AlumiFuel Power Corp - Annual Report: 2009 (Form 10-K)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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ANNUAL
REPORT UNDER SECTION 13 OR 15 (d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended: JANUARY 31,
2009
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
transition period from _____ to _____
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Commission
File Number 333-57946
INHIBITON THERAPEUTICS,
INC.
(Name of
small business issuer in its charter)
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NEVADA
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88-0448626
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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7315
EAST PEAKVIEW AVENUE, ENGLEWOOD, COLORADO 80111
(Address
of principal executive offices)(Zip Code)
Issuer's
telephone number, including area code: (303) 796-8940
Securities
registered pursuant to Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act: ¨Yes xNo
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. ¨
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 Days: xYes ¨No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and will not be contained, to the
best of the Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: x
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer:
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Large
Accelerated Filer ¨
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Accelerated
Filer ¨
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Non-Accelerated
Filer ¨
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Smaller
Reporting Company x
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): ¨Yes xNo
The
aggregate market value of the voting common equity held by non-affiliates of the
issuer as of April 30, 2009 was $1,554,643, based on the last sale price of the
issuers common stock ($0.13 per share) as reported by the OTC Bulletin
Board.
The
Registrant had 22,825,993 shares of common stock outstanding as of April 30,
2008.
Documents
incorporated by reference: None
INHIBITON
THERAPEUTICS, INC.
FORM
10-K
THIS
REPORT MAY CONTAIN CERTAIN “FORWARD-LOOKING” STATEMENTS AS SUCH TERM IS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE SECURITIES AND
EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH REPRESENT THE
REGISTRANT’S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS
CONCERNING THE REGISTRANT’S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL
CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AND FUTURE
OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN
THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING
STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS
SUCH AS “MAY”, “EXPECT”, “BELIEVE”, “ANTICIPATE”, “INTENT”, “COULD”, “ESTIMATE”,
“MIGHT”, OR “CONTINUE” OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE REGISTRANT’S CONTROL,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION,
MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS
SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS
AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
(a) General
development of business.
We were
incorporated in the state of Nevada on January 19, 2000 under the name Organic
Soils.Com, Inc.
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.
and Inhibetex Therapeutics, Inc., a Colorado corporation (“Inhibetex”), Organic
Soils.com, Inc. 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 Organic Soils.com, Inc., and whereby
Inhibetex became a wholly owned subsidiary of Organic Soils.com, Inc. (the
“Share Exchange”). The Share Exchange was effective as of May 19,
2005 at which time we also changed our name to Inhibiton Therapeutics, Inc. (the
“Registrant” or the “Company”).
Immediately
prior to the effective time of the Share Exchange, Inhibetex had outstanding
104,000 shares of its common stock (“Inhibetex Common Stock”) and no shares of
preferred stock. In accordance with the Share Exchange Agreement,
each share of Inhibetex Common Stock was acquired by the Company in exchange for
one hundred seven (107) shares of our common stock, par value $.01 per share
(“Common Stock”). Inhibetex also had outstanding convertible debt
securities, the outstanding principal and accrued and unpaid interest of which
were convertible into shares of Inhibetex Common Stock at a price per share
equal to 75% of the average closing price of Inhibitex Common Stock for the
first 30 days immediately following the date Inhibetex began trading as a public
company. Pursuant to the Share Exchange Agreement, these convertible
debt securities were exchanged for like convertible securities of the Company,
whereby the outstanding principal and interest on such securities are
convertible into shares of Common Stock at
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$3.39 per
share, which is equal to 75% of the average closing price of the Common Stock
for the first 30 days immediately following the date the Share Exchange was
effective (the “Effective Date”). Accordingly, after giving
effect to the Share Exchange, the Registrant had 13,451,000 shares of Common
Stock outstanding and convertible debt securities outstanding which are
convertible into 66,372 shares of Common Stock. As a result of the
Share Exchange, immediately following the Share Exchange, the former Inhibetex
shareholders together held approximately 82.7% of our outstanding voting power,
excluding the outstanding convertible debt. Accordingly, the Share
Exchange constituted a change of control of the Company.
Upon
completion of the Share Exchange, we ceased all operations relating to the
business of Organic Soils.com and adopted the business plan of Inhibetex, which
is now our wholly owned subsidiary.
Pursuant
to an Agreement Concerning the Exchange of Securities by and among the Company,
HPI Partners, LLC (“HPI”), a Colorado Limited Liability Company, and the
Security Holders of HPI Partners, LLC (the “HPI Members”) dated March 4, 2009,
(the “Share Exchange Agreement”), the parties entered into a share exchange
whereby all of the issued and outstanding membership interests of HPI were
exchanged for 171,123,297 shares of the Company’s $0.001 par value common stock
and 418,500 shares of the Company’s $0.001 par value Series A Preferred Stock,
through which HPI and its wholly-owned subsidiary AlumiFuel Power, Inc. became a
wholly owned subsidiaries of the Company (the “Share Exchange”). The
418,500 shares of the Company’s Series A Preferred Stock automatically convert
to 34,397,261 shares of the Company’s $0.001 par value common stock upon
approval by the Company’s stockholders of an increase in the number of
authorized common shares sufficient to effect the conversion. In
addition, the HPI Members received warrants to purchase up to 14,302,500 shares
of the Company’s $0.001 par value common stock, in exchange for a like number of
HPI warrants that are exercisable until March 4, 2012 at an exercise price of
$0.12 per share. The Share Exchange was effective as of May 5, 2009,
upon closing of the transaction among the parties.
Under the
terms of the Share Exchange Agreement, HPI issued to the Company a promissory
note in the amount of $200,000 bearing an interest rate of 5% per annum that is
due and payable by HPI to the Company on or before March 4, 2014. In
addition, the Company must commence a private placement of up to $300,000 of its
common stock to be offered to the HPI Members at a per share price equal to
$0.0122, the equivalent price for each share of the Company’s common stock
issued to the HPI Members in the Stock Exchange.
Further
terms of the Share Exchange Agreement require the Company to increase the total
number of shares of the Company issued in the Share Exchange by the same
percentage increase as the increase in the total number of outstanding shares of
the Company resulting from the Company’s issuance, between the May 5, 2009 and
90 days following that date, of all shares it shall issue in exchange for debt
due from the Company to third party debt holders during the 90 day
period.
In
connection with the Share Exchange Agreement, API is a wholly-owned operating
subsidiary of the Company as of May 5, 2009. API is a an early
production stage alternative energy company that generates hydrogen gas and
steam for multiple niche applications requiring on-site, on-demand fuel
sources. API’s hydrogen drives fuel cells for back-up, remote, and
portable power, fills inflatable devices such as weather balloons, and can
replace costly, hard-to-handle and high pressure K-Cylinders. Its steam/hydrogen
output is also being designed to drive turbine-based underwater propulsion
systems and auxiliary power systems. API has significant
differentiators in performance, adaptability, safety and cost-effectiveness in
its target market applications, with no external power required and no toxic
chemicals or by-products.
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API’s
technology is based on the exothermic reaction of aluminum powder and water,
combined with proprietary additives which act as catalysts, initiators and
reactants. Novel packaging of the aluminum powder and additives into cartridges
enables them to be inserted into a generator/reactor, where an infusion of water
results in the rapid generation of highly pure hydrogen and superheated
steam. API has an outstanding IP portfolio, including new patent
filings embodying its unique and independent technology, and significant
proprietary know-how regarding the practical ability to engineer desired
reactions at required scales and rates.
API’s lab
and offices are located in the Philadelphia Science Center in downtown
Philadelphia, where it has access to world class testing instruments and
technical talent. API has a seasoned management team and an
experienced and dedicated technical team; and has close working relationships
with major industry players as path-to-market partners, including major defense
contractors and commercial fabricators of the company’s reactors and cartridge
products on an outsourcing basis.
(b) Financial
information about segments.
Through
January 31, 2009, we operated in only one industry segment.
(c)
Narrative description of business.
We are a
nominally capitalized development stage company. Our focus is the
research and development of new cancer therapeutic agents and cancer fighting
drugs called targeted therapies. These new drugs identify molecular
causes of cancer and inhibit the signals that cancer cells need to
multiply. Targeted drugs are different from standard chemotherapy
that destroys both healthy and diseased cells. The destruction of healthy cells
produces side effects such as hair loss, nausea and decreased immune response.
In contrast, targeted drugs, also known as "smart" or "designer" drugs, take
advantage of the cell structure, the molecular changes found in cancer cells,
and how these changes affect the behavior of the cells. In these instances, side
effects are minimal.
We have
been 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. The CRADA will have the final objective of developing
therapeutic reagents to consist of a PKC-iota inhibitor to prevent cancer cell
proliferation. The CRADA agreements are a result of the Federal
Technology Transfer Act of 1986, which provided that federal laboratories'
developments and expertise should be made accessible to private industry, state
and local governments. It has been further stated that one of the main purposes
of this act is to improve the economic, environmental and social well being of
the United States by stimulating the utilization of federally funded technology
developments by the entities involved. Under the terms of the CRADA,
we will have the right to commercialize any inventions resulting from this
research.
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Dr.
Acevedo-Duncan holds a BA, MA and PhD from the University of California,
Riverside, and completed post doctoral studies at the University of Florida. Dr.
Duncan has been a research biologist at the VA Medical Center in Tampa, Florida
since 1991 and is a member of the HL Moffitt Cancer Center and Research
Institute in Tampa, Florida. She has conducted research in this area
for over ten years.
One of
the advantages of the CRADA agreement is the relatively low cost facilities
provided including laboratories, centrifuges, microscopes, incubators, hoods,
cold room, offices, and computers, along with the availability of graduate
student personnel to perform research at costs significantly below that of
commercial laboratories.
The
immediate objective of the CRADA is to first develop a mechanism to establish
how PKC-beta II and PKC-iota directly or indirectly activate the enzyme
CAK. Additionally, work pursuant to the CRADA will seek to determine
how glioma (brain cancer) protein kinase C ("PKC": an enzyme) regulates cell
proliferation. PKC is a family of fourteen enzymes that put a
phosphate on proteins to regulate their functions. The rationale for
interest in PKC is that it has been implicated in cellular malignancy in
numerous studies. Cells infected with PKC-cDNA acquire
characteristics usually attributed to malignant cells. Our research
is attempting to show that synthesis of a PKC inhibitor would allow the use of a
compound as a chemotherapeutic agent alone, or in combination with radiation, to
inhibit cancer cell proliferation.
This
research seeks to provide insight into the genesis of cancer and malignant
tumors of the central nervous system, which are the most devastating in children
and the elderly. Statistics from the American Brain Tumor Association state that
brain and spinal tumors are the second most frequent malignancy of childhood
(leukemias are first) with approximately 2,200 children diagnosed with brain
tumors annually. According to the National Cancer Institute and
American Cancer Society, it is estimated that approximately 1.4 million
Americans were diagnosed with cancer in 2004 and since 1990 more than 18 million
new cancer cases have been diagnosed. The National Institutes of
Health estimates that the overall cost of cancer in the year 2003 was $189.5
billion including direct medical treatment and lost productivity. The
Central Brain Tumor Registry of the United States estimates that in the next
twelve months approximately 100,000 people will be diagnosed with brain cancer
with a five-year statistical survival rate of only 25.6%.
Progress
toward resolution of the role of PKC in cancer cell proliferation and
angiogenesis (the growth of new blood vessels) will be a key factor in the
formulation of potential strategies and therapies for cancer intervention.
Information on this research may also provide a fundamental understanding of the
mechanisms of cell regulation that can be applied to other types of
cancer. While the primary focus of the research involves potential
treatments for brain cancer, Dr. Acevedo-Duncan is also investigating whether
PKC affects other types of cancer including prostate cancer, pancreatic cancer,
and melanoma.
In
general terms, the VA is providing facilities, government furnished equipment
and scientific skills and we provided funding of $75,000 quarterly for a period
of three years. Funding of the CRADA commenced in September 2004 and
continued through September 2008. The Company expensed $150,000 for
research and development costs in the fiscal year ended January 31,
2008. In her research Dr. Acevedo-Duncan, utilizes university
researchers and collaborative researchers from other institutions in the areas
of organic chemistry, physics, drug discovery, biochemistry and molecular
biology to work on the CRADA research. Under the terms of the CRADA, Inhibetex
will have the right to
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commercialize
any inventions resulting from this research. As of September 2007,
our rights under the CRADA continue but we will have no obligation for further
funding beyond those commitments contained in the CRADA. We may amend
the CRADA to provide further funding at any time, but are not obligated to do
so. As of the filing of this report, no agreements had been reached
with the VA to provide further funding although we owed $227,000 in accrued
funding under the CRADA at January 31, 2009.
As part
of the research conducted by Dr. Acevedo-Duncan, we learned that approximately
100,000 compounds from the National Institutes of Health were screened as part
of our research project for the PKC isozyme being studied. PKC
isozymes control cell multiplication and therefore it is believed that a PKC
inhibitor should block the proliferation of cancer cells. The
research project is studying the theory that synthesis of a PKC
inhibitor has the potential to block the proliferation of tumors and cancer
cells. The researchers believe that synthesis of the PKC inhibitor
holds potential for a cancer chemotherapeutic drug because the PKC isozyme is
overproduced in benign tumors and malignant cancer cells but not in normal
cells. Twenty compounds were identified that could serve as a PKC
inhibitor and out of those twenty, one PKC inhibitor was chosen to be
synthesized because it is closely related to current FDA approved
therapies. This has been named as ICA-1. Cell culture
testing began in 2007 and it is intended for this to be followed by nude mice
studies and if appropriate, potentially clinical trials. Progress has
also been made in the molecular biology to obtain the structure of the PKC
isozyme in an attempt to verify that the PKC inhibitor works as
intended.
