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AlumiFuel Power Corp - Quarter Report: 2008 July (Form 10-Q)

ihbt10q73108.htm

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

FORM 10-Q

x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarter ended July 31, 2008
   
¨
TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______to_______


Commission File No. 333-57946

INHIBITON THERAPEUTICS, INC.
 (Exact Name of Registrant as Specified in its Charter)


Nevada
88-0448626
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)

7315 East Peakview Avenue
Englewood, Colorado 80111
(Address of principal executive offices) (Zip code)

(303) 796-8940
(Registrant's telephone number including area code)

 (Former name, address and fiscal year)


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by a check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting companyx

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x

Number of shares of common stock outstanding at September 15, 2008: 18,884,326

 
 
 


INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)

Index to Financial Statements
(Unaudited)


   
Page
  
       
Balance Sheets at July 31, 2008 (unaudited) and January 31, 2008
     F-2  
         
Statement of Operations for the three and six months ended July 31, 2008,
        
three and six months ended July 31, 2007, and from May 11, 2004 (Inception)
        
through July 31, 2008 (unaudited)
     F-3  
         
Statement of Changes in Shareholders' Deficit for the period from
        
May 11, 2004 (Inception) through July 31, 2008 (unaudited)
     F-4  
         
Statement of Cash Flows for the three and six months ended July 31, 2008,
        
three and six months ended July 31, 2007, and from May 11, 2004 (Inception)
        
through July 31, 2008 (unaudited)
     F-5  
         
Notes to Financial Statements
     F-6  
         
Item 2. Management’s Discussion and Analysis of Financial Condition and
        
Results of Operations
     13  
         
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     14  
         
Item 4T. Controls and Procedures
     14  
         
Part II – Other Information
     15  
         
Signatures
     16  
         



 
F-1
 

INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Balance Sheets
(Unaudited)

   
July 31,
    
January 31,
  
   
2008
    
2008
  
             
Assets
            
Cash
   $ 318     $ 21,023  
                 
Total assets
   $ 318     $ 21,023  
                 
Liabilities and Shareholders’ Deficit
                
Current liabilities:
                
Accounts and notes payable:
                
Accounts payable, related party (Note 2)
   $ 327,600     $ 305,200  
Accounts payable, other
     250,333       258,835  
Derivative liability, convertible notes payable
     42,900       —  
Notes payable, related party (Note 2)
     328,225       380,542  
Notes payable, other (Note 3)
     35,200       35,200  
Convertible notes payable, net of discount of 31,334 (Note 3)
     23,666          
Accrued interest payable:
                
Interest payable, convertible notes (Note 3)
     993       —  
Interest payable, related party notes (Note 2)
     46,287       44,358  
Interest payable, notes payable other (Note 3)
     8,342       6,938  
                 
Total current liabilities
     1,063,547       1,031,073  
                 
Commitments and contingencies
     —          
                 
Shareholders’ deficit:
                
Preferred stock, $.001 par value; 10,000,000 shares authorized,
                
-0- shares issued and outstanding
     —       —  
Common stock, $.001 par value; 200,000,000 shares authorized,
                
17,384,326 (July 31) and 16,895,219 (January 31) shares
                
issued and outstanding
     17,384       16,895  
Additional paid-in capital
     1,946,214       1,861,437  
Common stock issued for prepaid services (Note 6)
     (72,917 )     (160,417 )
Deficit accumulated during the development stage
     (2,953,910 )     (2,727,965 )
                 
Total shareholders' deficit
     (1,063,228 )     (1,010,050 )
                 
Total liabilities and shareholders' deficit
   $ 318     $ 21,023  
 
See accompanying notes to financial statements

 
F-2
 
 
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Condensed Statements of Operations
(Unaudited)

   
Three months
    
Three months
    
Six months
    
Six months
    
May 11, 2004
(Inception)
  
   
ended
    
ended
    
ended
    
ended
    
Through
  
   
July 31,
    
July 31,
    
July 31,
    
July 31,
    
July 31,
  
   
2008
    
2007
    
2008
    
2007
    
2008
  
                               
Operating costs and expenses:
                              
