements Of Operations And Income For The Three Months Ended March 31, 2007 and March 31, 2006 |
5 | Statements Of Cash Flows For The Three Months Ended March 31, 2007 and March 31, 2006 |
7 - 31 | Notes To Financial Statements – March 31, 2007 |
2
INTEGRATED PHARMACEUTICALS, INC. | ||||||||||
(A Development Stage Company) | ||||||||||
BALANCE SHEETS |
March 31, | ||||||||
2007 | December 31, | |||||||
(unaudited) | 2006 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 509,688 | $ | 872,182 | ||||
Accounts receivable | 686 | 686 | ||||||
Inventory | 119,709 | 118,068 | ||||||
Prepaid expenses | 14,959 | 47,128 | ||||||
Total Current Assets | 645,042 | 1,038,064 | ||||||
PROPERTY AND EQUIPMENT, net | 1,144,474 | 1,279,401 | ||||||
OTHER ASSETS | ||||||||
Investments | 2,720 | 3,590 | ||||||
Patents, net of amortization | 107,554 | 107,800 | ||||||
Total Other Assets | 110,274 | 111,390 | ||||||
TOTAL ASSETS | $ | 1,899,790 | $ | 2,428,855 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 120,131 | $ | 218,754 | ||||
Accrued expenses | 124,604 | 162,039 | ||||||
Related party short-term debt | 12,722 | 24,061 | ||||||
Total Current Liabilities | 257,457 | 404,854 | ||||||
COMMITMENTS AND CONTINGENCIES | — | — | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $0.10 par value, 20,000 shares | ||||||||
authorized; no shares issued | — | — | ||||||
Common stock, $0.01 par value, 75,000,000 shares | ||||||||
authorized; 40,560,163 and 40,024,316 shares | ||||||||
issued and outstanding, respectively | 405,602 | 400,243 | ||||||
Additional paid-in capital | 16,838,293 | 16,728,424 | ||||||
Other comprehensive income | 700 | 1,570 | ||||||
Accumulated deficit prior to development stage | (494,624 | ) | (494,624 | ) | ||||
Accumulated deficit during development stage | (15,107,638 | ) | (14,611,612 | ) | ||||
Total Stockholders' Equity | 1,642,333 | 2,024,001 | ||||||
TOTAL LIABILITIES AND | ||||||||
STOCKHOLDERS' EQUITY | $ | 1,899,790 | $ | 2,428,855 |
The accompanying condensed notes are an integral part of these interim financial statements.
3
INTEGRATED PHARMACEUTICALS, INC. | |||||||||||
(A Development Stage Company) | |||||||||||
STATEMENTS OF OPERATIONS |
Period from | ||||||||||||
February 1, 2003 | ||||||||||||
(inception of | ||||||||||||
Three Months Ending | development stage) | |||||||||||
March 31, 2007 | March 31, 2006 | to March 31, 2007 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||
REVENUES | $ | — | $ | 46,258 | $ | 137,999 | ||||||
COST OF GOODS SOLD | ||||||||||||
Materials and supplies | — | 42,989 | 101,079 | |||||||||
Total Cost of Goods Sold | — | 42,989 | 101,079 | |||||||||
GROSS PROFIT | — | 3,269 | 36,920 | |||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||
Depreciation and amortization | 65,844 | 66,500 | 851,014 | |||||||||
Research and development | 55,558 | 43,010 | 1,015,355 | |||||||||
Marketing | 355 | 2,072 | 629,989 | |||||||||
Legal and professional fees | 79,525 | 46,222 | 1,317,778 | |||||||||
Consulting | 59,359 | 59,359 | 3,193,448 | |||||||||
Idle facility expense | 139,884 | 153,795 | 2,155,246 | |||||||||
Occupancy | 30,985 | 32,936 | 1,161,381 | |||||||||
Labor and benefits | 22,575 | 25,825 | 874,543 | |||||||||
Services paid by stock options | 2,850 | 100,773 | 1,494,423 | |||||||||
Office supplies and expenses | 7,255 | 4,881 | 193,371 | |||||||||
Travel | 770 | 802 | 181,147 | |||||||||
Other general and administrative expenses | 29,167 | 50,622 | 654,346 | |||||||||
Total General and Administrative Expenses | 494,127 | 586,797 | 13,722,041 | |||||||||
OPERATING INCOME (LOSS) | (494,127 | ) | (583,528 | ) | (13,685,121 | ) | ||||||
OTHER INCOME (EXPENSES) | ||||||||||||
Interest income | 2 | 73 | 10,281 | |||||||||
Interest expense | (1,901 | ) | (1,568 | ) | (1,427,238 | ) | ||||||