Laboratory
testing to date has shown that ICA-1 was effective in blocking BE(2)C
neuroblastoma cells. It was also found that lower concentrations of
ICA-1 were more efficacious in inhibiting the proliferation of 64% and 53% of
neuroblastoma cells when compared to control groups. The effective
concentration of ICA-1 was shown to be a minimum of 3-5 fold lower than
concentrations published for in-vitro studies of a closely related FDA approved
chemotherapeutic drug that was shown to be effective in only 20% of the samples
tested. The results to date have shown promise that ICA-1 may have
potential as a chemotherapeutic drug to inhibit cancer, especially
neuroblastoma.
Further in-vitro studies investigating
the effects of ICA-1 on breast cancer cells have also obtained promising
results. ICA-1 was effective in reducing the proliferation of MDA-MB-468 breast
cancer cells by 83% compared to controls when incubated with the drug for 48
hours at clinical concentrations. For MCF-7 breast cancer cells, ICA-1 was
effective in reducing the proliferation by 32% compared to controls when treated
with the drug for 24 hours. These results indicate that ICA-1 has promising
results for further in-vitro studies as well as future in-vivo studies for the
potential treatment of breast cancer as well as
neuroblastoma.
Most recent testing has shown that the
ICA-1 compound has demonstrated more exacting specificity of protein kinase
C-iota and not of proteins that are closely related to
PKC-iota. These results demonstrate greater promise for the
development of a targeted therapy.
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. (“License Agreement”) through which we will 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 we began
funding in September 2004. Under the agreement, we currently owe a
$40,000 Technology Access Fee, which has not yet been paid. Among
other things, the terms of the agreement call for us 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, we are required to 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. As of the date of this filing, no such fees have been
paid. The licensors are also to receive a 4% ownership interest in
the Company subject to certain anti-dilution provisions.
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Due to
our nominal capitalization, as of January 31, 2009, we have not paid the
technology access fee and have failed to substantially perform under the License
Agreement. As a result, the licensors could declare a default under
the License Agreement at any time and if we fail to perform our obligations
under the agreement during any cure period, we may lose our ability to secure
the licensing rights for the ICA-1 process. Presently, we do not have
the resources necessary to pay the outstanding fees and are in contact with the
licensors in an attempt to modifying the License Agreement to delay payment of
certain obligations under the License Agreement.
Competition
The
development and commercialization for new products to treat cancer is highly
competitive, and there will be considerable competition from major
pharmaceutical, biotechnology, and specialty cancer companies if we are
successful in identifying potential therapies. Most of our competitors have
substantially more resources than the Company, including both financial and
technical. These companies also have significantly greater experience
and resources than the Company in preclinical and clinical development,
manufacturing, regulatory, and global commercialization if those become factors
for us. The Company is also competing with academic institutions,
governmental agencies and private organizations worldwide that are conducting
research in the field of cancer.
Government
Regulation
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of pharmaceutical products are
extensively regulated by governmental authorities in the United States and other
countries. In the United States, the U.S. Federal Drug Administration (“FDA”)
regulates drugs under the Federal Food, Drug, and Cosmetic Act and its
implementing regulations. Should we be successful in identifying and
developing potential therapies, failure to comply with the applicable U.S.
regulations may subject us to administrative or judicial sanctions, such as FDA
refusal to approve pending New Drug Applications (NDAs), warning letters,
product recalls, product seizures, total or partial suspension of production or
distribution, injunctions, and/or criminal prosecution.
Research and
Development
Pursuant
to the CRADA agreement, we have expensed $150,000 on research and development
costs during the past two years including $0 and $150,000 expensed in the fiscal
years ended January 31, 2009 and 2008, respectively. All of these
costs were borne by us. Of these amounts, $227,000 was accrued but
not yet paid as of January 31, 2009.
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Employees
We
currently have no employees. We do, however, have personnel
supporting our research and development activities through the CRADA as
described above including one full-time researcher and a varying number of
research assistants and collaborative researchers the number of which varies
throughout the year. Our officers and director devote only such time to our
business as is necessary to conduct the operations of the company.
ITEM
1A. RISK FACTORS
The
purchase of shares of our common stock is very speculative and involves a very
high degree of risk. An investment in our stock is suitable only for
the persons who can afford the loss of their entire
investment. Accordingly, investors should carefully consider the
following risk factors, as well as other information set forth herein, in making
an investment decision with respect to securities of Inhibiton.
The
market price of our common stock may fluctuate significantly.
The market price of our common shares
may fluctuate significantly in response to factors, some of which are beyond our
control, such as:
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the announcement of new products
or product enhancements by us or our
competitors;
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developments concerning
intellectual property rights and regulatory
approvals;
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quarterly variations in our and
our competitors’ results of
operations;
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changes in earnings estimates or
recommendations by securities
analysts;
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developments in our industry;
and
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general market conditions and
other factors, including factors unrelated to our own operating
performance.
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Further, the stock market in general has
recently experienced extreme price and volume fluctuations. Continued
market fluctuations could result in extreme volatility in the price of our
common shares, which could cause a decline in the value of our common
shares. You should also be aware that price volatility might be worse
if the trading volume of our common shares is low.
Because
we gained access to the public markets pursuant to a share exchange, we may not
be able to attract the attention of major brokerage firms.
Additional risks may exist since we
gained access to the public markets through a share
exchange. Security analysts of major brokerage firms may not cover us
since there is no incentive to brokerage firms to recommend the purchase of our
common stock. No assurance can be given that brokerage firms will
want to conduct any secondary offerings on our behalf in the
future.
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Trading
of our common stock is limited.
Trading
of our common stock is conducted on the National Association of Securities
Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin
Board.” This has adversely effected the liquidity of our securities,
not only in terms of the number of securities that can be bought and sold at a
given price, but also through delays in the timing of transactions and reduction
in security analysts' and the media's coverage of us. This may result
in lower prices for our common stock than might otherwise be obtained and could
also result in a larger spread between the bid and asked prices for our common
stock.
Because
it is a “penny stock,” it will be more difficult for you to sell shares of our
common stock.
Our
common stock is a “penny stock.” Broker-dealers who sell penny stocks
must provide purchasers of these stocks with a standardized risk-disclosure
document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally
or in writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser’s written
agreement to the purchase. The penny stock rules may make it
difficult for you to sell your shares of our stock. Because of the
rules, there is less trading in penny stocks. Also, many brokers
choose not to participate in penny-stock
transactions. Accordingly, you may not always be able to resell
shares of our common stock publicly at times and prices that you feel are
appropriate.
Risks Related to Our
Business
We
currently have no product revenues and will need to raise additional capital to
operate our business.
To date,
we have generated no product revenues. Unless and until we receive
approval from the FDA and other regulatory authorities for any potential product
candidates developed from our research, we will not have product
revenues. There is no assurance we will have any potential product
candidates. Therefore, for the foreseeable future, we will have to
fund all of our operations and capital expenditures from additional financing,
which may not be available on favorable terms, if at all. If we are
unable to raise additional funds on acceptable terms, or at all, we may be
unable to complete our research or fund necessary pre-clinical or clinical
trials or obtain approval of any product candidates from the FDA and other
regulatory authorities should our research be successful. In
addition, we could be forced to discontinue product development. Any
additional sources of financing will likely involve the sale of our equity
securities, which will have a dilutive effect on our stockholders.
We
are not currently profitable and may never become profitable.
We have a
history of losses and expect to incur substantial losses and negative operating
cash flow for the foreseeable future, and we may never achieve or maintain
profitability. Even if we succeed in developing and commercializing
one or more products, we expect to incur substantial losses for the foreseeable
future and may never become profitable. We also expect to continue to
incur significant operating and capital expenditures and anticipate that our
expenses will increase substantially in the foreseeable future as we continue to
undertake research and development of potential novel cancer
therapies.
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We also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. As a result, we will
need to generate significant revenues or raise additional capital in order to
achieve and maintain profitability. We may not be able to generate
these revenues or achieve profitability in the future. Our failure to
achieve or maintain profitability could negatively impact the value of our
stock.
We
have a limited operating history upon which to base an investment
decision.
Inhibiton
is a development-stage company that was founded in 2004. To date, we
have not demonstrated an ability to perform the functions necessary for the
successful commercialization of any product. The successful
commercialization of any product developed through our research will require us
to perform a variety of functions, including:
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continuing
to undertake research and development upon the commencement of
pre-clinical development and clinical trials if warranted by our
research;
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participating
in regulatory approval processes;
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formulating
and manufacturing products; and
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conducting
sales and marketing activities.
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Our
operations have been limited to organizing our company, acquiring and securing
our proprietary technology and undertaking, through third parties, research and
development of potential cancer therapies. These operations provide a limited
basis for you to assess our ability to commercialize any product candidates and
the advisability of investing in our securities.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize any product candidates.
We will
need FDA approval to commercialize any product candidates, if developed, in the
U.S. and approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize any product candidates in those
jurisdictions. In order to obtain FDA approval of any product
candidate, we must submit to the FDA a New Drug Application, or NDA,
demonstrating that the product candidate is safe for humans and effective for
its intended use. This demonstration requires significant research and animal
tests, which are referred to as pre-clinical studies, as well as human tests,
which are referred to as clinical trials. Satisfaction of the
FDA’s regulatory requirements typically takes many years, depends upon the type,
complexity and novelty of the product candidate and requires substantial
resources for research, development and testing. We cannot
predict whether our research and any clinical approaches will result in drugs
that the FDA considers safe for humans and effective for indicated uses. The FDA
has substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by
changes in government regulation, future legislation or administrative action or
changes in FDA policy that occur prior to or during our regulatory
review. Delays in obtaining regulatory approvals
may:
|
·
|
delay
commercialization of, and the ability to derive product revenues from, any
product candidates;
|
|
·
|
impose
costly procedures on us; and
|
|
·
|
diminish
any competitive advantages that we may otherwise
enjoy.
|
-9-
Even if
we comply with all FDA requests, the FDA may ultimately reject one or more of
any New Drug Applications (NDAs). We cannot be sure that we will ever obtain
regulatory clearance for any product candidate. Failure to obtain FDA approval
of any product candidates will severely undermine our business by reducing our
number of salable products and, therefore, corresponding product
revenues.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize any drugs. Foreign regulatory
approval processes generally include all of the risks associated with the FDA
approval procedures described above. We cannot assure you that we
will receive the approvals necessary to commercialize any product candidate for
sale outside the United States.
Clinical
trials are very expensive, time-consuming and difficult to design and
implement.
Human
clinical trials are very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory
requirements. The clinical trial process is also time
consuming. We estimate that once commenced, clinical trials of
product candidates take at least several years to
complete. Furthermore, failure can occur at any stage of the trials,
and we could encounter problems that cause us to abandon or repeat clinical
trials. The commencement and completion of clinical trials may
be delayed by several factors, including:
|
·
|
unforeseen
safety issues;
|
|
·
|
determination
of dosing issues;
|
|
·
|
lack
of effectiveness during clinical
trials;
|
|
·
|
slower
than expected rates of patient
recruitment;
|
|
·
|
inability
to monitor patients adequately during or after treatment;
and
|
|
·
|
inability
or unwillingness of medical investigators and institutional review boards
to follow our clinical protocols.
|
In
addition, we or the FDA may suspend clinical trials at any time if it appears
that we are exposing participants to unacceptable health risks or if the FDA
finds deficiencies in our submissions or the conduct of these
trials. Additionally, even if clinical trials are completed as
planned, we cannot be certain that their results will support our product
candidate claims. Ultimately, the clinical trial process may
fail to demonstrate that our product candidates are safe for humans and
effective for indicated uses, possibly causing us to abandon a product candidate
and may delay development of other product candidates.
Our
drug research and development program depends upon third-party researchers who
are outside our control.
We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our research and development under agreements
with us. These collaborators are not our employees and we cannot control the
amount or timing of resources that they devote to our programs. These
investigators may not assign as great a priority to our programs or pursue them
as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time
and resources to our drug-development programs, or if their performance is
substandard, the approval of our FDA applications, if any, and our introduction
of new drugs, if any, will be delayed. These collaborators may also
have relationships with other commercial entities, some of whom may compete with
us. If our collaborators assist our competitors at our expense, our competitive
position would be harmed.
-10-
Developments
by competitors may render our research, products or technologies obsolete or
non-competitive.
Companies
pursuing different but related fields represent substantial
competition. Many of these organizations have substantially greater
capital resources, larger research and development staffs and facilities, longer
drug development history in obtaining regulatory approvals and greater
manufacturing and marketing capabilities than we do. These
organizations also compete with us to attract qualified personnel, parties for
acquisitions, joint ventures or other collaborations.
If
we fail to adequately protect or enforce present or future intellectual property
rights or secure rights to patents of others, the value of our intellectual
property rights would diminish.
Our
success, competitive position and future revenues will depend in part on our
ability, and the abilities of any licensors we may engage, to obtain and
maintain patent protection for our products, methods, processes and other
technologies, to preserve our trade secrets, to prevent third parties from
infringing on our proprietary rights and to operate without infringing the
proprietary rights of third parties.
We cannot
predict:
|
·
|
the
degree and range of protection any patents will afford us against
competitors, including whether third parties will find ways to invalidate
or otherwise circumvent our licensed
patents;
|
|
·
|
if
and when patents will issue;
|
|
·
|
whether
or not others will obtain patents claiming aspects similar to those
covered by our licensed patents and patent applications;
or
|
|
·
|
whether
we will need to initiate litigation or administrative proceedings which
may be costly whether we win or
lose.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as any licensors
and contractors. To help protect our proprietary know-how and our
inventions for which patents may be unobtainable or difficult to obtain, we will
rely on trade secret protection and confidentiality agreements. To
this end and to the extent possible, we intend to require all of our employees
and consultants to enter into agreements which prohibit the disclosure of
confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions
important to our business. These agreements may not provide adequate
protection for our trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure or the lawful development by
others of such information. If any of our trade secrets, know-how or
other proprietary information is disclosed, the value of our trade secrets,
know-how and other proprietary rights would be significantly impaired and our
business and competitive position would suffer.
