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 September 30, 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 November 16, 2007 the Issuer had 40,975,328 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 | 13 |
ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 13 |
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 | 14 |
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.
PART I
ITEM 1. Financial Statements
Integrated Pharmaceuticals Inc.
Financial Statements
For The Quarter Ended September 30, 2007
(Unaudited)
CONTENTS
PAGE
3 | Balance Sheets As At September 30, 2007 (unaudited) And December 31, 2006 |
4 | Statements Of Operations And Income For The Nine Months Ended September 30, 2007 and September 30, 2006 (unaudited) |
5 | Statements Of Cash Flows For The Nine Months Ended September 30, 2007 and 2006 (unaudited) |
7 - 31 | Notes To Financial Statements – September 30, 2007 |
– 1 –
INTEGRATED PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, | ||||||||
2007 | December 31, | |||||||
(unaudited) | 2006 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 537 | $ | 872,181 | ||||
Accounts receivable | 27,687 | 687 | ||||||
Inventory | 108,401 | 118,068 | ||||||
Prepaid expenses | 71,991 | 47,128 | ||||||
Total Current Assets | 208,616 | 1,038,064 | ||||||
PROPERTY AND EQUIPMENT, net | 890,503 | 1,279,401 | ||||||
OTHER ASSETS | ||||||||
Investments | 2,870 | 3,590 | ||||||
Deposits | — | — | ||||||
Patents, net of amortization | 104,450 | 107,800 | ||||||
Total Other Assets | 107,320 | 111,390 | ||||||
TOTAL ASSETS | $ | 1,206,439 | $ | 2,428,855 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Bank overdraft payable | $ | 102 | — | |||||
Accounts payable | 192,987 | $ | 218,754 | |||||
Accrued expenses | 146,921 | 162,039 | ||||||
Related party short-term debt | — | 24,061 | ||||||
Total Current Liabilities | 340,010 | 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; 40,692,434 and 18,632,626 shares issued and outstanding, respectively | 406,914 | 400,243 | ||||||
Additional paid-in capital | 16,859,900 | 16,728,424 | ||||||
Other comprehensive income (loss) | 850 | 1,570 | ||||||
Accumulated deficit prior to development stage | (494,624 | ) | (494,624 | ) | ||||
Accumulated deficit during development stage | (15,906,611 | ) | (14,611,612 | ) | ||||
Total Stockholders' Equity | 866,429 | 2,024,001 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,206,439 | $ | 2,428,855 |
The accompanying condensed notes are an integral part of these interim financial statements.
– 2 –
INTEGRATED PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Period from | ||||||||||||||||||||
February 1, 2003 | ||||||||||||||||||||
(inception of | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | development stage) | ||||||||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | to September 30, 2007 | ||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
REVENUES | $ | 27,000 | $ | — | $ | 35,400 | $ | 60,658 | $ | 173,399 | ||||||||||
COST OF GOODS SOLD | ||||||||||||||||||||
Materials and supplies | 4,725 | — | 12,405 | 56,101 | 113,484 | |||||||||||||||
Total Cost of Goods Sold | 4,725 | — | 12,405 | 56,101 | 113,484 | |||||||||||||||
GROSS PROFIT | 22,275 | — | 22,995 | 4,557 | 59,915 | |||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||||||
Depreciation and amortization | 64,538 | 64,770 | 196,227 | 195,556 | 981,397 | |||||||||||||||
Research and development | 72,532 | 47,919 | 166,683 | 134,452 | 1,126,480 | |||||||||||||||
Marketing | 6,743 | 3,900 | 10,760 | 12,749 | 640,394 | |||||||||||||||
Legal and professional fees | 25,613 | 51,152 | 198,975 | 143,043 | 1,437,228 | |||||||||||||||
Consulting | — | 51,918 | 59,359 | 125,996 | 3,193,448 | |||||||||||||||
Idle facility expense | 163,608 | 153,743 | 438,095 | 439,007 | 2,453,457 | |||||||||||||||