Other income (expense) | — | — | (5,560 | ) | ||||||||
Total Other Income and Expenses | (1,899 | ) | (1,495 | ) | (1,422,517 | ) | ||||||
LOSS BEFORE TAXES | (496,026 | ) | (585,023 | ) | (15,107,638 | ) | ||||||
INCOME TAXES | — | — | — | |||||||||
NET LOSS | (496,026 | ) | (585,023 | ) | (15,107,638 | ) | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Unrealized gain (loss) in market value of | ||||||||||||
investments | (870 | ) | 1,550 | 700 | ||||||||
COMPREHENSIVE LOSS | $ | (496,896 | ) | $ | (583,473 | ) | $ | (15,106,938 | ) | |||
NET INCOME (LOSS) PER COMMON SHARE, | ||||||||||||
BASIC AND DILUTED | $ | (0.01 | ) | $ | (0.03 | ) | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON | ||||||||||||
SHARES OUTSTANDING, BASIC AND DILUTED | 40,523,130 | 19,343,829 |
The accompanying condensed notes are an integral part of these interim financial statements.
4
INTEGRATED PHARMACEUTICALS, INC. | |||||||||||
(A Development Stage Company) | |||||||||||
STATEMENTS OF CASH FLOWS |
Period from | ||||||||||||
February 1, 2003 | ||||||||||||
(inception of | ||||||||||||
Period Ended | Period Ended | development stage) | ||||||||||
March 31, 2007 | March 31, 2006 | to March 31, 2007 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | (496,026 | ) | $ | (585,023 | ) | $ | (15,083,513 | ) | |||
Adjustments to reconcile net income (loss) to net cash | ||||||||||||
flows provided (used) by operating activities: | ||||||||||||
Depreciation and amortization | 137,988 | 132,915 | 1,481,653 | |||||||||
Loss on disposition of assets | — | — | 7,024 | |||||||||
Stock and warrants issued as incentive for notes payables | — | — | 496,389 | |||||||||
Stock issued for interest expense | — | — | 149,878 | |||||||||
Stock issued for rent expense | 7,298 | 8,675 | 606,062 | |||||||||
Stock issued for services | 21,221 | 4,754 | 1,197,260 | |||||||||
Stock issued for assets and securities | — | — | 43,739 | |||||||||
Stock options and warrants vested | 62,209 | 160,132 | 3,828,975 | |||||||||
Recognition of noncash deferred financing expense | — | — | 578,699 | |||||||||
Options and warrants issued for services and financing | — | — | 253,753 | |||||||||
Noncash recovery of other income | — | — | (1,850 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||
Receivables | — | (30,724 | ) | 15,398 | ||||||||
Inventory | (1,641 | ) | 11,996 | (119,709 | ) | |||||||
Prepaid expenses | 32,169 | 26,027 | 132,601 | |||||||||
Other assets | — | 763 | 6,370 | |||||||||
Accounts payable | (98,623 | ) | (23,138 | ) | 21,584 | |||||||
Accrued expenses | (37,435 | ) | 6,054 | (58,379 | ) | |||||||
Net cash used by operating activities | (372,840 | ) | (287,569 | ) | (6,444,066 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of fixed assets | — | — | (2,743,539 | ) | ||||||||
Patent costs | (2,815 | ) | (17,237 | ) | (125,237 | ) | ||||||
Leasehold concessions received | — | — | 185,000 | |||||||||
Net cash used by investing activities | (2,815 | ) | (17,237 | ) | (2,683,776 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Sale of common stock units | 24,500 | 270,000 | 8,462,140 | |||||||||
Payments on capital leases | — | (195 | ) | (9,563 | ) | |||||||
Payments on related party loans | (11,339 | ) | (4,595 | ) | (43,979 | ) | ||||||
Proceeds from exercise of options | — | — | 1,080 | |||||||||
Proceeds from convertible debt | — | — | 939,900 | |||||||||
Net cash provided by financing activities | 13,161 | 265,210 | 9,349,578 | |||||||||
Net increase (decrease) in cash | (362,494 | ) | (39,596 | ) | 221,736 | |||||||
Cash, beginning of period | 872,182 | 182,582 | 287,952 | |||||||||
Cash, end of period | $ | 509,688 | $ | 142,986 | $ | 509,688 | ||||||
SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||||||
Income taxes paid | $ | — | $ | — | $ | — | ||||||
Interest paid | $ | — | $ | — | $ | 33,802 | ||||||