-11-
If
we infringe the rights of third parties we could be prevented from selling
potential products, forced to pay damages, and defend against
litigation.
If any
future potential products, methods, processes and other technologies infringe
the proprietary rights of other parties, we could incur substantial costs and we
may have to:
|
·
|
obtain
licenses, which may not be available on commercially reasonable terms, if
at all;
|
|
·
|
redesign
our products or processes to avoid
infringement;
|
|
·
|
stop
using the subject matter claimed in the patents held by others, which
could cause us to lose the use of one or more of our product
candidates;
|
|
·
|
pay
damages; or
|
|
·
|
defend
litigation or administrative proceedings which may be costly whether we
win or lose, and which could result in a substantial diversion of our
valuable management resources.
|
We
rely on key executive officers and scientific and medical advisors, and their
knowledge of our business and technical expertise would be difficult to
replace.
We are
highly dependent on our principal scientific, regulatory and medical advisors
and officers. We do not have “key person” life insurance policies for
any of our key people. The loss of the technical knowledge and
management and industry expertise of any of our key personnel could result in
delays in product development, loss of customers and sales and diversion of
management resources, which could adversely affect our operating
results.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We may
need to hire additional qualified personnel with expertise in pre-clinical
testing, clinical research and testing, government regulation, formulation and
manufacturing and sales and marketing. We will face intense
competition for qualified individuals, and we cannot be certain that our search
for such personnel will be successful. Attracting and retaining
qualified personnel will be critical to our success.
ITEM
2. PROPERTIES.
Our
executive offices are located at 7315 East Peakview Avenue, Englewood, Colorado
80111 and are provided to us on a month to month basis by a corporation in which
our officers and director are affiliated. We paid $750 per month
during the fiscal year ended January 31, 2007 and the first nine months of the
fiscal year ended January 31, 2008. Beginning in the fourth quarter
of the fiscal year ended January 31, 2008, that amount increased to $1,000 per
month, which continued through the fiscal year ended January 31,
2009. These amounts include the use of office space as well as
the use of fax machines, copy machines, telephone equipment and other office
equipment and supplies.
-12-
ITEM
3. LEGAL PROCEEDINGS.
During
the year ended January 31, 2006, we 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 January 31, 2009. 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 $9,324 at
January 31, 2009. In January 2008, the holder of this note filed a
lawsuit against us in Douglas County Court, Douglas County Colorado, claiming
the interest rate under this note was 44% and therefore the Company owed
approximately $38,000 in interest payable at January 31, 2008. This
lawsuit was dismissed by the plaintiffs during the fiscal year ended January 31,
2009.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
HOLDERS.
No items
were submitted to our security holders during the fourth quarter ended January
31, 2009.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market
information
Our
common stock is not listed on any exchange; however, market quotes for the
Company’s common stock (under the symbol “IHBT”) may be obtained from the OTC
Bulletin Board (“OTCBB”). The OTCBB is a regulated quotation service
that displays real-time quotes, last-sale prices and volume information in
over-the-counter (“OTC”) securities. The following table sets forth,
for the indicated fiscal periods, the high and low bid prices (as reported by
the OTCBB) for the Company’s common stock.
|
Bid Price
|
|||
|
High
|
Low
|
||
|
Fiscal year ended January 31,
2009
|
|||
|
Quarter
ended January 31, 2009
|
$0.15
|
$0.04
|
|
|
Quarter
ended October 31, 2008
|
$0.10
|
$0.02
|
|
|
Quarter
ended July 31, 2008
|
$0.12
|
$0.04
|
|
|
Quarter
ended April 30, 2008
|
$0.37
|
$0.07
|
|
|
Fiscal year ended January 31,
2008
|
|||
|
Quarter
ended January 31, 2008
|
$0.56
|
$0.26
|
|
|
Quarter
ended October 31, 2007
|
$0.35
|
$0.26
|
|
|
Quarter
ended July 31, 2007
|
$0.50
|
$0.29
|
|
|
Quarter
ended April 30, 2007
|
$0.51
|
$0.29
|
The
prices set forth in this table represent quotes between dealers and do not
include commissions, mark-ups or mark-downs, and may not represent actual
transactions.
-13-
(b) Holders
The
number of record holders of our common stock as of April 30, 2009, was 88
according to our transfer agent. This amount excludes an
indeterminate number of shareholders whose shares are held in “street” or
“nominee” name.
(c) Dividends
We have
never declared or paid a cash dividend on our common stock and do not anticipate
paying any cash dividends in the foreseeable future.
(d) Securities authorized for issuance under equity compensation plans
We have
the following securities authorized for issuance under our equity compensation
plans as of January 31, 2009, including options available for future issuance
under our 2005 Stock Incentive Plan approved by our security holders on March
31, 2005.
Equity
Compensation Plan Information
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
||
|
(a)
|
(b)
|
(c)
|
|||
|
Equity
compensation plans approved by security holders
|
425,000
|
$0.35
|
-0-
|
||
|
Equity
compensation plans not approved by security holders
|
-0-
|
$-0-
|
-0-
|
||
|
Total
|
425,000
|
$0.35
|
-0-
|
Recent Sales of Unregistered
Equity Securities
In
December 2008, the Company issued 1,666,667 shares of its common stock to a note
holder in exchange for $100,000 in principal and interest due by
us. These shares were valued at $0.06 per share, the closing market
price for the Company’s common stock on the issue date.
In
January 2009, we issued 50,000 shares of common stock to an unaffiliated
accredited investor pursuant to a private placement. The shares were
sold for $3,000 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.
-14-
ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
General:
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes thereto for the years ended January 31, 2009 and
2008.
The
independent auditors’ report on our financial statements for the years ended
January 31, 2009 and 2008 includes a “going concern” explanatory paragraph that
describes substantial doubt about our ability to continue as a going
concern. Management’s plans in regard to the factors prompting the
explanatory paragraph are discussed below and also in Note 1 to the audited
consolidated financial statements.
While our
independent auditor has presented our financial statements 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, they have raised a substantial doubt about our ability to
continue as a going concern.
(a) Liquidity
and Capital Resources
To
address the going concern situation addressed in our financial statements at
January 31, 2009, for the year ended January 31, 2009, we anticipate we will
require approximately $325,000 of additional capital to fund the balance due
under the CRADA agreement, obligations under the pending License Agreement, 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 that may be
necessary to pay off 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 financial statements, or the sale of our equity securities in
private placements or other equity offerings or instruments.
During
the fiscal year ended January 31, 2009, we received a net of approximately
$362,000 from our financing activities, which included the issuance of
convertible promissory notes totaling $255,000 and shares of our common stock
and warrants totaling $158,000. This compared to cash provided by
financing activities of $326,000 in the fiscal year ended January 31, 2008
derived primarily via proceeds from the issuance of our common
stock.
In the
fiscal year ended January 31, 2009, net cash used in operation activities was
$382,591. This compared to net cash used in operating activities of
$305,322 for the fiscal year ended January 31, 2008. The 2009 amount
included an $809,216 net loss that included $460,561 in total operating costs
and expenses. This compares to a net loss of $1,002,127 in the year
ended January 31, 2008 that included $637,159 in total operating costs and
expenses, which included $150,000 in research and development
costs.
-15-
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.
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.
(b) Results
of Operations
For the
year ended January 31, 2009, our total operating costs and expenses were
$460,561 versus $637,159 for the same period in 2008. The 2008 amount
included $150,000 in research and development costs that did not occur in
2009. Of the remaining selling, general and administrative expenses,
we incurred $460,561 in 2009 versus $487,159 in 2008. Those amounts
included $132,000 and $129,750 in 2009 and 2008, respectively comprised of
related party expense which included officer management fees and rent paid to
related parties. The balance of $328,561 and $357,409 for “other”
SG&A expenses was comprised of the following:
|
Year
ended January 31, 2009
|
Year
ended January 31, 2008
|
|||||||
|
General
and administrative
|
$9,149 | $12,441 | ||||||
|
Legal
and accounting
|
15,315 | 11,023 | ||||||
|
Technology
fees
|
40,000 | 0 | ||||||
|
Loss
on debt extinguishment
|
- | 126,612 | ||||||
|
Professional
services
|
237,597 | 52,500 | ||||||
|
Stock
based compensation
|
26,500 | 154,833 | ||||||
| $328,561 | $357,409 | |||||||
The
“other” SG&A expense during the fiscal year ended January 31, 2009 included
$237,597 in professional services expenses that was comprised primarily of
$160,417 in expenses related to stock issued to a consultant in December 2007
for a one-year consulting agreement that expired in December 2008.
Other
income (expense) for the fiscal year ended January 31, 2009 was $348,655 as
compared to $364,968 in the year ended January 31, 2008. Of this
amount for 2009, $330,274 was interest expense and with approximately $295,000
comprised of expense related to the fair value of warrant issuances and
beneficial conversion features of convertible notes issued during the
year. Similarly, for the $364,948 in interest expense in 2008,
$323,731 related to the fair value of warrant issuances during the fiscal
year.
(c) Off-Balance
sheet arrangements
During
the fiscal year ended January 31, 2009, the Company did not engage in any
off-balance sheet arrangements as defined in Item 303(c) of the SEC’s Regulation
S-B.
-16-
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as interest rates and a decline in the stock market. We do not
enter into derivatives or other financial instruments for trading or speculative
purposes. We have limited exposure to market risks related to changes in
interest rates. We do not currently invest in equity instruments of public or
private companies for business or strategic purposes.
The
principal risks of loss arising from adverse changes in market rates and prices
to which we are exposed relate to interest rates on debt. We have only fixed
rate debt. We had $506,966 of debt outstanding as of January 31, 2009, which has
been borrowed at fixed rates ranging from 8% to 12%. All of this fixed rate debt
is due on demand or is due during the current fiscal year.
ITEM
8. FINANCIAL STATEMENTS.
The
financial statements and related information required to be filed are indexed
and begin on page F-1 and are incorporated herein.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not
applicable.
ITEM
9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure
Controls and Procedures
A review
and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO") who is also the Chief Financial
Officer (the “CFO”), of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this quarterly report. Based on that review and evaluation, the CEO /CFO has
concluded that as of January 31, 2009, disclosure controls and procedures, were
effective at ensuring that the material information required to be disclosed in
our Exchange Act reports is recorded, processed, summarized and reported as
required in the application of SEC rules and forms.
Management’s Report on
Internal Controls over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
set of processes designed by, or under the supervision of, a company’s principal
executive and principal financial officers, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:
|
•
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our
assets;
|
|
•
|
Provide
reasonable assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with
authorizations of our management and directors;
and
|
|
•
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statement.
|
-17-
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of internal
control, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system will be met. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Our
CEO/CFO has evaluated the effectiveness of our internal control over financial
reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the
end of the period covered by this report based upon criteria established in
“Internal Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) to the extent possible given the
limited personnel resources and technological infrastructure in place to perform
the evaluation. Based upon our management’s discussions with our
auditors and other advisors, our CEO/CFO believe that, during the period covered
by this report, such internal controls and procedures were not effective as
described below.
Due to
the small size and limited financial resources, our administrative assistant,
corporate secretary and chief executive officer are the only individuals
involved in the accounting and financial reporting. As a result,
there is limited segregation of duties in the accounting function, leaving all
aspects of financial reporting and physical control of cash in the hands of two
individuals. This limited segregation of duties represents a material
weakness. We will continue periodically review our disclosure
controls and procedures and internal control over financial reporting and make
modifications from time to time considered necessary or desirable.
This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management’s report in this annual
report.
Changes in Internal Control
over Financial Reporting
There
have been no changes in the Company’s internal controls over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting.
ITEM
9B. OTHER INFORMATION.
Not applicable.
-18-
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
(a)(b)(c) Identification
of directors and executive officers
The
following table sets forth the name, age, position and office term of each
executive officer and director of the Company.
|
NAME
|
AGE
|
POSITION
|
SINCE
|
|
Henry
Fong
|
73
|
President,
Principal Executive Officer, Principal Accounting Officer and
Director
|
May
2005
|
|
Aaron
A. Grunfeld
|
62
|
Director
|
November
2008
|
|
Thomas
B. Olson
|
43
|
Secretary
|
May
2005
|
(c) Significant
employees
Not
applicable.
(d) Family
relationships
None.
(e) Business
experience
HENRY
FONG
Mr. Fong has been the president and a
director of the Company since May 2005, and held the same positions with
Inhibetex Therapeutics, Inc. since its inception in May 2004. Mr.
Fong was the president, treasurer and a director of Hydrogen Power, Inc. (f/k/a
Equitex, Inc.) a publicly traded alternative energy company, from its inception
in 1983 to January 2007. Mr. Fong has been a director of FastFunds Financial
Corporation, a publicly traded financial services company, since June
2004. Mr. Fong has been president and a director of Equitex 2000,
Inc. since its inception in 2001. Mr. Fong has been President and a Director of
China Nuvo Solar Energy, Inc. since March 2002. China Nuvo Solar Energy is a
publicly traded company developing alternative energy solutions. From
1959 to 1982 Mr. Fong served in various accounting, finance and budgeting
positions with the Department of the Air Force. During the period from 1972 to
1981 he was assigned to senior supervisory positions at the Department of the
Air Force headquarters in the Pentagon. In 1978, he was selected to participate
in the Federal Executive Development Program and in 1981, he was appointed to
the Senior Executive Service. In 1970 and 1971, he attended the Woodrow Wilson
School, Princeton University and was a Princeton Fellow in Public Affairs. Mr.
Fong received the Air Force Meritorious Civilian Service Award in
1982. Mr. Fong has passed the uniform certified public accountant
exam. In March 1994, Mr. Fong was one of twelve CEOs selected as Silver Award
winners in FINANCIAL WORLD magazine's corporate American "Dream
Team."