Occupancy | 26,422 | 30,330 | 84,995 | 99,540 | 1,215,391 | |||||||||||||||
Labor and benefits | (31,010 | ) | 13,750 | 67,291 | 61,418 | 919,259 | ||||||||||||||
Services paid by stock options | — | 43,754 | 2,850 | 224,402 | 1,494,423 | |||||||||||||||
Office supplies and expenses | 3,454 | 5,359 | 15,408 | 15,277 | 201,524 | |||||||||||||||
Travel | 542 | 2,870 | 5,326 | 6,491 | 185,703 | |||||||||||||||
Other general and administrative expenses | 14,207 | 30,380 | 63,723 | 106,455 | 688,902 | |||||||||||||||
Total General and Administrative Expenses | 346,649 | 499,845 | 1,309,692 | 1,564,386 | 14,537,606 | |||||||||||||||
OPERATING INCOME (LOSS) | (324,374 | ) | (499,845 | ) | (1,286,697 | ) | (1,559,829 | ) | (14,477,691 | ) | ||||||||||
OTHER INCOME (EXPENSES) | ||||||||||||||||||||
Interest income | 2 | 3 | 6 | 79 | 10,285 | |||||||||||||||
Interest expense | (5,258 | ) | (2,805 | ) | (8,308 | ) | (5,842 | ) | (1,433,645 | ) | ||||||||||
Other income (expense) | — | — | — | — | (5,560 | ) | ||||||||||||||
Total Other Income and Expenses | (5,256 | ) | (2,802 | ) | (8,302 | ) | (5,763 | ) | (1,428,920 | ) | ||||||||||
LOSS BEFORE TAXES | (329,630 | ) | (502,647 | ) | (1,294,999 | ) | (1,565,592 | ) | (15,906,611 | ) | ||||||||||
INCOME TAXES | — | — | — | — | — | |||||||||||||||
NET LOSS | (329,630 | ) | (502,647 | ) | (1,294,999 | ) | (1,565,592 | ) | (15,906,611 | ) | ||||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||||||
Unrealized gain (loss) in market value of investments | — | 1,570 | — | 880 | 850 | |||||||||||||||
COMPREHENSIVE LOSS | $ | (329,630 | ) | $ | (501,077 | ) | $ | (1,294,999 | ) | $ | (1,564,712 | ) | $ | (15,905,761 | ) | |||||
NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED | $ | nil | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.07 | ) | |||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED | 40,962,434 | 22,593,196 | 40,591,909 | 21,019,032 |
The accompanying condensed notes are an integral part of these interim financial statements.
– 3 –
INTEGRATED PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Period from | ||||||||||||
February 1, 2003 | ||||||||||||
(inception of | ||||||||||||
For the Nine Months Ended | development stage) | |||||||||||
September 30, 2007 | September 30, 2006 | to Sept 30, 2007 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | (1,294,999 | ) | $ | (1,565,592 | ) | $ | (15,906,611 | ) | |||
Adjustments to reconcile net income (loss) to net cash | ||||||||||||
flows provided (used) by operating activities: | ||||||||||||
Depreciation and amortization | 406,891 | 405,587 | 1,750,556 | |||||||||
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 | 13,749 | 22,605 | 636,639 | |||||||||
Stock issued for services | 32,231 | 18,390 | 1,208,270 | |||||||||
Stock issued for assets and securities | — | — | 43,739 | |||||||||
Stock options and warrants vested | 62,209 | 350,399 | 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 | (27,000 | ) | (10,512 | ) | (11,603 | ) | ||||||
Inventory | 9,667 | 7,826 | (108,401 | ) | ||||||||
Prepaid expenses | (24,863 | ) | 32,951 | 75,569 | ||||||||
Other assets | — | 763 | 6,370 | |||||||||
Bank overdraft payable | 102 | — | 102 | |||||||||
Accounts payable | (25,767 | ) | 3,588 | 94,440 | ||||||||
Accrued expenses | (15,118 | ) | 23,876 | (36,063 | ) | |||||||
Net cash used by operating activities | (862,898 | ) | (710,119 | ) | (6,934,125 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of fixed assets | (17,995 | ) | (39,664 | ) | (2,761,534 | ) | ||||||
Patent costs | 3,350 | (54,573 | ) | (119,072 | ) | |||||||
Leasehold concessions received | — | — | 185,000 | |||||||||
Net cash used by investing activities | (14,645 | ) | (94,237 | ) | (2,695,606 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Sale of common stock units | 29,960 | 785,000 | 8,467,600 | |||||||||