NON-CASH INVESTING AND FINANCING: | ||||||||||||
Stock and warrants issued for convertible debt | $ | — | $ | — | $ | 1,613,076 | ||||||
Stock issued for assets and securities | $ | — | $ | — | $ | 43,739 | ||||||
Stock issued as deferred incentive for notes payables | $ | — | $ | — | $ | 519,587 | ||||||
Warrants and options issued for deferred services and financing | $ | — | $ | — | $ | 520,102 | ||||||
Accounts payable paid by contributed capital | $ | — | $ | — | $ | 27,767 | ||||||
Noncash recovery of other income | $ | — | $ | — | $ | 1,850 |
The accompanying condensed notes are an integral part of these interim financial statements.
5
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 1 – BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
Integrated Pharmaceuticals, Inc., (hereinafter, “the Company”) is the successor to Advanced Process Technologies, Inc. (hereinafter, “APT”) a corporation formed on March 23, 1998 under the laws of the Commonwealth of Massachusetts. In February 2003, the Company began a new development stage whereby it began the development of technologies for the production of clinically active pharmaceutical compounds, including active small molecules and recombinant DNA technology derived products. The Company was involved in contract research for pharmaceutical companies, through January 2003, when it changed its primary focus to the development of its own technology and manufacturing capacity.
On September 5, 2000, the Company agreed to an exchange of its stock in an acquisition with Bitterroot Mining Company (hereinafter “Bitterroot”). This transaction was accounted for as an acquisition and recapitalization of an operating enterprise by a non-operating public company. The legal entity is that of Bitterroot, while the accounting entity is the operating company, which had been APT. At that time, the Company acquired new non-qualifying shareholders and automatically converted from an “S” corporation to a regular “C” corporation. On November 28, 2000, the Company changed its name to Integrated Pharmaceuticals, Inc. As a result of this transaction, Integrated Pharmaceuticals, Inc. changed it state of domicile to Idaho, and operates as an Idaho corporation.
The company has raised additional capital through private placements in 2006 to continue its operations. Management plans to use the majority of the proceeds from the financing to implement its business plan. As a result of the proceeds received management has determined that it can continue as a going concern for at least the next twelve months.
At March 31, 2007, the Company was considered a development stage enterprise as it is devoting substantially all of its efforts to establishing a new business and substantial planned principal operations had not yet commenced.
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10QSB and Regulation S-B as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2006. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the three-month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
6
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 2 – LIMITED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Development Stage Activities
The Company began a new development stage February 1, 2003, when it discontinued outside contract research as its primary focus. It is now primarily engaged in the development and production of clinically active pharmaceutical compounds, including active small molecules and recombinant DNA technology derived products.
Fair Value of Financial Instruments
The Company’s financial instruments as defined by Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” include cash, receivables, and payable. All instruments are accounted for on an historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2007.