-19-
AARON
A. GRUNFELD
Mr.
Grunfeld became a director in November 2008. Mr. Grunfeld was a director of
Equitex, Inc. from November 1991 to December 2006. Mr. Grunfeld has been engaged
in the practice of law since 1971 and has been of counsel to the firm of Resch
Polster Alpert & Berger, LLP, Los Angeles, California from November 1995 to
August 2006. Mr. Grunfeld is also a member of the board of directors
of the Metropolitan Water District of Southern California. Since
August 2006 he has practiced law as a principal of Law Offices of Aaron A.
Grunfeld and Associates. Mr. Grunfeld received an A.B. in Political
Science from UCLA in 1968 and a J.D. from Columbia University in 1971. He is a
member of the California Bar Association.
THOMAS
B. OLSON
Mr. Olson
has been secretary of the Company since May 2005, and held the same positions
with Inhibetex Therapeutics, Inc. since its inception in May
2004. Mr. Olson was the secretary of Hydrogen Power, Inc. (f/k/a
Equitex, Inc.), a publicly traded alternative energy company, from January 1988
to April 2007. Since March 2002, Mr. Olson has been the secretary of
China Nuvo Solar Energy, Inc., a publicly traded company developing alternative
energy solutions. Mr. Olson has been Secretary of Equitex 2000, Inc. since its
inception in 2001. Mr. Olson has attended Arizona State University
and the University of Colorado at Denver.
(f) Involvement
in certain legal proceedings
Not applicable.
(g) Promoters
and control persons
Not applicable.
(h) Audit
committee financial expert.
See (i) below.
(i) Identification
of the audit committee
The
Company does not currently have an audit committee of the board of directors, as
none is required, and the board believes it can effectively serve in that
function and, therefore, currently does. Management believes that
certain individuals on the board of directors may have the necessary attributes
to serve as a financial expert on an audit committee, if required.
Code of
Ethics
We have
adopted a Code of Ethics for our senior financial management, which includes our
chief executive officer and chief financial officer as principal executive and
accounting officers, that has been filed as exhibit 14.1 to this
report.
-20-
ITEM
11. EXECUTIVE COMPENSATION.
(a) General
We
currently have two executive officers including our President, Mr. Henry Fong,
who is also our principal executive officer and our principal financial officer;
and Mr. Thomas B. Olson, who is our Secretary.
(b) Compensation
discussion and analysis
Beginning
October 1, 2003, our president and secretary each receive a management fee of
$8,000 and $2,000 per month, respectively, for their services as officers of the
Company. Of the amounts set forth below, $39,700 remained accrued but
unpaid to Mr. Fong at January 31, 2009.
Periodically,
the board of directors awards stock options to officers, directors and employees
as incentive to attract and maintain their employment with us. No
such awards were made during the fiscal year ended January 31,
2009.
|
(c)
|
Summary
compensation table
|
The
following table summarizes the compensation accrued to our principal executive
officer, principal financial officer and any other executive officers for the
year ended January 31, 2009, whose total compensation exceeded
$100,000.
|
Name
and
Principal
Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Option
Awards
|
All
Other Compensation
|
Total
|
|
Henry
Fong
President
& Director;
Principal
Executive Officer & Principal Accounting Officer
|
2009
2008
|
$96,000
$96,000
|
$0
$0
|
$0
$99,000
|
$0
$0
|
$96,000
$195,000
|
(d) Grants
of plan based awards table
No plan based grants were made during
the fiscal year ended January 31, 2009.
(e) Narrative
disclosure to summary compensation table and grants
We
currently have no employment agreements or arrangements with either of our
officers. Our officers received no compensation other than management
fees and the grant of certain stock options in the year ended January 31,
2008. In December 2007, Mr. Fong was granted 300,000 options to
purchase our common stock under our 1995 Stock Incentive Plan. The
options expire five years from their issue date and have an exercise price of
$0.35 per share, the market price reported on the date of
grant. These options were valued at $99,000 based upon the
Black-Scholes option pricing model ($0.33 grant date value per
option).
-21-
(f) Outstanding
equity awards at fiscal year end table
|
Option
Awards
|
Stock
Awards
|
||||||||
|
Name
|
Number
of Securities Underlying Unexer-cised Options
(#)
Exer-cisable
|
Number
of Securities Under-lying Unexer-cised Options
(#)
Unexer-cisable
|
Equity
Incentive Plan Awards: Number of Securities Under-lying Unexer-cised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
Number
of Securities That Have Not Vested
(#)
|
Market
Value of Securities That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Securities or Other Rights That
Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Securities or
Other Rights That Have Not Vested
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Henry
Fong
|
300,000
|
0
|
0
|
$0.34
|
12/21/2012
|
0
|
$0
|
0
|
$0
|
Not
applicable.
(h) Pension
benefits
Not
applicable.
(i) Nonqualified
defined contribution and other nonqualified deferred compensation
plans
Not
applicable.
(j) Potential
payments upon termination or change-in-control
Not
applicable.
(k) Compensation
of directors
Our sole
independent director received no compensation for his services as our director
during the year ended January 31, 2009.
-22-
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth information known to us with respect to the
beneficial ownership (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of the outstanding common stock of the Company
as of April 30, 2009 (1) each person known by us to beneficially own 5% or
more of the Company’s outstanding common stock, (2) each named executive
officer (as defined in Item 402(a)(2) of Regulation S-B promulgated under the
Securities Act of 1933, as amended), (3) each of our directors and
(4) all of our named executive officers and directors as a group. The
number of shares beneficially owned is determined under rules promulgated by the
SEC, and the information is not necessarily indicative of beneficial ownership
for any other purpose. Including those shares in the tables does not,
however, constitute an admission that the named stockholder is a direct or
indirect beneficial owner of those shares. We had 22,825,993
shares outstanding as of April 30, 2009.
|
Name of Beneficial Owner
|
Number
of Shares
Beneficially Owned(1)
|
Percent
of
Class
|
|
Gulfstream
Financial Partners, LLC
7315
East Peakview Avenue
Englewood,
CO 80111
|
3,085,000
(2)
|
13.5%
|
|
Wayne
Mills
1615
Northridge Drive
Medina,
MN 55391
|
1,808,817
(3)
|
7.9%
|
|
Perkins
Capital Management, Inc.
730
East Lake Street
Wayzata,
MN 55391
|
3,702,382
(4)
|
15.5%
|
|
Henry
Fong
7315
East Peakview Avenue
Englewood,
CO 80111
|
3,985,000
(5)
|
16.8%
|
|
Aaron
A. Grunfeld
9200
Sunset Boulevard
Ninth
Floor
Los
Angeles, CA 90069
|
400,000
(6)
|
1.7%
|
|
Thomas
B. Olson
7315
East Peakview Avenue
Englewood,
CO 80111
|
971,000
(6)
|
4.2%
|
|
All
Executive Officers and
Directors
as a Group (3 persons)
|
5,356,000(5)(6)(7)
|
21.8%
|
-23-
__________
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC, and
includes general voting power and/or investment power with respect to
securities. Shares of common stock subject to options or
warrants currently exercisable or exercisable within 60 days of the record
rate are deemed outstanding for computing the beneficial ownership
percentage of the person holding such options or warrants but are not
deemed outstanding for computing the beneficial ownership percentage of
any other person. Except as indicated by footnote, the persons
named in the table above have the sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by
them.
|
|
(2)
|
Mr.
Henry Fong, our president and sole director, is the president, director
and sole stockholder of Gulfstream financial
Partners.
|
|
(3)
|
Based
on Schedule 13-D/A filed with the Securities and Exchange Commission on
February 14, 2008. Mr. Mills owns 599,949 shares. Blake Capital
Partners, LLC, a Minnesota limited liability corporation ("Blake
Capital"), owns 588,500 shares. Blake Advisors, LLC, a Minnesota limited
liability corporation (“Blake Advisors”), owns 255,730 shares. Mr. Mills
is the sole officer, director, and controlling person of Blake Capital and
Blake Advisors. Mr. Mills has sole voting and dispositive power over these
shares. KM Family Investments, LLC, a Minnesota LLC, owns 364,638 shares.
Mr. Mills is sole member of this
LLC.
|
|
(4)
|
Based
on Schedule 13-G/A filed with the Securities and Exchange Commission on
January 26, 2009. Includes 2,608,026 common equivalents and 1,094,356
warrants held by clients of Perkins Capital Management, Inc. Of
these shares, 1,303,485 common equivalents and 875,485 warrants are held
by Pyramid Partners, L.P., a Minnesota Limited Partnership in which
Perkins Capital Management is the General
Partner.
|
|
(5)
|
Consists
of 3,085,000 shares held by Gulfstream Financial Partners, LLC, of which
Mr. Fong is the president, director and sole
stockholder. Includes 300,000 shares exercisable under our 1995
Stock Incentive Plan and 600,000 shares exercisable under our 2009 Stock
Incentive Plan.
|
|
(6)
|
Includes
400,000 shares exercisable under our 2009 Stock Incentive
Plan.
|
|
(7)
|
Includes
271,000 shares held by the Thomas B. Olson and Kimberly A. Olson as JTWROS
and 300,000 shares owned by a Corporation in which Mr. Olson is the
stockholder. Includes 100,000 shares exercisable under our 1995
Stock Incentive Plan and 300,000 shares exercisable under our 2009 Stock
Incentive Plan.
|
(c) Changes
in control
We are
not aware of any arrangements that could result in a change in control of the
Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE.
(a) Transactions
with related persons
Our
offices are provided to us on a month to month basis by a corporation in which
our officers and director are affiliated. We pay $1,000 per month
beginning in December 2007 for use of office space and the use of fax machines,
copy machines, telephone equipment and other office equipment. Prior
to December 2007, we paid $750 per month for the office space and
services.
-24-
(b) Review,
approval or ratification of transactions with related persons
Our
entire board of directors is responsible for the review, approval or
ratification of transactions with related persons. The board
routinely reviews material related party transactions to ensure such
transactions are reasonable, appropriate, and in the best interests of the
Corporation. We have no written policies with respect to the review
and approval of related party transactions and records of such reviews are
contained in the minutes and/or reports of the board of directors as
appropriate.
Director
Independence
Our board
of directors has two directors and has no standing sub-committees at this time
due to the associated expenses and the small size of our board. We
are not currently listed on a national securities exchange that has requirements
that a majority of the board of directors be independent, however, the board has
determined that Aaron A. Grunfeld, is an “independent” under the definition set
forth in the listing standards of the NASDAQ Stock Market, Inc., which is the
definition that our board has chosen to use for the purposes of the determining
independence.
In
performing the functions of the audit committee, our board oversees our
accounting and financial reporting process. In this function, our
board performs several functions. Our board, among other duties,
evaluates and assesses the qualifications of the Company’s independent auditors;
determines whether to retain or terminate the existing independent auditors;
meets with the independent auditors and financial management of the Company to
review the scope of the proposed audit and audit procedures on an annual basis;
reviews and approves the retention of independent auditors for any non-audit
services; reviews the independence of the independent auditors; reviews with the
independent auditors and with the Company’s financial accounting personnel the
adequacy and effectiveness of accounting and financial controls and considers
recommendations for improvement of such controls; reviews the financial
statements to be included in our annual and quarterly reports filed with the
Securities and Exchange Commission; and discusses with the Company’s management
and the independent auditors the results of the annual audit and the results of
our quarterly financial statements. While we do not currently have a standing
compensation committee, our non-employee director considers executive officer
compensation, and our entire board participates in the consideration of director
compensation. Our non-employee board members oversee our compensation
policies, plans and programs. Our non-employee board members further
review and approve corporate performance goals and objectives relevant to the
compensation of our executive officers; review the compensation and other terms
of employment of our Chief Executive Officer and our other executive officers;
and administer our equity incentive and stock option plans. Each of
our directors participates in the consideration of director
nominees. In addition to nominees recommended by directors, our board
will consider nominees recommended by shareholders if submitted in writing to
our secretary. Our board believes that any candidate for director,
whether recommended by shareholders or by the board, should be considered on the
basis of all factors relevant to our needs and the credentials of the candidate
at the time the candidate is proposed. Such factors include relevant
business and industry experience and demonstrated character and
judgment.
-25-
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Cordovano
and Honeck, LLP served as our certifying accountant for the fiscal years ended
January 31, 2009 and 2008.
Audit
Fees
Fees for
audit services billed in fiscal years ended January 31, 2009 and 2008 totaling
$11,514for fiscal year ended 2009, and $12,000 for the fiscal year ended 2008,
consisted of (i) audit of the Company’s annual financial statements; (ii)
reviews of the Company’s quarterly financial statements; (iii) consultations on
financial accounting and reporting matters arising during the course of the
audit and reviews.
Audit-Related
Fees
There
were no other aggregate fees billed in either of the last two fiscal years for
assurance and related services by the principal accountants that were reasonably
related to the performance of the audit or review of the financial statements
that were not reported above.
Tax Fees
There
were no aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning.
All Other
Fees
There
were no other aggregate fees billed in either of the last two fiscal years for
products and services provided by the principal accountant, other than the
services reported above.
We do not
have an audit committee currently serving and as a result the sole member of our
board of directors performs the duties of an audit committee. Our
board of directors will evaluate and approve in advance, the scope and cost of
the engagement of an auditor before the auditor renders audit and non-audit
services. We do not rely on pre-approval policies and
procedures.