Research and development
   $ -     $ 75,000     $ -     $ 150,000     $ 900,000  
Selling, general and administrative expenses
                                        
Related party (Note 2)
     33,000       32,250       66,000       64,500       849,425  
Other (Note 4)
     66,393       76,038       129,604       141,651       710,507  
                                         
Total operating costs and expenses
     (99,393 )     (183,288 )     (195,604 )     (356,151 )     (2,459,932 )
                                         
Other income (expense)
                                        
Interest (expense) income, amortization
                                        
of convertible note discount (Note 3)
     (8,666 )     -       (8,666 )     -       71,517  
Interest expense (Notes 2 & 3)
     (10,990 )     (162,568 )     (18,775 )     (346,818 )     (562,595 )
Fair value adjustment of derivative liabilities (Note 3)
     (2,900 )     -       (2,900 )     -       (2,900 )
                                         
Loss before income taxes
     (121,949 )     (345,856 )     (225,945 )     (702,969 )     (2,953,910 )
                                         
Income tax provision (Note 5)
     -       -       -       -       -  
                                         
Net loss
   $ (121,949 )   $ (345,856 )   $ (225,945 )   $ (702,969 )   $ (2,953,910 )
                                         
Basic and diluted loss per common share
   $ (0.01 )   $ (0.02 )   $ (0.01 )   $ (0.05 )        
                                         
Weighted average common shares outstanding
     17,219,588       14,962,023       17,178,404       14,712,963          

See accompanying notes to financial statements

 
F-3
 

INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Condensed Statement of Changes in Shareholders’ Deficit
(Unaudited)
 
                                     
                     
Common stock
    
Deficit
        
               
Additional
    
issued for
    
accumulated
        
   
Common Stock
    
paid-in
    
prepaid
    
during the
        
   
Shares
    
Par value
    
capital
    
services
    
development stage
    
Total
  
Balance at May 11, 2004
                                    
Inception date
     —     $ —     $ —     $ —     $ —     $ —  
                                                 
October 2004 and January 2005,
                                                
sale of common stock
     9,555,100       9,555       269,945       —       —       279,500  
October 2004, issuance of common stock
                                          
for debt issue costs
     963,000       963       (63 )     —       —       900  
December 2004, issuance of common stock
                                          
for services
     107,000       107       893       —       —       1,000  
January 2005, conversion of notes payable to
                                          
common stock
     74,900       75       625       —       —       700  
Net loss
     —       —       —       —       (534,619 )     (534,619 )
Balance at January 31, 2005
     10,700,000       10,700       271,400       —       (534,619 )     (252,519 )
                                                 
February 2005 and March 2005,
                                                
sale of common stock
     428,000       428       99,572       —       —       100,000  
May 2005 Reverse acquisition of Organic
                                          
Soils.com, Inc.
     2,323,000       2,323       (47,179 )     —       —       (44,856 )
Net loss
     —       —       —       —       (664,190 )     (664,190 )
                                                 
Balance at January 31, 2006
     13,451,000       13,451       323,793       —       (1,198,809 )     (861,565 )
                                                 
July 2006 and August 2006, sale of common
                                          
stock, less $7,500 of offering costs
     250,000       250       67,250       —       —       67,500  
Net loss
                             —       (527,029 )     (527,029 )
                              —                  
Balance at January 31, 2007
     13,701,000       13,701       391,043       —       (1,725,838 )     (1,321,094 )
                                                 