Inventory
The Company maintains an inventory of raw materials, work in process, and finished goods. Inventories are stated at the lower of cost or market. Cost has been determined by using the first-in first-out method. As of March 31, 2007, the Company’s raw material, work in process, and finished goods inventories totaled $63,322, $12,419, and $43,967 respectively.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from 5 to 10 years. The following is a summary of property, equipment and accumulated depreciation at March 31, 2007 and December 31, 2006:
7
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2007
2007 | 2006 | |||||||
Equipment | $ | 1,800,255 | $ | 1,800,255 | ||||
Furniture and fixtures | 120,114 | 120,114 | ||||||
Leasehold improvements | 826,511 | 826,511 | ||||||
2,746,880 | 2,746,880 | |||||||
Less: Accumulated depreciation | (1,602,406 | ) | (1,467,479 | ) | ||||
Total | $ | 1,144,474 | $ | 1,279,401 |
Depreciation and amortization expense for the periods ended March 31, 2007 and December 31, 2006 were $134,927 (of which $72,143 is included in “idle facility expense”), and $535,611 (of which $282,328 is included in “idle facility expense”), respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.
NOTE 4 – CAPITAL STOCK
Preferred Stock
In November 2004, the Company amended the authorized capital stock section of its articles of incorporation. The Company is authorized to issue 20,000 shares of non-assessable $0.10 par value preferred stock. As of March 31, 2007, the Company has not issued any preferred stock.
Common Stock
In November 2004, the Company amended the authorized capital stock section of its articles of incorporation. The Company is authorized to issue 75,000,000 shares of non-assessable $0.01 par value common stock. Each share of stock is entitled to one vote at the annual shareholders’ meeting.
In January 2007, the Company sold 408,333 units for $0.06 per unit, raising $24,500. Each units consists of one share of common stock and 50% of a warrant to purchase an additional share of common stock. The exercise price of the warrants is $0.35 and they expire on June 30, 2008.
The Company has a lease for its facility in Fitchburg, Massachusetts whereby the base rent is paid with one share of common stock for each $1.00 of rent. A total of 35,868 shares, valued at approximately $7,298, were issued during the three-month period ended March 31, 2007 for payment of rent. Additionally, the Company issued 91,646 shares of common stock at an average price of $.23 per share in exchange for services valued at $21,221.
8
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 5 – COMMON STOCK OPTIONS AND WARRANTS
2002 Stock Plan
During the three months ended March 31, 2007, the Company recorded an expense of approximately $2,850 for vested options.
The following is a summary of the Company's equity compensation plans:
Plan | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity compensation plan approved by security holders (1) | 1,025,000 | $ 0.62 | 575,000 | |||||||||
Total | 1,025,000 | 575,000 |
(1) Second Amended and Restated 2002 Stock Plan
Following is a summary of the status of the options outstanding during the periods ended December 31, 2006 and March 31, 2007.
Number of Shares | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2006 | 1,160,000 | $ | 0.60 | |||||
Granted | 250,000 | .27 | ||||||
Exercised | — | — | ||||||
Forfeited | (135,000 | ) | (0.50 | ) | ||||
Outstanding at December 31, 2006 | 1,275,000 | 0.55 | ||||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Rescinded | — | — | ||||||
Options outstanding at March 31, 2007 | 1,275,000 | $ | 0.55 | |||||
Options exercisable at March 31, 2007 | 877,400 | $ | 0.67 | |||||
Weighted average fair value of options granted in 2007 | — |
9
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2007
Warrants
At March 31, 2007 and December 31, 2006, there were outstanding warrants to purchase 12,556,510 and 12,306,968 shares respectively, of the Company’s common stock, at prices ranging from $.45 to $2.50 per share. The warrants vest at various rates ranging up to 5 years and expire at various dates through 2014.
NOTE 6 – CONCENTRATIONS
Credit Risk for Cash Held at Banks
The Company maintains its cash accounts primarily at a Massachusetts bank. These funds are insured to a maximum of $100,000. At March 31, 2007, approximately $ 409,352 was at risk.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Patent License Agreement
During 2001, the Company entered into a license agreement, with a related party, for the rights to a patent application. The Company may further develop, make, use, sub-lease, promote, distribute, sell and market the patent product or process. The Company is responsible for the expenses of prosecuting the patent application, which matured into an issued patent in 2002. In addition, a royalty of 3% of net sales, less discounts, is obligated to be paid on a quarterly basis for the license, with minimum annual royalties of $100,000, before discounts. During the periods ended December 31, 2006 and March 31, 2007, applicable royalties were waived by the patent holder.