PART
IV
ITEM
15. EXHIBITS
Exhibits
|
2.1
|
Agreement
and Plan of Reorganization by and between the Registrant and Inhibetex
Therapeutics, Inc. dated March 24, 2005 (incorporated by reference to
Exhibit No. 1 of Registrant’s Current Report on Form 8-K filed on March
29, 2005).
|
-26-
|
2.2
|
Articles
of Exchange relating to the share exchange by and between Inhibiton
Therapeutics, Inc. (formerly known as Organic Soils.com, Inc.) and
Inhibetex Therapeutics, Inc. as filed with the Nevada Secretary of State
on May 19, 2005 (incorporated by reference to
the like numbered exhibit of Registrant’s Current Report on Form 8-K filed
on May 25, 2005).
|
|
2.3
|
Statement
of Share Exchange relating to the share exchange by and between Inhibiton
Therapeutics, Inc. (formerly known as Organic Soils.com, Inc.) and
Inhibetex Therapeutics, Inc. as filed with the Colorado Secretary of State
on May 19, 2005 (incorporated by reference to
the like numbered exhibit of Registrant’s Current Report on Form 8-K filed
on May 25, 2005).
|
|
2.4
|
Agreement
Concerning the Exchange of Securities by and among Inhibiton Therapeutics,
Inc. , HPI Partners, LLC, and the Security Holders of HPI Partners, LLC
dated March 4, 2009 (incorporated by reference to
exhibit number 2.1 of Registrant’s Current Report on Form 8-K filed on May
11, 2009)
|
|
3.1
|
Amended
and Restated Articles of Incorporation of Inhibiton Therapeutics, Inc.
(formerly known as Organic Soils.com, Inc.) filed with the Nevada
Secretary of State on May 19, 2005 (incorporated by reference to
the like numbered exhibit of Registrant’s Current Report on Form 8-K filed
on May 25, 2005).
|
|
3.2
|
Bylaws
(incorporated by
reference to the like numbered exhibit of Registrant’s Registration
Statement on Form SB-2 filed on March 30, 2001).
|
|
3.3
|
Certificate
of Designation of Series A Preferred Stock (incorporated by reference to
exhibit number 3.1 of Registrant’s Current Report on Form 8-K filed on May
25, 2005).
|
|
10.1
|
Cooperative
Research and Development Agreement by and between Inhibetex Therapeutics,
Inc. and the VA Medical Center, Tampa, Florida (incorporated by reference to
the like numbered exhibit of the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 2007, filed on May 15,
2007).
|
|
14.1
|
Code
of Ethics (filed
herewith).
|
|
21.1
|
List
of Subsidiaries (filed
herewith).
|
|
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
-27-
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.
|
INHIBITON
THERAPEUTICS, INC.
|
|
|
(Registrant)
|
|
|
Date:
May 18,
2009
|
By:
/s/
Henry Fong
|
|
Henry
Fong
|
|
|
President,
Principal Executive Officer and
Principal
Financial Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Date:
May 18,
2009
|
/s/ Henry Fong
|
|
Henry
Fong
|
|
|
Director
|
|
|
Date:
May 18,
2009
|
/s/ Aaron A. Grunfeld
|
|
Aaron
A. Grunfeld
|
|
|
Director
|
-28-
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Index
to Financial Statements
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Balance
Sheets at January 31, 2009 and January 31, 2008
|
F-3
|
|
|
Statement
of Operations for the years ended January 31, 2009
|
||
|
and
2008, and from May 11, 2004 (Inception) through January 31,
2009
|
F-4
|
|
|
Statement
of Changes in Shareholders' Deficit for the period from
|
||
|
May
11, 2004 (Inception) through January 31, 2009
|
F-5
|
|
|
Statement
of Cash Flows for the years ended January 31, 2009
|
||
|
and
2008, and from May 11, 2004 (Inception) through January 31,
2009
|
F-6
|
|
|
Notes
to Financial Statements
|
F-7
|
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders
Inhibiton
Therapeutics, Inc.
We have
audited the accompanying balance sheets of Inhibiton Therapeutics, Inc. as of
January 31, 2009 and 2008, and the related statements of operations, changes in
shareholders’ deficit, and cash flows for the years ended January 31, 2009 and
2008, and the period from May 11, 2004 (inception) through January 31,
2009. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Inhibiton Therapeutics, Inc. as of
January 31, 2009 and 2008, and the results of its operations and its cash flows
for the years ended January 31, 2009 and 2008, and the period from May 11, 2004
(inception) through January 31, 2009 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage company with no
revenues at January 31, 2009, has incurred operating losses since inception,
used significant cash in support of its operating activities and, based upon
current operating levels, requires additional capital or significant
restructuring to sustain its operations for the foreseeable future. These
conditions raise substantial doubt about its ability to continue as a going
concern. The ultimate outcome of this uncertainty cannot presently be
determined. Accordingly, the accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Cordovano
and Honeck LLP
Englewood,
Colorado
May 15,
2009
F-2
|
INHIBITON THERAPEUTICS, INC.
(A
Development Stage Company)
Balance Sheets
|
||||||||
|
January 31,
|
January 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Assets
|
||||||||
|
Cash
|
$655 | $21,023 | ||||||
|
Total
assets
|
$655 | $21,023 | ||||||
|
Liabilities and Shareholders’
Deficit
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts and notes
payable:
|
||||||||
|
Accounts payable, related party
(Note 2)
|
$83,850 | $305,200 | ||||||
|
Accounts payable,
other
|
300,811 | 258,835 | ||||||
|
Derivative liability, convertible
notes payable (Note 3)
|
26,583 | — | ||||||
|
Notes payable, related party (Note
2)
|
216,766 | 380,542 | ||||||
|
Notes payable, other (Note
3)
|
35,200 | 35,200 | ||||||
|
Convertible notes payable, net of
discount of $8,202 (Note 3)
|
246,798 | — | ||||||
|
Accrued interest
payable:
|
||||||||
|
Interest payable, convertible
notes (Note 3)
|
6,306 | — | ||||||
|
Interest payable, related party
notes (Note 2)
|
39,163 | 44,358 | ||||||
|
Interest payable, notes payable
other (Note 3)
|
9,761 | 6,938 | ||||||
|
Total current
liabilities
|
965,238 | 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,
|
||||||||
|
22,075,993 (2009) and 16,895,219
(2008) shares
|
||||||||
|
issued and
outstanding
|
22,076 | 16,895 | ||||||
|
Additional paid-in
capital
|
2,550,522 | 1,861,437 | ||||||
|
Common stock issued for prepaid
services (Note 5)
|
— | (160,417 | ) | |||||
|
Deficit accumulated during the
development stage
|
(3,537,181 | ) | (2,727,965 | ) | ||||
|
Total shareholders'
deficit
|
(964,583 | ) | (1,010,050 | ) | ||||
|
Total liabilities and
shareholders' deficit
|
$655 | $21,023 | ||||||
See accompanying notes to financial
statements.
F-3
|
INHIBITON THERAPEUTICS,
INC.
(A
Development Stage Company)
Statements of Operations
|
||||||||||||
|
May 11,
2004
|
||||||||||||
|
(Inception)
|
||||||||||||
|
For The Years
Ended
|
Through
|
|||||||||||
|
January 31,
|
January 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Operating costs and
expenses:
|
||||||||||||
|
Research and
development
|
$- | $150,000 | $900,000 | |||||||||
|
Selling, general and
administrative expenses
|
||||||||||||
|
Related party (Note
2)
|
132,000 | 129,750 | 915,425 | |||||||||
|
Other (Note
4)
|
328,561 | 357,409 | 909,464 | |||||||||
|
Total operating costs and
expenses
|
(460,561 | ) | (637,159 | ) | (2,724,889 | ) | ||||||
|
Other income
(expense)
|
||||||||||||
|
Interest (expense) income,
amortization
|
||||||||||||
|
of convertible note discount (Note
3)
|
(31,798 | ) | - | 48,385 | ||||||||
|
Interest expense (Notes 2 &
3)
|
(330,274 | ) | (364,968 | ) | (874,094 | ) | ||||||
|
Fair value adjustment of
derivative liabilities (Note 3)
|
13,417 | - | 13,417 | |||||||||
|
Loss before income
taxes
|
(809,216 | ) | (1,002,127 | ) | (3,537,181 | ) | ||||||
|
Income tax provision (Note
7)
|
- | - | - | |||||||||
|
Net loss
|
$(809,216 | ) | $(1,002,127 | ) | $(3,537,181 | ) | ||||||
|
Basic and diluted loss per common
share
|
$(0.04 | ) | $(0.06 | ) | ||||||||
|
Weighted average common shares
outstanding
|
18,979,976 | 15,529,913 | ||||||||||
See accompanying notes to financial
statements.
F-4
|
INHIBITON THERAPEUTICS,
INC.
(A
Development Stage Company)
Statement of Changes in Shareholders' Deficit
|
||||||||||||||||||||||||
|
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 | ||||||||||||||||||
|
May 2008, issuance of warrants
to
|
||||||||||||||||||||||||
|
convertible noteholders (Note
3)
|
— | — | 2,440 | — | — | 2,440 | ||||||||||||||||||
|
July 2008, expense stock issued
for
|
||||||||||||||||||||||||
|
prepaid services in Dec 2007 (Note
5)
|
— | — | — | 160,417 | — | 160,417 | ||||||||||||||||||
|
July 2008, conversion of
promissory note
|
||||||||||||||||||||||||
|
to common stock (Note
5)
|
247,107 | 247 | 14,579 | — | — | 14,826 | ||||||||||||||||||
|
August 2008, stock issued
for
|
||||||||||||||||||||||||
|
consulting services (Note
5)
|
500,000 | 500 | 24,500 | — | — | 25,000 | ||||||||||||||||||
|
August, September and October
2008, sale of
|
||||||||||||||||||||||||
|
common stock (Note
5)
|
1,450,000 | 1,450 | 85,550 | — | — | 87,000 | ||||||||||||||||||
|
August 2008, stock issued for
liabilities (Note 3)
|
1,000,000 | 1,000 | 99,000 | — | — | 100,000 | ||||||||||||||||||
|
October 2008, stock issued for
services (Note 5)
|
25,000 | 25 | 1,475 | — | — | 1,500 | ||||||||||||||||||
|
December 2008, stock issued for
debt (Note 3)
|
1,666,667 | 1,667 | 98,333 | — | — | 100,000 | ||||||||||||||||||
|
January 2008, sale of Common Stock
(Note 5)
|
50,000 | 50 | 2,950 | — | — | 3,000 | ||||||||||||||||||
|
December 2008 and January 2009,
beneficial
|
||||||||||||||||||||||||
|
conversion feature on convertible
notes (Note 3)
|
— | — | 200,000 | — | — | 200,000 | ||||||||||||||||||
|
December 2008 and January 2009,
issuance of
|
||||||||||||||||||||||||
|
warrants to convertible
noteholders (Note 3)
|
— | — | 92,500 | — | — | 92,500 | ||||||||||||||||||
|
Net loss
|
— | — | — | — | (809,216 | ) | (809,216 | ) | ||||||||||||||||
|
Balance at January 31,
2009
|
22,075,993 | $22,076 | $2,550,522 | $— | $(3,537,181 | ) | $(964,583 | ) | ||||||||||||||||
See accompanying notes to
financial statements.
F-5
|
INHIBITON THERAPEUTICS,
INC.
(A
Development Stage Company)
Statements of Cash Flows
|
||||||||||||
|
May 11,
2004
|
||||||||||||
|
(Inception)
|
||||||||||||
|
For The Years
Ended
|
Through
|
|||||||||||
|
January 31,
|
January 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Cash flows from operating
activities:
|
||||||||||||
|
Net loss
|
$(809,216 | ) | $(1,002,127 | ) | $(3,537,181 | ) | ||||||
|
Adjustments to reconcile net loss
to net cash
|
||||||||||||
|
used by operating
activities:
|
||||||||||||
|
Stock based compensation (Note
5)
|
26,500 | 315,250 | 342,750 | |||||||||
|
Common stock issued for prepaid
services (Note 5)
|
160,417 | (160,417 | ) | — | ||||||||
|
Loss on debt
extinguishment
|
— | 126,612 | 126,612 | |||||||||
|
Expense incurred upon issuance or
modification
|
||||||||||||
|
of stock and warrants (Note 3
& 5)
|
94,940 | 323,731 | 418,671 | |||||||||
|
Increase in derivative liability
(Note 3)
|
26,583 | — | 26,583 | |||||||||
|
Amortization of discount on
debentures payable (Note 3)
|
(8,202 | ) | — | (8,202 | ) | |||||||
|
Beneficial conversion features on
convertible
|
||||||||||||
|
notes payable (Note
3)
|
200,000 | — | 200,000 | |||||||||
|
Changes in operating assets and
liabilities:
|
||||||||||||
|
Accounts
payable
|
41,976 | 26,893 | 300,811 | |||||||||
|
Related party payables (Note
2)
|
(121,350 | ) | 46,325 | 183,850 | ||||||||
|
Accrued
expenses
|
5,761 | 18,411 | 103,112 | |||||||||
|
Net cash used
in
|
||||||||||||
|
operating
activities
|
(382,591 | ) | (305,322 | ) | (1,842,994 | ) | ||||||
|
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)
|
(50,777 | ) | (115,936 | ) | 318,365 | |||||||
|
Proceeds from notes payable, other
(Note 3)
|
— | 5,200 | 48,200 | |||||||||
|
Proceeds from convertible
promissory notes (Note 3)
|
255,000 | — | 480,000 | |||||||||
|
Proceeds from issuance of common
stock,
|
||||||||||||
|
net of offering costs (Note
5)
|
158,000 | 436,940 | 1,041,940 | |||||||||
|
Net cash provided
by
|
||||||||||||
|
financing
activities
|
362,223 | 326,204 | 1,888,505 | |||||||||
|
Net change in cash
and
|
||||||||||||
|
cash
equivalents
|
(20,368 | ) | 20,882 | 655 | ||||||||
|
Cash and cash
equivalents:
|
||||||||||||
|
Beginning of
period
|
21,023 | 141 | — | |||||||||
|
End of
period
|
$655 | $21,023 | $655 | |||||||||
|
Supplemental disclosure of cash
flow information:
|
||||||||||||
|
Cash paid during the period
for:
|
||||||||||||
|
Income
taxes
|
$— | $— | $— | |||||||||
|
Interest
|
$12,211 | $22,264 | $54,582 | |||||||||
|
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 | |||||||||
|
Stock issued in exchange for
related party debt
|
$200,000 | $— | $200,000 | |||||||||
See
accompanying notes to financial statements.