March 2007, conversion of convertible
                                                
promissory notes to common stock
     594,356       594       213,374       —       —       213,968  
Issuance of warrants upon conversion
                                                
of convertible promissory notes
     —       —       172,363       —       —       172,363  
March 2007, sale of common stock
     500,000       500       124,500       —       —       125,000  
April 2007, sale of common stock,
                                                
less $3,000 of offering costs
     100,000       100       26,900       —       —       27,000  
July 2007, conversion of convertible
                                                
promissory notes to common stock
     489,863       490       183,209       —       —       183,699  
Issuance of warrants upon conversion
                                                
of convertible promissory notes
     —       —       151,368       —       —       151,368  
July 2007, sale of common stock
     200,000       200       49,800       —       —       50,000  
August 2007, sale of common stock
     250,000       250       74,720       —       —       74,970  
October 2007, sale of common stock
     200,000       200       59,770       —       —       59,970  
November 2007, sale of common stock
     210,000       210       59,790       —       —       60,000  
December 2007, stock issued for
                                                
consulting services
     500,000       500       174,500       (160,417 )     —       14,583  
December 2007, issuance of stock options
     —       —       140,250       —       —       140,250  
January 2008, sale of common stock
     150,000       150       39,850       —       —       40,000  
Net loss
     -       —       —       —       (1,002,127 )     (1,002,127 )
                                                 
Balance at January 31, 2008
     16,895,219     $ 16,895     $ 1,861,437       (160,417 )   $ (2,727,965 )   $ (1,010,050 )
                                                 
February 2008, sale of common stock
                                                
  (Note 6)
     242,000       242       67,758       —       —       68,000  
July 2008, expense stock issued for
                                                
prepaid services in Dec 2007 (Note 6)
     —       —       —       87,500       —       87,500  
July 2008, conversion of promissory note
                                          
to common stock (Note 6)
     247,107       247       14,579       —       —       14,826  
July 2008, issuance of warrants to
                                                
convertible noteholders (Note 3)
     —       —       2,440       —       —       2,440  
Net loss
     —       —       —       —       (225,945 )     (225,945 )
                                                 
Balance at July 31, 2008
     17,384,326     $ 17,384     $ 1,946,214       (72,917 )   $ (2,953,910 )   $ (1,063,228 )
 
See accompanying notes to financial statements

 
F-4
 

INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
 
               
May 11, 2004
  
   
Six months
    
Six months
    
(Inception)
  
   
ended
    
ended
    
Through
  
   
July 31,
    
July 31,
    
July 31,
  
   
2008
    
2007
    
2008
  
                   
Cash flows from operating activities:
                  
Net loss
   $ (225,945 )   $ (702,969 )   $ (2,953,910 )
Adjustments to reconcile net loss to net cash
                        
used by operating activities:
                        
Stock based compensation
     —       —       316,250  
Common stock issued for prepaid services (Note 6)
     87,500       —       (72,917 )
Loss on debt extinguishment
     —       126,612       126,612  
Expense incurred upon issuance or modification
                        
of stock and warrants (Note 3)
     2,440       323,731       326,171  
Increase in derivative liability
     2,900       —       2,900  
Amortization of discount on debentures payable (Note 3)
     8,666       —       8,666  
Changes in operating assets and liabilities:
                        
Accounts payable
     (8,501 )     51,867       250,334  
Related party payables (Note 2)
     22,400       54,500       327,600  
Accrued expenses
     6,152       7,810       103,503  
Net cash used in
                        
operating activities
     (104,388 )     (138,449 )     (1,564,791 )
                         
Cash flows from investing activities:
                        
Investment in Inhibitex Therapeutics, Inc.
     —       —       (44,856 )
Net cash used in
                        
investing activities
     —       —       (44,856 )
                         
Cash flows from financing activities:
                        
(Payments on) proceeds from related party notes
                        
payable, net (Note 2)
     (39,317 )     (58,785 )     329,825  
Proceeds from notes payable, other (Note 3)
     —       —       48,200  
Proceeds from convertible promissory note (Note 3)
     55,000       —       280,000  
Proceeds from issuance of common stock,
                        
net of offering costs (Note 6)
     68,000       202,000       951,940  
Net cash provided by
                        
financing activities
     83,683       143,215       1,609,965  
                         
Net change in cash and
                        
cash equivalents
     (20,705 )     4,766       318  
                         
Cash and cash equivalents:
                        