Payments on capital leases | — | (195 | ) | (9,563 | ) | |||||||
Proceeds from related party loans | (24,061 | ) | (20,493 | ) | (56,701 | ) | ||||||
Proceeds from exercise of options | — | — | 1,080 | |||||||||
Proceeds from convertible debt | — | — | 939,900 | |||||||||
Net cash provided by financing activities | 5,899 | 764,312 | 9,342,316 | |||||||||
Net increase in cash | (871,644 | ) | (40,044 | ) | (287,415 | ) | ||||||
Cash, beginning of period | 872,181 | 182,582 | 287,952 | |||||||||
Cash, end of period | $ | 537 | $ | 142,538 | $ | 537 | ||||||
SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||||||
Income taxes paid | $ | — | $ | — | $ | — | ||||||
Interest paid | $ | — | $ | — | $ | 25,000 | ||||||
NON-CASH INVESTING AND FINANCING: | ||||||||||||
Stock options and warrants vested | $ | 62,209 | $ | 350,399 | $ | 3,799,324 | ||||||
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 | ||||||
Stock issued for prepaid and deferred rent and rent expense | $ | 20,445 | $ | 22,605 | $ | 619,209 | ||||||
Stock and warrants issued for services | $ | 32,044 | $ | 18,390 | $ | 1,108,133 | ||||||
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.
– 4 –
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 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 September 30, 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 September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
– 5 –
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 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 June 30, 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 September 30, 2007, the Company’s raw material, work in process, and finished goods inventories totaled $63,952, $12,130, and $32,319 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 September 30, 2007 and December 31, 2006:
– 6 –
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 2007
September 30, 2007 | December 31, 2006 | |||||||
Equipment | $ | 1,818,250 | $ | 1,800,255 | ||||
Furniture and fixtures | 120,114 | 120,114 | ||||||
Leasehold improvements | 826,511 | 826,511 | ||||||
2,764,875 | 2,746,880 | |||||||
Less: Accumulated depreciation | (1,874,372 | ) | (1,467,479 | ) | ||||
Total | $ | 890,503 | $ | 1,279,401 |
Depreciation and amortization expense for the periods ended September 30, 2007 and December 31, 2006 were $406,891 (of which $219,847 is included in “idle facility expense”), and $535,411 (of which $282,963 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 September 30, 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 71,736 shares, valued at approximately $13,630 were issued during the nine-month period ended September 30, 2007 for payment of rent. Additionally, the Company issued 149,681 shares of common stock at an average price of $.0.19 per share in exchange for services valued at approximately $28,440.
– 7 –
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 2007
NOTE 5 – COMMON STOCK OPTIONS AND WARRANTS
2002 Stock Plan
During the six months ended September 30, 2007, the Company recorded an expense of approximately $43,754 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 September 30, 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 September 30, 2007 | 1,275,000 | $ | 0.55 | |||||
Options exercisable at September 30, 2007 | 894,800 | $ | 0.67 | |||||
Weighted average fair value of options granted in 2007 | — |
– 8 –
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 2007
Warrants
At September 30, 2007 and December 31, 2006, there were outstanding warrants to purchase 12,349,701 and 12,306,968 shares respectively, of the Company’s common stock, at prices ranging from $0.35 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 September 30, 2007, approximately $ 0 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 September 30, 2007, applicable royalties were waived by the patent holder.