NOTE 8 –SUBSEQUENT EVENTS
On April 18, 2007, the Company's registration statement on SEC form SB-2 was declared effective. Thereafter, the Company sold 35,000 shares of its common stock to Dutchess Private Equities Fund Ltd., pursuant to its investment agreement with that fund. The company received $5,411.00, or about $0.155 per share, in connection with this sale.
10
Item 2 Management’s Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with the accompanying financial statements and the notes to those financial statements included elsewhere in this Form 10-QSB. The following discussion includes forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Form 10-QSB.
Our cash position of $509,688 as of March 31, 2007 compares favorably to our cash of $142,986 as of March 31, 2006. The increase is attributable to the sales of common stock that occurred later in 2006. We had no operating revenue during the 1st quarter 2007, as compared to $46,258 of revenue during the 1st quarter 2006.
Plan of Operation.
We are now a development stage company. As described in further detail below, we had no substantial operating revenue in 2005 or 2006. However, during 2005, we completed construction of our production facility and focused on sales and new product development. In 2005, we also developed a proprietary process to deliver calcium in foods or beverages without altering the taste or the flavor of the food or beverage. We have filed U.S. patent applications to protect our process. In 2006, we supplemented our patent portfolio and focused on the sale and marketing of our powdered calcium supplement and the development of a plan to make and sell mineral water made with our proprietary processes.
Over the next nine months we hope to establish our water bottling plant in our Fitchburg facility and continue to sell our proprietary products for calcium supplements.
Financial Condition.
We raised approximately $1,050,260 in a private placement of our common stock in December 2006. Our cash position at March 31, 2007 was $509,688. We have reduced our operating loss from $583,528 in the first quarter of 2006 to $494,127 for the first quarter of 2007. We anticipate that we will require additional funds in 2007 in order to install, qualify the facility for bottling operation, start the production, shipment of samples, create marketing materials, advertise, market and distribute our bottled water products in 2007 and 2008. In the first quarter of 2007, we filed a registration statement on SEC form SB-2, as we agreed to do in our financing agreement with Dutchess Private Equities Fund, Ltd. (“Dutchess”). Other than our arrangement with Dutchess, we have no commitments from financial sources for this additional capital.
Other than as described above, we know of no long-term or short-term trends or events that have or are reasonably likely to have a material impact on or short-term or long-term liquidity. Our long-term liquidity will be affected by our ability to generate sales, which is subject to uncertainties. In addition, we are obligated to purchase our Fitchburg facility by September 2008. At that time, the purchase price will be approximately $1.75 million. We have not yet arranged for financing for this purchase.
Our capital needs for 2007 will depend upon the amount and mix of purchase orders that we receive (assuming that we receive such orders at all). We hope to be able to contain the capital expenditures necessary to launch our bottled water product by utilizing the production capacity of the equipment that we already have in place. If the orders that we receive are for substantially greater volumes than we expect, it is possible we will need to install additional equipment to fill those orders, which would require additional capital.
11
There are no significant elements of income or loss that do not arise from our operations. At the moment, there do not appear to be seasonal aspects to our business.
Material Commitments for Capital Expenditures. We have ordered bottling equipment for which we have been invoiced $35,000. We expect to spend an additonal $90,000 on additional equipment to our Fitchburg facility for water bottling purposes.
Trends and Seasonality. We are not aware of any trends that are likely to have a material impact on our liquidity, or on our net sales or revenues or income from continuing operations. We are not aware of any seasonality in our business.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
Item 3. Controls and Procedures
Chinmay Chatterjee, President, CEO and Chief Financial Officer, has evaluated the Company’s disclosure controls and procedures in effect as of September 30, 2006 and concluded that they are effective. He concluded that the controls and procedures provided the officers, on a timely basis, with all information necessary for them to determine that the Company has disclosed all material information required to be included in the Company's periodic reports filed with the Securities and Exchange Commission. Based upon the officer’s evaluation, there were not any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any pending legal proceedings, nor is its property the subject of any pending legal proceeding.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not engage in any unregistered sales of equity securities during the three-month period ended March 31, 2007. Subsequent to that period, we sold 35,000 shares of our common stock to Dutchess for $5,411. We have used those funds for our general corporate purposes.