Beginning of period
     21,023       141       —  
                         
End of period
   $ 318     $ 4,907     $ 318  
                         
Supplemental disclosure of cash flow information:
                        
Cash paid during the period for:
                        
Income taxes
   $ —     $ —     $ —  
Interest
   $ 8,125     $ 14,877     $ 50,496  
                         
Noncash financing transactions:
                        
Notes and interest payable converted to stock
   $ 14,826     $ 271,055     $ 286,581  
Stock issued in exchange for debt issue costs
   $ —     $ —     $ 900  

See accompanying notes to financial statements

 
F-5
 
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
 
Note 1:  Basis of presentation

The interim unaudited financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in unaudited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The interim unaudited financial statements should be read in conjunction with the Company’s annual financial statements for the year ended January 31, 2008, notes and accounting policies thereto included in the Company’s Annual Report on Form 10-KSB as filed with the SEC.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented have been made.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the year.

Interim financial data presented herein are unaudited.

Reorganization

Effective May 19, 2005, Organic Soils.com, Inc. (“Organic Soils.com”) entered into an Agreement and Plan of Reorganization with Inhibetex Therapeutics, Inc.  The Agreement provided for the reorganization of Inhibetex with Organic Soils.com, with the surviving entity adopting the name Inhibiton Therapeutics, Inc. (the “Company”).  In connection with the Agreement, Organic Soils.com acquired all of the issued and outstanding common shares of Inhibetex, on a fully-diluted basis, in exchange for 11,128,000 shares of Organic Soils.com common stock.  At the closing of the Agreement, the shareholders of Inhibetex held  82.7% of the outstanding common stock of Organic Soils.com, resulting in a change in control.

This acquisition was treated as a recapitalization of Inhibetex, with Organic Soils.com as the legal surviving entity.  Since Organic Soils.com had, prior to the recapitalization, minimal assets and no operations, the recapitalization has been accounted for as the sale of 2,323,000 shares of Organic Soils.com common stock for net assets of Inhibetex.  Costs of the transaction were charged to the period in which they were incurred.

Derivative Instruments

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative instruments under the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".

 
F-6
 
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
 
Note 2:  Related Party

At July 31, 2008, the Company owed its officers a total of $326,900 for management services.  The Board of Directors has estimated the value of management services at the monthly rate of $8,000 and $2,000 for the president and treasurer, respectively.  The estimates were determined by comparing the level of effort to the cost of similar labor in the local market.

The Company rents office space, including the use of office machines, phone systems and long distance fees, from an affiliate at the rate of $1,000 per month, based on the amount of space occupied by the Company.  Rent expense totaled $3,000 for the three months ended April 30, 2008.

Accounts payable to related parties consisted of the following at April 30, 2008:

Management fees payable to officers
   $ 326,900  
         
Rent payable to company affiliated with officers
     700  
         
Total accounts payable, related party
   $ 327,600  


From time to time the Company has issued various promissory notes payable to a trust created by the president of the Company for the benefit of his children, in exchange for cash used for working capital purposes.   The notes bear an interest rate of 8% and are due on demand.  During the quarter ended July 31, 2008, the Company paid $5,443 in principal leaving $269,170 in principal and $39,577 in accrued interest outstanding on all notes payable to the trust at July 31, 2008.

During the three months ended July 31, 2008, the Company made payments of $33,875 on promissory notes payable to a company owned by the president.  The notes bear an interest rate of 8% per annum and are due on demand.  At July 31, 2008, $26,200 in principal and $3,482 in accrued interest remained outstanding on all notes payable to this affiliate.

At July 31, 2008, the Company owed $671 in principal and $42 in accrued interest on  promissory notes payable to the president.  The notes bear an interest rate of 8% per annum and are due on demand.

In periods prior to the three months ended April 30, 2008, the Company executed two promissory notes with companies affiliated with the Company’s officers.  These notes carry an interest rate of 8% per annum and are due on demand.  As of July 31, 2008, $26,684 in principal remained outstanding with accrued interest payable of $2,728.