NOTE 8 –SUBSEQUENT EVENTS
Subsequent to September 30, 2007 the Company has raised $305,000 from various individual accredited investors. These investors purchased restricted shares of the Company’s common stock at $0.20 a share. For every twenty shares purchased , the investor received seven warrants to purchase one share of Company’s stock at $0.45 vaild until September 30, 2009.
On November 1, 2007, the Board of Directors elected Peter Featherston as President and Chief Executive Officer (CEO) of Integrated Pharmaceuticals, Inc. The Board also increased the size of the Board to six (6) and filled the vacancy created thereby by electing Mr. Featherston to the Board. There are no arrangements or understandings between Mr. Featherstone and any other person pursuant to which Mr. Featherston was elected to the Board and is not expected to be named to any of the Board’s committees other than the Audit committee. There have been no transactions between Mr. Featherston and the Company during the last two years involving $60,000 or more. There is no material plan, contract or arrangement to which Mr. Featherston is a party (or in which he participates) that was entered into or amended in connection with his appointment as CEO or election to the Board. Mr. Featherston’s compensation as CEO will be based upon a $90,000 annual salary plus a bonus of $20,000 if the Company achieves certain sales objectives. He will be issued a warrant, exercisable at $0.20 per share, for 500,000 shares of the Company’s common stock. The warrant will vest as
– 9 –
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 2007
the Company achieves certain sales objectives. Mr. Featherston will be included in the Company’s health insurance program. It is expected that Mr Featherston will receive a second year salary of $120,000 and a $30,000 bonus and warrant for 250,000 shares at .60 cents and in year three a salary of $150,000 and a $40,000 bonus and warrant of 125,000 shares at $1.20. Mr. Featherston from 1982 to 2005, was co-founder, co-owner and chief operating and marketing officer of RISMEDIA, a privately held, national real estate media company based in Norwalk, Connecticut. In 2006 and 2007, Mr. Featherston acted as a business consultant/broker and created works of art with notable Americans. Mr. Featherston is not a director of any other public company, and he is not related to any other officer or director of the Company. The Company intends to enter into a written employment agreement with Mr. Featherston, but has not yet done so.
– 10 –
Item 2 Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION
You should read the following discussion in conjunction with our financial statements, together with the notes to those statements included elsewhere in this prospectus. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions such as statements of our plans, objectives, expectations and intentions. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.
We were incorporated in Idaho in August 1969 as an exploratory mining company. In the late 1990s, our mining prospects appeared dim, and our board of directors decided to change our business focus. In 2000, we acquired Advanced Process Technologies, Inc., a Massachusetts corporation (“APTI”), in a share exchange in which 6,000,000 shares of our common stock were issued to the founders and a director of APTI, resulting in their ownership of about 82.5% of our common stock. As a result, we were transformed from a mining exploration into a biotechnology company focused on the production of specialty chemicals and compounds and food products. Our efforts to find large-scale purchasers of our products have to date been unsuccessful. For that reason, we have changed our focus to consumer food products that include mineral supplements made with our proprietary processes.
Plan of Operation
We had minimal operating revenue in the 3rd Quarter 2007. We are a development stage company that expects revenue to increase substantially in the 1st Quarter 2008. In 2007, we focused the company on producing a bottled water product that will have calcium, magnesium, and potassium.
The unique features of our bottled water are:
a) | The minerals are 100% absorbable; |
b) | There is no taste of the minerals in the bottle; |
c) | There are no calories, artificial flavoring, or sweeteners. |
The company is following two paths to achieve production of its bottled water product. First, it purchased and has installed equipment to bottle and label its bottle in its 38,000 square foot plant, and secondly, it has quotes from two sources to bottle, label, and prepare the product for shipment. In the first case, the Commonwealth of Massachusetts must grant the company approval to manufacture its bottle before it can be sold. A first inspection by the Commonwealth has taken place, and the company has responded to the issues the Commonwealth cited. In the latter case, the bottlers contacted have significant capacity and we just need to select our final bottle and label, which we intend to do prior to 12/31/07. Bottle production may begin soon thereafter.
