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.
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:
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.
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
|
|
|
|
|
|
|
|
|
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
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.