During the quarter ended July 31, 2007, the Company executed a promissory note with a partnership affiliated with the Company’s president in the amount of $5,500.  This note carries an interest rate of 8% and is due on demand.  As of April 30, 2008, the entire balance of this note remains outstanding with accrued interest payable of $457.
 
F-7
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
 
During the year ended January 31, 2007, the Company executed a promissory note with a significant stockholder in exchange for $13,000.  The note carried an interest rate of 8% and was due on demand.  On July 1, 2008, this stockholder converted this note along with $1,826 in accrued interest into 247,107 shares of the Company’s $0.001 common stock at $0.06 per share, the closing price of the common stock on that date.

Notes and interest payable to related parties consisted of the following at July 31, 2008:

Notes payable to officers; interest at 8% and due on demand
   $ 671  
         
Notes payable to affiliates of Company officers; interest at 8% and due on demand
     327,554  
         
Notes payable, related party
     328,225  
         
Interest payable related party
     46,286  
         
Total principal and interest payable, related party
   $ 374,511  


Note 3: Notes Payable

During the year ended January 31, 2006, the Company received proceeds of $30,000, in exchange for a promissory note from an unaffiliated third party.  The entire balance of this note remained outstanding at April 30, 2008.  The promissory note was issued at an interest rate of 8% per annum and is due on demand.  Accrued interest payable on the note totaled $8,114 at July 31, 2008.  In January 2008, the holder of this note filed a lawsuit against the Company claiming the interest rate under this note was 44% and therefore the Company would owe approximately $44,627 in interest payable at July 31, 2008.  The Company is disputing the claimed increased interest rate and intends to vigorously defend this lawsuit.  Should the Company not prevail in this action, the maximum exposure pursuant to the suit would be the disputed difference of approximately $36,500  in accrued interest on the note at July 31, 2008, plus any further interest expense at the increased interest rate for future periods until the matter is settled.

During the year ended January 31, 2008, the Company received proceeds of $5,200 in exchange for a promissory note from an unaffiliated third party.  The entire balance of this note remained outstanding at July 31, 2008.  The promissory note was issued at an interest rate of 8% per annum and is due on demand.  Accrued interest payable on the note totaled $228 at July 31, 2008.

Convertible Promissory Notes
 
In July 2008, the Company entered into agreements to borrow an aggregate principal amount of $55,000 and to issue to the lenders convertible promissory notes (the “Notes”).  Each note carries an interest rate of 8% per annum with the principal and accrued interest due in July 2009.  At the option of the lenders, the principal and accrued interest is convertible, in whole or in part, into $0.001 par value common stock of the Company at 75% of the average closing price of the common stock for the twenty trading days immediately prior to conversion, provided however, that the conversion price cannot be lower than $0.05 per share.

The Company evaluated the Notes’ conversion terms to determine if they gave rise to an embedded derivative that would need to be accounted for separately under SFAS No. 133 and Emerging Issues Task Force (EITF) 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." The Company determined that the conversion feature of the Notes represents an embedded derivative since the Notes are convertible into a variable number of shares if converted.
 
F-8
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
 
Accordingly, the fair value of these derivative instruments have been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the Notes.  Such discount will be accreted from the date of issuance to the maturity date.  The change in the fair value of the liability for derivative contracts will be credited to other interest income (expense) in the consolidated statements of operations.  The beneficial conversion feature (an embedded derivative) included in the Notes resulted in an initial debt discount of $40,000.

The changes in the fair value of the derivative liability will be calculated quarterly based on the then current market prices for the common stock and the liability will be adjusted for the amortization of the debt discount as calculated for each period.  As of July 31, 2008, based on the value of the derivative liability at that date, the liability increased on the valuation by $2,900.  The Company recorded a debit to expense of $9,863 to amortize the original $40,000 discount over the one year term of the notes.  Accordingly,  the Company had a derivative liability of $42,900 and a convertible notes payable balance of $23,666 included in the balance sheet at July 31, 2008.  Interest payable on the notes was $993 as of July 31, 2008.