We intend to focus our sales and distribution in the market between Washington DC and Portland, ME and in Western PA and Ohio. The initial markets we will target are health, organic, spas, health clubs and high end stores. We will rely on a combination of brokers, distributors, and our own part-time sales representatives. We have verbal agreement with three (3) sales representatives in New England.
George Hathaway, of Pittsburg, PA, has become a Vice-President of Sales, and is engaged in establishing manufacturing, distribution and retail relationship in Western PA and Ohio. Mr. Hathaway has owned and operated several grocery stores in Western PA for 35 years. Many of those were part of the “Giant Eagle” grocery chain, which includes 430 grocery stores. Mr. Hathaway will seek to get our bottled water product in Giant Eagle and other stores. Mr. Hathaway is an investor in INTP and will be primarily compensated
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by new sales he generated in Western PA and Ohio. Mr. Hathaway has been invited to attend Board of Directors meetings as an observer and will help with strategic issues, shelf displays, promotions and relationships in the grocery and convenience store industry.
We will also look to establish co-marketing and/or licensing Agreements with larger companies already selling calcium in their and/or magnesium to their products. The company has targeted prospects and will begin to call on them in 1st Quarter 2008.
At a Board meeting held on November 1, 2007, Mr. Peter S. Featherston was elected CEO and President, and as a member of the Board of Directors. Mr. Featherston was co-founder, co-owner, chief marketing office and CFO of Rismedia, Norwalk, CT, a national media/publishing/internet and consulting company in the real estate industry. He has created works-of-art with golf legend Byron Nelson and with Earl Lloyd, the first African-American to play in the NBA and worked with broadcasters, Jim McKay, Jack Whitaker and Chris Schenkel.
Financial Condition and Operations
Financial Condition.
We have reduced our operating loss from $499,845 in the third quarter of 2006 to $324,374 for the third quarter of 2007. Our cash position at September 30, 2007 was $537. We raised approximately $1,050,260 in a private placement of our common stock in December 2006. In January 2007, we raised an additional $24,500 in this private placement. Subsequent to September 30, 2007, we raised $305,000 in another private placement to accredited investors. These investors purchased restricted shares of the Company’s common stock at $0.20 a share. For every twenty shares purchased, the investor received seven warrants to purchase one share of Company’s stock at $0.45 valid until September 30, 2009. We anticipate that we will require additional funds by the first quarter of 2008 in order to continue with production of our water product, advertise, market, meet our operating costs and distribute our bottled water products. 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.
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 no such commitments outstanding.
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
Peter Featherston, President, CEO and Chief Financial Officer, has evaluated the Company’s disclosure controls and procedures in effect as of September 30, 2007 and concluded that they were 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
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upon this 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
During the three-month period ended September 30, 2007, we issued 17,736 shares of our common stock to our landlord in partial payment of our rent, and 149,681 shares of our common stock in partial payment of legal fees.
Our lease for our facility in Fitchburg, Massachusetts calls for base rent to be paid in the form of common stock with one share of common stock for each $1.00 of rent. A total of 71,736 shares, valued at approximately $13,630 were issued during the nine-month period ended September 30, 2007 for payment of rent. Additionally, the Company issued 149,681 shares of common stock at an average price of $.0.19 per share in exchange for services valued at approximately $28,440.
During the three-month period ended June 30, 2007, we sold 35,000 shares of our common stock to Dutchess Private Equities Fund Ltd. for $5,411 in an unregistered sales of equity securities We have used those funds for our general corporate purposes. During the same period, we issued 17,934 shares of our common stock to our landlord in partial payment of our rent.
In January 2006, we raised $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.
We raised approximately $1,050,260 in a private placement of our common stock in December 2006. This placement was made to accredited investors who purchased 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. We raised an additional $24,500 in January 2007 on the same terms.
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.
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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.
(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/ Peter Featherston
By: Peter Featherston
Its: CEO
Date: November 19, 2007
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