F-6
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
and Basis of Presentation
Inhibiton
Therapeutics, Inc., formerly known as Inhibetex Therapeutics, Inc. and Organic
Soils.Com, Inc., (the “Company”) was incorporated on January 19, 2000 under the
laws of the state of Nevada. The Company’s focus is the
research and development of new cancer therapeutic agents and cancer fighting
drugs called targeted therapies. These new drugs are intended to
identify molecular causes of cancer and inhibit the signals that cancer cells
need to multiply.
The
Company has been conducting its research through a Cooperative Research and
Development Agreement (“CRADA”) signed on September 30, 2004, with the
Department of Veterans Affairs. The research is conducted at the VA
Medical Center in Tampa, Florida under the direction of Dr.
Acevedo-Duncan. The CRADA will have the final objective of developing
therapeutic reagents to prevent cancer cell proliferation. The CRADA
agreement is a result of the Federal Technology Transfer Act of 1986, which
provided that federal laboratories’ developments and expertise should be made
accessible to private industries, state and local governments. Under
the terms of the CRADA, the Company will have the right to commercialize any
inventions resulting from this research. As of September 2007, the Company’s
rights under the CRADA continue but it has no obligation for further funding
beyond those commitments contained in the CRADA. The Company may
amend the CRADA to provide further funding at any time, but is not obligated to
do so. As of January 31, 2009, no further agreements had been reached
with the VA to provide further funding although the Company owed $227,000 in
amounts accrued under the CRADA as of that date.
Reverse
Merger
Effective
May 19, 2005, Inhibetex Therapeutics, Inc. entered into an Agreement and Plan of
Reorganization with Organic Soils.com, Inc. (“Organic
Soils.com”). 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. Immediately following closing of
the Agreement, the shareholders of Inhibetex owned approximately 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 recapitalization, minimal assets and no operations, the
recapitalization was accounted for as the sale of 2,323,000 shares of Organic
Soils.com common stock for the net assets of Inhibetex. Additionally,
Inhibiton Therapeutics, Inc. assumed and paid accrued liabilities and expenses
in the amount of $44,856 in accordance with the Agreement.
F-7
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Going
Concern
Inherent
in the Company’s business are various risks and uncertainties, including its
limited operating history. The Company’s future success will be
dependent upon the results of the research and development conducted through the
CRADA and its ability to commercialize any inventions resulting from this
research.
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying
financial statements, the Company is a development stage company with no
revenue, has incurred operating losses since inception, used significant cash in
support of its operating activities and, based upon current operating levels,
requires additional capital or significant restructuring to sustain its
operations for the foreseeable future. These factors, among others,
may indicate that the Company will be unable to continue as a going concern for
a reasonable period of time.
The
financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going
concern. The Company’s continuation as a going concern is dependent
on its ability to raise capital through equity offerings and debt borrowings to
meet its obligations on a timely basis and ultimately to attain
profitability.
Development
Stage
Prior to
its reverse merger on May 11, 2004, the Company entered the development stage
and became a development stage enterprise in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 7, Accounting and Reporting by
Development Stage Enterprises. The $3,537,181 loss recognized
by the Company from May 11, 2004 through January 31, 2009, is included in the
accompanying financial statements as “deficit accumulated during development
stage”.
Use
of Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid securities with original maturities of three
months or less when acquired to be cash equivalents. Cash equivalents
at January 31, 2009 were $-0-.
F-8
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Income
Taxes
The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance for net
deferred taxes is provided unless realizability is judged by management to be
more likely than not. The effect on deferred taxes from a change in
tax rates is recognized in income in the period that includes the enactment
date. More information on the Company’s income taxes is available in
Note 6. Income Taxes in these financial statements.
Stock-based
Compensation
The
Company has one stock option plan approved by its stockholders in 2005, and also
grants options and warrants to consultants outside of its stock option plan
pursuant to individual agreements.
The
Company accounts for compensation expense for its stock-based employee
compensation plans in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123 – revised 2004 (“SFAS 123R”) Share-Based Payment which
replaced SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”) and supersedes Opinion No. 25 of the
Accounting Principles Board, Accounting for Stock Issued to
Employees (APB 25). The Company has elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. During the year ended January 31, 2008, the
Company granted 425,000 stock options to directors, officers and employees that
were valued at $140,250 based upon the Black-Scholes option pricing model ($0.33
grant date value per option).
In August
2008, the Company executed a consulting agreement through which a consultant
received 500,000 restricted shares of $0.001 par value common stock under its
2005 Stock Incentive Plan 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 the Company’s common stock on the issue
date.
In August
2008, the Company issued 1,000,000 shares under its 2005 Stock Incentive Plan to
Henry Fong, its President, in exchange for $100,000 in debt owed to Mr.
Fong. These shares were valued at the closing market price for the
Company’s common stock on the issue date of $0.10 per share.
In
October 2008, the Company issued 25,000 shares under its 2005 Stock Incentive
Plan to a consultant in payment for administrative services. These
shares were valued at the closing market price for the Company’s common stock on
the issue date of $0.06 per share, or $1,500.
F-9
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Research
and Development
Research
and development costs are expensed as incurred. In each of the years
ended January 31, 2009 and 2008, and from May 11, 2004 (inception) through
January 31, 2009, the Company incurred $0, $150,000 and $900,000 in research and
development costs, respectively, under the CRADA.
Debt
Issue Costs
The costs
related to the issuance of debt are capitalized and amortized to interest
expense using the straight-line method over the lives of the related
debt. The straight-line method results in amortization that is not
materially different from that calculated under the effective interest
method.
Financial
Instruments
At
January 31, 2009, the fair value of the Company’s financial instruments
approximate their carrying value based on their terms and interest
rates.
Loss
per Common Share
Loss per share of common stock is
computed based on the weighted average number of common shares outstanding
during the period. Stock options, warrants, and common stock underlying
convertible promissory notes are not considered in the calculations for the
periods ended January 31,
2009 and 2008, as the
impact of the potential common shares, which total 9,738,719 (January 31, 2009), 3,369,219 (January 31, 2008), would be anti-dilutive and decrease loss per share.
Therefore, diluted loss per share presented for the years ended January 31, 2009 and
2008 is equal to basic loss per share.
Accounting
for obligations and instruments potentially settled in the Company’s common
stock
The
Company accounts for obligations and instruments potentially to be settled in
the Company's stock in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in a Company’s Own
Stock. This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and potentially
settled in, the Company's stock.
Under
EITF 00-19, contracts are initially classified as equity or as either assets or
liabilities, depending on the situation. All contracts are initially measured at
fair value and subsequently accounted for based on the then current
classification. Contracts initially classified as equity do not recognize
subsequent changes in fair value as long as the contracts continue to be
classified as equity. For contracts classified as assets or liabilities, the
Company reports changes in fair value in earnings and discloses these changes in
the financial statements as long as the contracts remain classified as assets or
liabilities. If contracts classified as assets or liabilities are ultimately
settled in shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
F-10
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
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.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a framework
for measuring fair value under generally accepted accounting principles, and
expands disclosures about fair value measurements. This statement, as it relates
to financial assets and liabilities, is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. On February 12, 2008, the FASB
issued FSP No. FAS 157-2, “Effective Date of
FASB Statement No. 157,” which delayed the effective date of
SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on at least an annual basis, until
January 1, 2009 for calendar year-end entities. Upon adoption, the
provisions of SFAS No. 157 are to be applied prospectively with
limited exceptions. The adoption of SFAS No. 157 is not expected to
have a material impact on our financial statements.
The FASB
also issued SFAS No. 161 “Disclosures About Derivatives
Instruments and Hedging Activities” in March 2008. This
statement requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial
reporting. This statement is effective for financial statements for
fiscal years and interim periods beginning after November 15, 2008, with earlier
application encouraged. The Company is currently evaluating the
requirements of SFAS No. 161.
The
Company adopted the provisions of Financial Standards Accounting Board
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in
Income Taxes” - an Interpretation of FASB Statement No. 109 (“FIN 48”) on
January 1, 2007. There were no unrecognized tax benefits and there was no effect
on the Company’s financial condition or results of operations as a result of
implementing FIN 48. The Company files income tax returns in the U.S. federal
jurisdiction and various state and jurisdictions. The Company is no longer
subject to U.S. federal tax examinations for years before 1995, and state tax
examinations for years before 1995. Management does not believe there will be
any material changes in our unrecognized tax positions over the next 12 months.
The Company’s policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date
of adoption of FIN 48, there was no accrued interest or penalties associated
with any unrecognized tax benefits, nor were any interest expense recognized
during the quarter.
F-11
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
NOTE 2. RELATED PARTY
TRANSACTIONS
During
periods prior to the year ended January 31, 2008, the Company signed promissory
notes payable to a trust created by the president of the Company for the benefit
of his children, for which the Company owed $296,158. During the year
ended January 31, 2008, the Company repaid a total of $21,546 on these notes
leaving $274,612 payable as of January 31, 2008, with accrued interest payable
of $31,255. During the year ended January 31, 2009, the Company
repaid $34,664 of these notes and $82,638 in principal plus $17,362 in accrued
interest was converted to 1,666,667 shares of common stock leaving a balance due
of $157,310 at January 31, 2009. The issued shares were valued at
$0.06 per share, the closing market price for the Company’s common stock on the
issue date. Interest accrued on these notes as of January 31, 2009
was $30,314. The notes bear interest rate of 8% and are due on
demand.
During
periods prior to January 31, 2008, the Company signed promissory notes payable
to a company owned by the president for which there was a principal balance due
of $134,609 at January 31, 2007. During the year ended January 31,
2008, $74,534 in principal was repaid leaving a balance at January 31, 2008 of
$60,075. During the year ended January 31, 2009, an additional
$33,875 in principal was repaid leaving a principal balance due of $26,200 with
accrued interest due of $4,289 at January 31, 2009. All of the promissory notes
have an interest rate of 8% per annum and are due on demand.
During
periods prior to January 31, 2008, the Company signed promissory notes payable
to its president for which there was a principal balance due of $19,212 at
January 31, 2007. During the year ended January 31, 2008, $18,540 was
repaid leaving $672 in principal outstanding. No further loans or
payments were made during the fiscal year ended January 31, 2009 leaving a
principal balance due of $671 with accrued interest due of $69. The
promissory notes have an interest rate of 8% per annum and are due on
demand.
In July
2007, a partnership in which the Company’s president is a partner loaned the
Company$5,500 at an interest rate of 8% per annum and due on
demand. This entire note remained outstanding at January 31, 2009
with $679 in accrued interest payable.
During
the year ended January 31, 2007, the Company signed a promissory note payable to
the secretary/treasurer for $2,000 at an interest rate of 8% per annum and due
on demand. This loan was repaid during the year ended January 31,
2008.
During
the year ended January 31, 2007, the Company executed two promissory notes with
companies affiliated with the Company’s officers in exchange for
$31,500. These notes carry an interest rate of 8% per annum and are
due on demand. During the year ended January 31, 2008, $4,816 in
principal was repaid on one of these notes resulting in a principal balance due
on both notes of $26,684 as of both January 31, 2008 and January 31,
2009. Interest due on these notes was $3,812 as of January 31,
2009.
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
8% interest and was due on demand. In July 2008, the holder converted
this note plus accrued interest totaling $1,826 to 247,107 shares of the
Company’s common stock valued at $0.06 per share, the closing market price for
the Company’s common stock on the issue date.
F-12
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Notes and
interest payable to related parties consisted of the following at January 31,
2009:
|
Notes
payable to officers; interest at 8% and due on demand
|
$672 | |||
|
Notes
payable to affiliates of Company officers; interest at 8% and due on
demand
|
216,094 | |||
|
Notes
payable, related party
|
216,766 | |||
|
Interest
payable related party
|
39,163 | |||
|
Total
principal and interest payable, related party
|
$255,929 |
At
January 31, 2009, the Company owed its officers a total of $82,850 for accrued
but unpaid management services. This amount is included in the
financial statements under “Accounts payable, related party” at January 31,
2009. The Board of Directors has estimated the value of management
services at the monthly rates of $8,000 and $2,000 for the Company’s president
and secretary/treasurer, respectively. The estimates were determined
by comparing the level of effort to the cost of similar labor in the local
market. In each of the years ended January 31, 2009 and 2008, the
Company incurred $120,000, in management services expense.
The
Company rents office space on a month-to-month basis from an affiliate of the
Company’s officers at the rate of $1,000 per month beginning in November 2008,
and $750 per month in all prior periods. This amount was determined
based on the amount of space occupied by the Company and includes the use of
phone systems including long distance fees as well as standard office equipment
(copier/fax/scanner). Rent expense totaled $12,000 in the year ended
January 31, 2009 and $9,750 in the year ended January 31, 2008. As of
January 31, 2009, $1,000 in rent was due and payable and is included in
“Accounts payable, related party” at January 31, 2009.
Accounts
payable to related parties consisted of the following at January 31,
2009:
|
Management
fees payable to officers
|
$82,850 | |||
|
Rent
payable to affiliate
|
1,000 | |||
|
Total
accounts payable, related party
|
$83,850 |
F-13
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
NOTE
3. PROMISSORY NOTES
|
January 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Promissory
notes payable:
|
||||||||
|
Convertible notes, net of discount
of $8,202
|
$246,798 | $- | ||||||
|
Notes
payable unaffiliated parties; interest rates of 8%; due on
demand
|
35,200 | 35,200 | ||||||
| 281,998 | 35,200 | |||||||
|
Interest payable – convertible
notes
|
6,306 | - | ||||||
|
Interest payable – demand
notes
|
9,761 | 6,938 | ||||||
|
Total notes and interest
payable
|
$298,065 | $42,138 | ||||||
Convertible
Promissory Notes
2004
Notes
In
September and October 2004, the Company entered into agreements to borrow an
aggregate principal amount of $225,000 and to issue to the lenders convertible
promissory notes (the “Notes”).