In connection with the issuance of the Notes, the Company also issued the lenders warrants to purchase up to 27,500 shares of $0.001 par value common stock for a period of three years at an exercise price of $0.25 per share.  The Company calculated the fair value of the warrants utilizing the Black-Scholes valuation method at issuance date and determined the fair value to be $2,440.

The fair value of the warrants issued in connection with the Notes was calculated utilizing the following assumptions:

Issuance Date
Fair Value
Term
Exercise Price
Market Price on
Grant Date
Volatility Percentage
Interest Rate
May 2, 2008
$1,515
3 years
$0.25
$0.12
182%
2.5%
May 21, 2008
$925
3 years
$0.25
$0.09
182%
2.5%



 
F-9
 
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)

Note 4:  Other Expense

Other expense for the three and six month periods ended July 31, 2008 and 2007, and for the period from May 11, 2004 (Inception) through July 31, 2008 consisted of the following:

   
Three months ended July 31, 2008
    
Three months ended July 31, 2007
    
Six months ended July 31, 2008
    
Six months ended July 31, 2007
    
May 11, 2004 (Inception) through October 31, 2007
  
General and administrative
   $ 814     $ 473     $ 4,011     $ 2,510     $ 32,284  
Legal and accounting
     7,379       8,632       8,043       6,229       86,019  
Loss on debt extinguishment
     -       61,233               126,612       126,612  
Professional services
     58,200       5,700       117,550       6,300       309,759  
Stock based compensation
     -       -       -       -       155,833  
    $ 66,393     $ 76,038     $ 129,604     $ 141,651     $ 710,507  


Note 5:  Income Tax

The Company records its income taxes in accordance with Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”.  The Company has incurred significant net operating losses since inception resulting in a deferred tax asset, which was fully allowed for; therefore, the net benefit and expense resulted in $-0- income taxes.


Note 6:  Capital Stock

In February 2008, we issued 242,000 shares of our common stock to four unaffiliated accredited investors pursuant to a private placement.  The shares were sold for $68,000 or $0.28 per unit which consisted of one share of common stock and one common stock purchase warrant.  Each warrant is exercisable at $0.50 per share for a period of three years from the issuance date.

In July 2008, we issued 247,107 shares of our common stock to a current stockholder upon the conversion of a promissory note in the amount of $13,000 plus $1,826 in accrued interest for a total of $14,826, or $0.06 per share.


 
F-10
 
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)

Warrants

A summary of the activity of the Company’s outstanding warrants at January 31, 2008 and  July 31, 2008 is as follows:

   
Warrants
  
Weighted-average exercise price
  
Weighted-average grant date fair value
Outstanding and exercisable at January 31, 2008
  
2,944,219
  
$          0.50
  
$       0.11
             
Granted
  
269,500
  
0.47
  
0.01
Exercised
  
-
  
-
  
-
             
Outstanding and exercisable at July 31, 2008
  
3,213,719
  
$          0.50
  
$       0.10

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives of the warrants by groups as of July 31, 2008.

Exercise price range
  
Number of options outstanding
  
Weighted-average exercise price
  
Weighted-average remaining life
             
$0.25
  
27,500
  
$       0.25
  
2.8 years
$0.50
  
3,186,219
  
$       0.50
  
2.0 years
             
   
3,213,719
  
$       0.50
  
2.1 years

Stock Options

In December 2007, the Company issued 500,000 shares under its 2005 Stock Incentive Plan to an unaffiliated consultant in payment for a one-year consulting services agreement.  These shares were valued at the closing market price for the Company’s common stock on the issue date of $0.35 per share, or $175,000.  This amount was recorded as ”common stock issued for prepaid services” and will be expensed over the one year life of the consulting agreement as stock based compensation.  During the six month period ended July 31, 2008, we expensed $87,500 leaving a balance of $72,917 to be expensed through December 2008.