In January 2006, we raised an $100,000 from accredited investors based a price $0.25 per unit, with each unit consisting of one share of common stock and a warrant to purchase 80% of an additional share of common stock. The exercise price of the warrants is $0.90, and they expire on June 30, 2008.
Later in 2006, we sold 3,425,000 units for $.20 per unit, with each unit consisting of one share of common stock and a warrant to purchase 40% of an additional share of common stock, raising $685,000. The exercise price of the warrants is $0.45, and they expire on June 30, 2008.
The Company has a lease for its facility in Fitchburg, Massachusetts whereby the base rent is paid with one share of common stock for each $1.00 of rent. A total of 93,972 shares, valued at approximately $22,605, were issued during the nine-month period ended September 30, 2006 for payment of rent. Additionally, the Company issued 72,095 shares of common stock at an average price of $.26 per share during that period in exchange for services.
Between October 1, 2006 and November 15, 2006, the Company has received subscriptions pursuant to which certain accredited investors have agreed to purchase units from the Company, at $0.06 per unit, consisting of one share of common stock and a warrant to purchase one-half share at $0.35. These warrants will expire on June 30, 2008. The subscriptions received to date total $620,000.
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Item 3. Default Upon Senior Securities
The Company has no senior securities outstanding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the first quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
The following documents are filed as exhibits to this Form 10-QSB:
Number | Description of Exhibit |
3.1 | Amended and Restated Articles of Incorporation of Integrated Pharmaceuticals, Inc. (1) |
3.2 | Amended and Restated Bylaws of Integrated Pharmaceuticals, Inc. (2) |
4.1 | Specimen Certificate for Integrated Pharmaceuticals, Inc. Common Stock, par value $.01 per share (2) |
4.2 | Form of Common Stock Purchase Warrant (2) |
10.1 | Amended and Restated Patent License Agreement with NEC Partners (2) |
10.2 | Lease Agreement with Chantilas Properties, LLC and Advanced Process Technologies, Inc. (2) |
10.3 | Assignment and Assumption of Lease(2) |
10.4 | Consulting and Warrant Agreements with James Czirr (2) |
10.5 | 2002 Stock Plan (2) |
10.6 | Registration Rights Agreement(2) |
10.7 | Letter dated May 5, 2005 amending the Patent License Agreement with NEC Partners (3) |
10.8 | Letter dated October 13, 2005 amending the Patent License Agreement with NEC Partners (4) |
10.9 | Investment Agreement between the Company and Dutchess Private Equities Fund, LP dated December 22, 2006 (5) |
10.10 | Registration Rights Agreement between the Company and Dutchess Private Equities Fund, LP dated December 22, 2006 (5) |
10.11 | Placement Agent Agreement among the Company, US Euro Securities Inc. and Dutchess Private Equities Fund, LP dated December 22, 2006 (5) |
14 | Financial Code of Ethics (6) |
21 | Subsidiaries of Integrated Pharmaceuticals (6) |
(1) Previously filed and incorporated by reference to Amendment No. 1 to the Company's Form 10-SB Registration Statement filed with the Securities and Exchange Commission on December 3, 2004.
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(2) Previously filed and incorporated by reference to the Company's Form 10-SB Registration Statement filed with the Securities and Exchange Commission on September 27, 2004.
(3) Previously filed and incorporated by reference to Amendment No. 3 to the Company's Form 10-SB Registration Statement filed with the Securities and Exchange Commission on May 12, 2005.
(4) Previously filed and incorporated by reference to the Company’s Form 10-QSB filed with the Securities Exchange Commission on November 14, 2005.
(5) Previously filed and incorporated by reference to the Company’s Registration Statement on Form SB-2 with the Securities Exchange Commission on January 26, 2007.
(6) Previously filed and incorporated by reference to the Company’s Form 10-KSB filed with the Securities Exchange Commission on September 29, 2005.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Chinmay Chatterjee
By: Chinmay Chatterjee
Its: CEO
Date: May 21, 2007
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