Each note
carried an interest rate of 8% per annum. Principal and accrued
interest was due in October and November 2005. At the option of the
lenders, the principal and accrued interest was 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 first thirty days immediately
following the date the Company began trading as a public company (May 19, 2005)
or $3.38 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 because the number of shares that could have
been required to be delivered upon net share settlement was essentially
indeterminate, it was not possible to conclude that the Company had available
authorized and unissued shares. Accordingly net share settlement was
not within the control of the Company and, as a result, the conversion feature
is an embedded derivative that must be bifurcated from the Notes and recorded as
a derivative liability. On June 20, 2005, the number of shares that could have
been required to be delivered was determinable. This resulted in the elimination
of the need to bifurcate the embedded derivative associated with the Notes’
conversion feature.
F-14
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Accordingly,
the Company recorded an initial liability of $80,183 for the fair value of the
Notes’ embedded liability. The initial value of the embedded liability was
amortized over the term of the Notes ending in the quarter ended October 31,
2005, and recognized as amortization expense of $80,183 which was included in
interest expense in the nine month period ended October 31, 2005.
From the
date of note issuance through June 20, 2005, the changes in the fair value of
the derivative liability were calculated. The amortization of the debt discount
was calculated for each period. On June 20, 2005, the number of shares into
which the notes were convertible was fixed and determinable, and the notes were
therefore determined to be conventional as of that date. Therefore, on June 20,
2005, the derivative liability was adjusted to $0, and the change in fair value
was recorded as a credit to interest income.
In March
2007, $125,000 in principal of the convertible promissory notes along with
$23,589 in accrued interest were converted to common stock at $0.25 per share
with the note holders receiving 594,356 restricted shares of common
stock. In addition, the note holders were issued warrants to purchase
a total of 594,356 shares of the Company’s common stock at an exercise price of
$0.50 per share that are exercisable for three years from their issuance
date. The shares were valued at $0.36 per share, which represents the
market value on the issuance date. The Company recorded a loss on the
extinguishment of debt of $65,379 in the three months ended April 30, 2007, as a
result of this transaction. The Company determined the
fair value of the warrants were estimated to be $172,363 on the grant date using
the Black-Scholes option pricing model, which was recorded as interest expense
in the three months ended April 30, 2007.
In July
2007, the final $100,000 in principal of the convertible promissory notes along
with $22,466 in accrued interest were converted to common stock at $0.25 per
share with the note holder receiving 489,863 restricted shares of common
stock. In addition, the note holder was issued warrants to purchase a
total of 489,863 shares of the Company’s common stock at an exercise price of
$0.50 per share that are exercisable for three years from their issuance
date. The shares were valued at $0.375 per share, which represents
the market value on the issuance date. The Company recorded a loss on
the extinguishment of debt of $61,233 in the three month period ended July 31,
2007, as a result of this transaction. The Company determined the
fair value of the warrants were estimated to be $151,368 on the grant date using
the Black-Scholes option pricing model, which was recorded as interest expense
in the three month period ended July 31, 2007.
The fair
value of the warrants issued in connection with the conversion of the
convertible debt to common stock was calculated utilizing the following
assumptions:
|
Issuance
Date
|
Fair Value
|
Term
|
Exercise
Price
|
Market
Price on
Grant Date
|
Volatility
Percentage
|
Interest
Rate
|
|
April
2007
|
$172,363
|
3
years
|
$0.50
|
$0.36
|
156%
|
4.5%
|
|
July
2007
|
$151,368
|
3
years
|
$0.50
|
$0.375
|
161%
|
4.5%
|
F-15
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
May 2008
Notes
In May
2008, the Company issued notes payable to two accredited investors for the
issuance of $55,000 of 10% unsecured convertible notes in private transactions
(the “May Notes”). The May Notes are convertible at 75% of the
average closing bid price per share of the Company’s common stock for the twenty
days immediately preceding the date of conversion subject to a floor of $0.05
per share. The Company has determined that the conversion feature represents an
embedded derivative. Since the May Notes are convertible into a
variable number of shares upon conversion, the conversion feature is not
considered to be conventional and therefore must be bifurcated from the debt
host and accounted for as a derivative liability. Accordingly, the
fair value of these derivative instruments of $30,037 has been recorded as a
liability in the consolidated balance sheet with the corresponding amount
recorded as a discount to the May Notes. The change in the fair value
of the derivative liability will be re-measured at each balance sheet reporting
date with any difference recorded as other income (expense) in the consolidated
statement of operations.
The fair
value of the derivative instruments was calculated at issue date utilizing the
following assumptions:
|
Issuance Date
|
Fair Value
|
Term
|
Conversion
Price
|
Market
Price on
Grant Date
|
Volatility
Percentage
|
Interest
Rate
|
|
May
2, 2008
|
$16,333
|
1
year
|
$0.09
|
$0.12
|
101%
|
2.1%
|
|
May
21, 2008
|
$13,704
|
1
year
|
$0.068
|
$0.09
|
101%
|
2.1%
|
At
January 31, 2009, the Company revalued all derivative
liabilities. Therefore, for the period from their issuance to January
2009, the Company recorded an expense and decreased the previously recorded
liabilities by $3,454 resulting in a derivative liability balance of $26,583 at
January 31, 2009.
The fair
value of the derivative instruments was calculated at January 31, 2009 utilizing
the following assumptions:
|
Issuance Date
|
Fair Value
|
Term
|
Conversion
Price
|
Market
Price on
January 31, 2009
|
Volatility
Percentage
|
Interest
Rate
|
|
May
2, 2008
|
$14,500
|
3
Months
|
$0.06
|
$0.08
|
138%
|
.23%
|
|
May
21, 2008
|
$12,083
|
3
Months
|
$0.06
|
$0.08
|
138%
|
.23%
|
F-16
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
December 2008 and January
2009 Notes
In the
fourth fiscal quarter ended January 31, 2009, the Company issued notes payable
to an accredited investor for the issuance of $200,000 of 12% unsecured
convertible notes in three private transactions (the “December
Notes”). The December Notes are due and payable on May 10, 2009 and
are convertible into the Company’s common stock at $0.05 per share. The Company
has determined that the conversion feature does not represent an embedded
derivative as the conversion price is known and is not variable making them
conventional. The Company has determined there is a beneficial
conversion feature related to the December Notes based on the difference between
the conversion price of $0.05 and the market price of the Company’s common stock
at the date of each note issuance and recorded as interest expense $200,000 with
an offset to additional paid-in capital. Accordingly, the $200,000 is
contained in “Interest expense” on the condensed statements of operations at
January 31, 2009.
The fair
value of the beneficial conversion feature was calculated at issue date as
follows:
|
Issuance Date
|
Face Amount
|
Conversion
Price
|
Market
Price on
Grant Date
|
Beneficial
Conversion Expense
|
|
December
10, 2008
|
$50,000
|
$0.05
|
$0.04
|
$0
|
|
December
23, 2008
|
$50,000
|
$0.05
|
$0.17
|
$120,000
|
|
January
9, 2009
|
$100,000
|
$0.05
|
$0.09
|
$80,000
|
In
connection with the December Notes, the Company issued warrants to purchase up
to 1,000,000 shares of the Company’s common stock at an exercise price of $0.06
per share for a period of three years from their issuance date. The Company determined the fair value of
the warrants were estimated to be $92,500 on the issuance dates using the Black-Scholes option pricing
model, which was recorded as interest expense in the three month period ended
January 31, 2009.
The fair
value of the warrants issued with the convertible notes was calculated utilizing
the following assumptions:
|
Issuance
Date
|
Fair Value
|
Term
|
Exercise
Price
|
Market
Price on
Grant Date
|
Volatility
Percentage
|
Interest
Rate
|
|
December
10, 2008
|
$9,250
|
3
years
|
$0.06
|
$0.04
|
211%
|
1.2%
|
|
December
23, 2008
|
$40,750
|
3
years
|
$0.06
|
$0.17
|
211%
|
1.2%
|
|
January
9, 2009
|
$42,500
|
3
years
|
$0.06
|
$0.09
|
211%
|
1.1%
|
F-17
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
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 January 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 $9,324 at January 31, 2009. 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 owed approximately $38,000 in
interest payable at January 31, 2008. This lawsuit was dismissed by
the plaintiff during the fiscal year ended January 31, 2009
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 January 31,
2009. 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 $438 at January 31, 2009.
NOTE
4. OTHER EXPENSE
Other
expense for the years ended January 31, 2009 and 2008 and for the period from
May 11, 2004 (Inception) through January 31, 2009 consisted of the
following:
|
Year
ended January 31, 2009
|
Year
ended January 31, 2008
|
May
11, 2004 (Inception) through January 31, 2009
|
||||||||||
|
General
and administrative
|
$9,149 | $12,441 | $37,422 | |||||||||
|
Legal
and accounting
|
15,315 | 11,023 | 93,291 | |||||||||
|
Technology
fees
|
40,000 | - | 40,000 | |||||||||
|
Loss
on debt extinguishment
|
- | 126,612 | 126,612 | |||||||||
|
Professional
services
|
237,597 | 52,500 | 429,806 | |||||||||
|
Stock
based compensation
|
26,500 | 154,833 | 182,333 | |||||||||
| $328,561 | $357,409 | $909,464 | ||||||||||
F-18
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
NOTE
5. CAPITAL STOCK
Common
Stock
The
Company offered shares of its common stock during the period from May 11, 2004
(inception) through January 31, 2005. The shares were not registered
pursuant to the Securities Act of 1933 (the “Act”), as amended. These
shares were offered pursuant to an exemption from registration requirements of
the Act. During the year ended January 31, 2006 and during the period
from May 11, 2004 (inception) through January 31, 2005, the Company sold 428,000
(post-merger) and 89,300 (9,555,100 post-merger) shares of common stock for
gross proceeds of $100,000 and $279,500, respectively. The Company
also issued 963,000 shares for debt issue costs and 74,900 shares for conversion
of notes payable to Common stock.
In
December 2004, the Company issued 1,000 (107,000 post-merger) shares of its par
value common stock to a consultant for services performed. The shares
were valued by the Board of Directors at $1.00 per share based upon
contemporaneous sales of stock for cash. The Company recorded stock
based compensation expense in the amount of $1,000 in the accompanying financial
statements.
In July
and August 2006, the Company conducted a private placement of its common stock
sold to five accredited investors at a purchase price of $0.30 per unit, which
included one share of common stock and one common stock purchase
warrant. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $0.50 per share for a period of three years
from the issue date. A total of 250,000 shares of common stock and
250,000 warrants were issued for total proceeds to the Company of $67,500, net
of $7,500 in offering costs. The shares were not registered pursuant
to the Securities Act of 1933 (the “Act”), as amended, and were offered pursuant
to an exemption from registration requirements of the Act.
In March
2007, concurrent with the convertible note conversion transaction discussed in
Note 3 above through which the Company issued 594,356 shares of common stock
upon the conversion of convertible promissory notes, the note holders who
converted their notes also agreed to purchase 500,000 restricted shares of the
Company’s common stock in a private placement transaction. These
shares were purchased at $0.25 per share for which the Company received proceeds
of $125,000. The Company also issued the note holders warrants to
purchase 500,000 shares of the Company’s common stock at an exercise price of
$0.50 per share that are exercisable for three years from the issuance
date.
In April
2007, the Company commenced a private placement of its restricted common stock
to accredited investors at a purchase price of $0.30 per unit, which includes
one share of common stock and one common stock purchase warrant. Each
warrant entitles the holder to purchase one share of common stock at an exercise
price of $0.50 per share for a period of three years from the issue
date. A total of 100,000 restricted shares of common stock and
100,000 warrants have been sold for total proceeds to the Company of $30,000,
net of $3,000 in offering costs.
F-19
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
In July
2007, concurrent with the convertible note conversion transaction discussed in
Note 3 above through which the Company issued 489,863 shares of common stock
upon the conversion of a convertible promissory note, the note holder who
converted their note also agreed to purchase 200,000 restricted shares of the
Company’s common stock in a private placement transaction. These
shares were purchased at $0.25 per share for which the Company received proceeds
of $50,000. The Company also issued the note holder warrants to
purchase 200,000 shares of the Company’s common stock at an exercise price of
$0.50 per share that are exercisable for three years from the issuance
date.
In August
through November 2007, the Company sold shares in a private placement of its
restricted common stock to accredited investors at a purchase price of $0.25 to
$0.30 per unit, which includes one share of common stock and one common stock
purchase warrant. Each warrant entitles the holder to purchase one
share of common stock at an exercise price of $0.50 per share for a period of
three years from the issue date. A total of 660,000 restricted shares
of common stock and 660,000 warrants were sold for total proceeds to the Company
of $244,940.
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 including $14,583 and $160,417 in the
fiscal years ended January 31, 2008 and 2009, respectively.
In
January 2008, the Company sold 150,000 units in a private placement of its
restricted common stock to accredited investors for total proceeds of $40,000 or
a purchase price of $0.27 per unit, which includes one share of common stock and
one common stock purchase warrant. Each warrant entitles the holder
to purchase one share of common stock at an exercise price of $0.50 per share
for a period of three years from the issue date.
In
February 2008, the Company sold 242,000 units in a private placement of its
restricted common stock to accredited investors for total proceeds of $68,000 or
a purchase price of $0.28 per unit, which includes one share of common stock and
one common stock purchase warrant. Each warrant entitles the holder
to purchase one share of common stock at an exercise price of $0.50 per share
for a period of three years from the issue date.