 
F-11
 
INHIBITON THERAPEUTICS, INC.
 (A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)

A summary of outstanding stock option balances under the 2005 Stock Incentive Plan at January 31, 2008 and July 31, 2008 is as follows:

 
Options
  
Weighted-average exercise price
  
Weighted-average remaining contractual life (years)
  
Aggregate intrinsic value
Outstanding at January 31, 2008
425,000
  
$0.35
  
4.92
  
$21,250
               
Options granted
-
  
-
  
-
  
-
               
Outstanding at July 31, 2008
425,000
  
$0.35
  
4.42
  
$21,250


Note 7:  Subsequent Events

In August 2008, we executed a License Agreement between the Company, the University of South Florida Research Foundation, Inc. and the University of Florida Research Foundation, Inc. through which the Company is to acquire the exclusive right and license to make, have made, use, import, sublicense and offer for sale any products or processes derived from the ICA-1 process the Company has been funding since September 2004.  This agreement will be effective upon payment by the Company of a $40,000 Technology Access Fee, which has not yet been paid, retroactive to April 2008.  Among other things, the terms of the agreement call for the Company to raise a total of at least $500,000 in external funding in support of the technology advancement by June 30, 2009, and requires certain cash payments and royalties to the licensors beginning as early as three years from the agreement date upon the initiation of certain applications and studies as well as when and if any products are licensed and produced.  In addition, the Company must pay quarterly license fees to the licensors beginning in April 2009 of $2,500, which increases annually to as much as $25,000 should the Company produce an FDA approved product.  The licensors will also receive a 4% ownership interest in the Company subject to certain anti-dilution provisions.

In August 2008, we executed a consulting agreement through which the consultant received 500,000 restricted shares of our $0.001 par value common stock in return for providing certain business consulting services for a period of one year.  The shares are valued at $25,000 or $0.05 per share, the market price of our common stock on the issue date.

In August 2008, our president, Henry Fong, converted $100,000 in accrued management fees due him to 1,000,000 shares of our $0.001 par value common stock under the 2005 Stock Incentive Plan.  The shares are valued at $0.10 per share, the market price of our common stock on the date of issuance.


 
F-12
 
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Effective as of May 19, 2005, pursuant to an Agreement and Plan of Reorganization dated as of March 24, 2005 (the “Share Exchange Agreement”) by and between Organic Soils.com, Inc., a Nevada corporation (the “Company”) and Inhibetex Therapeutics, Inc., a Colorado corporation (“Inhibetex”), the Company and Inhibetex entered into a share exchange whereby all of the issued and outstanding capital stock of Inhibetex, on a fully-diluted basis, were exchanged for like securities of the Company, and whereby Inhibetex became a wholly owned subsidiary of the Registrant (the “Share Exchange”).  Contemporaneously, we changed our name to “Inhibiton Therapeutics, Inc.”

Upon completion of the Share Exchange, we ceased all operations relating to our historical business and adopted the business plan of Inhibetex, which is now our wholly owned subsidiary.  Inhibetex was incorporated on May 11, 2004 under the laws of the state of Colorado for the purpose of engaging in the discovery and development of novel cancer therapies.  Our focus is the research and development of new cancer therapeutic agents and cancer fighting drugs called targeted therapies.  We are conducting our research through a Cooperative Research and Development Agreement (“CRADA”) signed on September 30, 2004, with the Department of Veteran’s Affairs.  The research is conducted at the VA Medical Center in Tampa Florida under the direction of Dr. Mildred Acevedo-Duncan, who is affiliated with the University of South Florida and the Veteran’s Administration.

In general terms, the VA provides facilities, government furnished equipment and scientific skills and we provided funding of $75,000 quarterly for a period of three years ended September 2007.  Funding of the CRADA commenced in September 2004 and we have expensed a total of $900,000 in research and development costs as of July 31, 2008, $227,000 of which remained unpaid and is included in accounts payable as of that date.

While our unaudited financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our independent auditor has raised a substantial doubt about our ability to continue as a going concern.

Our liquidity and capital resource needs are such that to address the going concern situation addressed in our unaudited financial statements at July 31, 2008, we will require at least $800,000 of additional capital to fund the balance due under the CRADA, to meet certain benchmarks under a License Agreement executed in August 2008, as well as for general corporate working capital to fund our minimal day-to-day operations and costs associated with being a publicly-traded company.  This amount does not include any amounts which may be necessary to pay existing debt or accrued expenses.  We presently believe the source of funds will primarily consist of debt financing, which may include further loans from our officers or directors as detailed more fully in the accompanying unaudited financial statements, or the sale of our equity securities in private placements or other equity offerings or instruments.  During six months ended July 31, 2008, we received net proceeds of $68,000 in additional funds through equity sales as well as $55,000 from the issuance of convertible promissory notes.

We can make no assurance that we will be successful in raising the funds necessary for our working capital requirements as suitable financing may not be available and we may not have the ability to sell our equity securities under acceptable terms or in amounts sufficient to fund our needs. Our inability to access various capital markets or acceptable financing could have a material effect on our results of operations, research and deployment of our business strategies and severely threaten our ability to operate as a going concern.
 
13
During the remainder of our fiscal year and for the foreseeable future, we will be concentrating on raising the necessary working capital through acceptable debt facilities and equity financing to insure our ability to continue our research and implement other business strategies.  To the extent that additional capital is raised through the sale of equity or equity related securities, the issuance of such securities could result in significant dilution of our current shareholders.

Our results of operations for the period ended July 31, 2008 as compared to July 31, 2007 were affected by the fact we no longer are paying or accruing research and development fees under the CRADA.  Without those fees our operating costs remained stable at $99,393 and $195,604 for the three and six months ended July 31, 2008 as compared to $108,288 and $206,151 for the three and six months ended July 31, 2007.  Interest expense decreased significantly in the six months ended July 31, 2008 as compared to the same period on 2007 given there was $323,731 in interest expense recorded in the 2007 period related to the fair value of warrants issued on the conversion of certain promissory notes.  In the absence of that amount, interest expense in the 2007 period was $23,087 as compared to $18,775 in the 2008 period.

Off-Balance Sheet Arrangements.  During the three and six month periods ended July 31, 2008, the Company did not engage in any off-balance sheet arrangements and defined in Item 303(a)(4) of the SEC’s Regulation S-B.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4T. Controls and Procedures

Management of the Company is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as such term is defined in Rules 13a-15(f)).  Under the supervision and with the participation of Henry Fong, our Chief Executive Officer who is also our Principal Executive Officer and Principal Accounting Officer, we conducted an evaluation and effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”).  Based on this evaluation, our chief executive officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective such that the information relating to us required to be disclosed with our with the Securities and Exchange Commission (“SEC”) reports is (i) recorded, processed, summarized and reported within the time period specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer, as appropriate to allow timely decisions requiring timely disclosure.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.  Because of its inherit limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.  In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth in “Internal Control-Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on this evaluation, our management concluded, as of January 31, 2008, our internal control over financial reporting was effective based on those criteria.  There were no changes in internal controls during the period covered by this report.

This quarterly 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 SEC that permit us to provide only management’s report in this annual report.

14

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities

In July 2007, we issued 247,107 shares of our $0.001 par value common stock to a significant stockholder upon the conversion of $14,826 in principal and interest due on a promissory note, or $0.06 per share.

We offered and sold the securities in reliance on an exemption from federal registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We relied on this exemption and rule based on the fact that there were a limited number of investors, all of whom were accredited investors and (i) either alone or through a purchaser representative, had knowledge and experience in financial and business matters such that each was capable of evaluating the risks of the investment, and (ii) we had obtained subscription agreements from such investors indicating that they were purchasing for investment purposes only. The securities were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The disclosure contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities of the Company, and is made only as permitted by Rule 135c under the Securities Act.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits:
  
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
15
 
 

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
INHIBITON THERAPEUTICS, INC.
 
(Registrant)

Date: September 22, 2008
By: /s/ Henry Fong
 
Henry Fong
 
Principal Executive Officer and
Principal Financial Officer
   

 
 
16