In May
2008, we issued warrants to purchase 27,500 warrants to two note holders
concurrent with the issuance of two convertible promissory notes. The
warrants are exercisable for three years from their date of issuance at an
exercise price of $0.25 per share. The warrants were valued using the
Black-Scholes option pricing model and were determined to have a value of
$2,440.
In July
2008, the Company issued 247,107 shares of 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-20
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
During
the three month period ended October 31, 2008, the Company issued 1,450,000
shares of common stock to seven unaffiliated accredited investors pursuant to a
private placement. The shares were sold for $87,000 or $0.06 per
share.
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, the Company issued 1,000,000 shares under its 2005 Stock Incentive Plan to
the Company’s president upon the conversion of $100,000 in management fees due
to him by the Company. These shares were valued at the closing market
price for the Company’s common stock on the issue date of $0.10 per
share.
In
October 2008, the Company issued 25,000 shares under its 2005 Stock Incentive
Plan to a consultant in payment for services rendered to the Company in the
amount of $1,500. These shares were valued at the closing market
price for the Company’s common stock on the issue date of $0.06 per
share.
In
December 2008, the Company issued 1,666,667 shares of its common stock to a note
holder in exchange for $100,000 in principal and interest due by the
Company. These shares were valued at $0.06 per share, the closing
market price for the Company’s common stock on the issue date.
In
January 2009, the Company issued 50,000 shares of common stock to an
unaffiliated accredited investor pursuant to a private placement. The
shares were sold for $3,000 or $0.06 per share.
Warrants
A summary of the activity of the
Company’s outstanding warrants during the years ended January 31, 2009 and
2008 is as
follows:
|
Warrants
|
Weighted-average
exercise price
|
Weighted-average
grant date fair value
|
||||
|
Outstanding
and exercisable at January 31, 2007
|
250,000
|
$ 0.50
|
$ 0.50
|
|||
|
Granted
|
2,694,219
|
0.50
|
0.50
|
|||
|
Exercised
|
-
|
-
|
-
|
|||
|
Outstanding
and exercisable at January 31, 2008
|
2,944,219
|
0.50
|
0.11
|
|||
|
Granted
|
1,269,500
|
0.15
|
0.07
|
|||
|
Exercised
|
-
|
0.00
|
0.00
|
|||
|
Outstanding
and exercisable at January 31, 2009
|
4,213,719
|
$ 0.39
|
$ 0.10
|
F-21
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
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 January 31, 2008.
|
Exercise
price range
|
Number
of options outstanding
|
Weighted-average
exercise price
|
Weighted-average
remaining life
|
|||
|
$0.50
|
3,186,219
|
$ 0.50
|
1.7
years
|
|||
|
$0.25
|
27,500
|
0.25
|
2.3
years
|
|||
|
$0.06
|
1,000,000
|
0.06
|
3
years
|
|||
|
4,213,719
|
$ 0.39
|
1.9
years
|
Stock Options
During
the year ended January 31, 2008, the Company granted officers, directors and
employees 425,000 options to purchase shares of common stock at an exercise
price of $0.35 per share (the market value of the common stock on the date of
the grant). The options were valued at $140,250 based upon the
Black-Scholes option pricing model (approximately a $0.33 grant date fair value
per option). The options were fully-vested at the date of the grant
and therefore, the Company recorded $140,250 of stock based compensation expense
during the year ended January 31, 2008. All options outstanding at
January 31, 2009 are fully vested and exercisable. A summary of
outstanding balances at January 31, 2009 and 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
|
0
|
0
|
0
|
0
|
|||
|
Outstanding
at January 31, 2009
|
425,000
|
$0.35
|
3.92
|
$0
|
The fair
value of options granted to purchase the Company’s common stock were estimated
on the date of the grant using the Black Scholes option pricing model with the
following assumptions used for the grants made during the year ended January 31,
2008:
F-22
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
|
Issuance Date
|
Fair
Value
|
Term
|
Exercise
Price
|
Market
Price on Grant Date
|
Volatility
Percentage
|
Interest
Rate
|
|
December
2007
|
$140,250
|
5
years
|
$0.35
|
$0.35
|
165%
|
3.375%
|
During
the fiscal year ended January 31, 2009, the Company granted no stock
options.
NOTE
6. COMMITMENTS AND CONTINGENCIES
CRADA
Agreement
On
September 30, 2004, the Company entered into a Cooperative Research and
Development Agreement (CRADA) with the VA Medical Center, Tampa FL, a laboratory
of Department of Veterans Affairs with the purpose of providing funds for the
VA’s final objective of developing therapeutic reagents to inhibit cancer cell
proliferation. In exchange, the Company will receive an exclusive
option to elect an exclusive or partially exclusive license to commercialize any
subject invention. The Company signed a separate gift agreement (the
“Agreement”) with James E. Haley Veterans Research and Education Foundation,
Inc. (“JHVREF”), whose purpose is to administer funding in accordance with the
VHA Handbook on Research Business Operations.
Under the
Agreement, the Company agreed to contribute $75,000 to JHVREF on a quarterly
basis for three years. Such contributions commenced on September 30,
2004 to continue on the first day of each calendar quarter until the total sum
of $900,000 is paid at the end of the three-year term. JHVREF has
full legal ownership of the gifts immediately upon receipt as well as ultimate
control over all distribution and use of the funds, subject to the terms and
conditions of the Agreement. The Company has the right and authority
to terminate the Agreement upon written notice and thereby be released only from
its commitments to make any future gifts that remain to be paid.
The
Company incurred $0 and $150,000 in research and development cost during each of
the years ended January 31, 2009 and 2008, and has incurred a total of $900,000
during the period from May 11, 2004 (inception) through January 31,
2009. As of January 31, 2009, $227,000 in research and development
fees were accrued but unpaid.
F-23
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
License
Agreement
In August
2008, the Company executed a License Agreement between the Company, the
University of South Florida Research Foundation, Inc. and the University of
Florida Research Foundation, Inc. (“License Agreement”) through which the
Company will 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. Under the agreement, the Company currently owes a $40,000
Technology Access Fee, which has not yet been paid. 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 are also to receive a 4% ownership interest in
the Company subject to certain anti-dilution provisions.
As of
January 31, 2009, the Company has failed to pay the technology access fee and
has failed to substantially perform under the License Agreement. As a
result, the licensors could declare a default under the License Agreement to the
Company at any time and if the Company fails to perform its obligations under
the agreement during any cure period, the Company may lose its ability to secure
the licensing rights for the ICA-1 process.
NOTE
7. INCOME TAXES
A
reconciliation of U.S. statutory federal income tax rate to the effective rate
follows for the years ended January 31, 2009 and 2008:
|
For
the
year
ended January 31,
|
For
the
year
ended January 31
|
|||
|
2009
|
2008
|
|||
|
U.S.
statutory federal rate
|
34.00%
|
34.00%
|
||
|
State
income tax rate
|
3.06%
|
4.63%
|
||
|
Net
operating loss for which no tax
|
||||
|
benefit
is currently available
|
-37.06%
|
-38.63%
|
||
|
0.00%
|
0.00%
|
|||
At
January 31, 2009, deferred tax assets consisted of a net tax asset of
$1,332,500, due to operating loss carry forwards of $3,537,181, which was fully
allowed for, in the valuation allowance of $1,332,500. The valuation
allowance offsets the net deferred tax asset for which there is no assurance of
recovery. The increase in the deferred tax assets and the
corresponding valuation allowance during the year ended January 31, 2009 was
$299,900. The net operating loss carry forward expires through the
year 2029.
F-24
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
The
valuation allowance is evaluated at the end of each year, considering positive
and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or
reduced; reduction could result in the complete elimination of the allowance if
positive evidence indicates that the value of the deferred tax assets is no
longer impaired and the allowance is no longer required.
Should
the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carry forwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.
NOTE
8. SUBSEQUENT EVENTS
Pursuant
to an Agreement Concerning the Exchange of Securities by and among the Company,
HPI Partners, LLC (“HPI”), a Colorado Limited Liability Company, and the
Security Holders of HPI Partners, LLC (the “HPI Members”) dated March 4, 2009,
(the “Share Exchange Agreement”), the parties entered into a share exchange
whereby all of the issued and outstanding membership interests of HPI were
exchanged for 171,123,297 shares of the Company’s $0.001 par value common stock
and 418,500 shares of the Company’s $0.001 par value Series A Preferred Stock,
through which HPI and its wholly-owned subsidiary AlumiFuel Power, Inc. became a
wholly owned subsidiaries of the Company (the “Share Exchange”). The
418,500 shares of the Company’s Series A Preferred Stock automatically convert
to 34,397,261 shares of the Company’s $0.001 par value common stock upon
approval by the Company’s stockholders of an increase in the number of
authorized common shares sufficient to effect the conversion. In
addition, the HPI Members received warrants to purchase up to 14,302,500 shares
of the Company’s $0.001 par value common stock, in exchange for a like number of
HPI warrants that are exercisable until March 4, 2012 at an exercise price of
$0.12 per share. The Share Exchange was effective as of May 5, 2009,
upon closing of the transaction among the parties.
Under the
terms of the Share Exchange Agreement, HPI issued to the Company a promissory
note in the amount of $200,000 bearing an interest rate of 5% per annum that is
due and payable by HPI to the Company on or before March 4, 2014. In
addition, the Company must commence a private placement of up to $300,000 of its
common stock to be offered to the HPI Members at a per share price equal to
$0.0122, the equivalent price for each share of the Company’s common stock
issued to the HPI Members in the Stock Exchange.
Further
terms of the Share Exchange Agreement require the Company to increase the total
number of shares of the Company issued in the Share Exchange by the same
percentage increase as the increase in the total number of outstanding shares of
the Company resulting from the Company’s issuance, between the May 5, 2009 and
90 days following that date, of all shares it shall issue in exchange for debt
due from the Company to third party debt holders during the 90 day
period.
F-25
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
In
connection with the Share Exchange Agreement, API is a wholly-owned operating
subsidiary of the Company as of May 5, 2009. API is a an early
production stage alternative energy company that generates hydrogen gas and
steam for multiple niche applications requiring on-site, on-demand fuel
sources. API’s hydrogen drives fuel cells for back-up, remote, and
portable power, fills inflatable devices such as weather balloons, and can
replace costly, hard-to-handle and high pressure K-Cylinders. Its steam/hydrogen
output is also being designed to drive turbine-based underwater propulsion
systems and auxiliary power systems. API has significant
differentiators in performance, adaptability, safety and cost-effectiveness in
its target market applications, with no external power required and no toxic
chemicals or by-products.
API’s
technology is based on the exothermic reaction of aluminum powder and water,
combined with proprietary additives which act as catalysts, initiators and
reactants. Novel packaging of the aluminum powder and additives into cartridges
enables them to be inserted into a generator/reactor, where an infusion of water
results in the rapid generation of highly pure hydrogen and superheated
steam. API has an outstanding IP portfolio, including new patent
filings embodying its unique and independent technology, and significant
proprietary know-how regarding the practical ability to engineer desired
reactions at required scales and rates.
API’s lab
and offices are located in the Philadelphia Science Center in downtown
Philadelphia, where it has access to world class testing instruments and
technical talent. API has a seasoned management team and an
experienced and dedicated technical team; and has close working relationships
with major industry players as path-to-market partners, including major defense
contractors and commercial fabricators of the company’s reactors and cartridge
products on an outsourcing basis.
Additionally,
the Company issued warrants to purchase 10,276,027 shares of common stock of the
Company to third parties who assisted the Company in the transaction. These
warrants expire on March 4, 2012 and one third have an exercise price of $0.10
per share, one third have an exercise price of $0.15 per share and one third
have an exercise price of $0.18 per share.
The
171,123,297 shares of common stock that were issued represent approximately
88.6% of the outstanding capital stock at the time of the Share
Exchange. Upon the event of the Series A Preferred Stock being
converted into 34,397,261 shares of Company common stock, the former members of
HPI would own approximately 90.3% of our common stock on a post-transaction
basis (assuming that the Company does not, prior to the conversion of the Series
A Preferred Stock, issue any additional shares of common stock other than
pursuant to conversion of the Series A Preferred Stock).
The
warrants that were issued were valued at $1,587,328 based upon the Black Scholes
option pricing model.
F-26
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Pro
forma information
Due to
the significance of the acquisition of HPI and the effect on the Company’s
financial position and results of operations, the following unaudited pro forma
condensed consolidated balance sheet is presented as if the transaction was
consummated at the end of the period presented, and the unaudited pro forma
condensed statement of operations reflect the acquisition of HPI as if the
transaction had been consummated at the beginning of the period
presented. The accompanying unaudited pro forma condensed financial
statements should be read in conjunction with the notes to the unaudited
condensed financial statements. The unaudited pro forma condensed
financial statements may not be indicative of the results that actually would
have occurred if the transaction had been effective on the dates indicated nor
are they the results that may be obtained in the future.
F-27
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Unaudited
Pro Forma Condensed Balance Sheet
|
Inhibiton Therapeutics.,
Inc.
January 31,
2009
|
HPI Partners,
LLC
December 31, 2008 (Unaudited)
|
Pro forma Entries
|
Consolidation
|
||||||||||||||
|
Assets
|
|||||||||||||||||
|
Cash
|
$655 | $292 | $- | $947 | |||||||||||||
|
Accounts
receivable
|
- | 20,000 | - | 20,000 | |||||||||||||
|
Notes and interest
receivable
|
- | 125,698 | - | 125,698 | |||||||||||||
|
Prepaid expenses and
deposits
|
- | 11,795 | - | 11,795 | |||||||||||||
|
Total current
assets
|
655 | 157,785 | - | 158,440 | |||||||||||||
|
Property, plant and
equipment
|
- | 2,032 | - | 2,032 | |||||||||||||
| $655 | $159,817 | $- | $160,472 | ||||||||||||||
|
Liabilities and Shareholders'
Deficit
|
|||||||||||||||||
|
Current
liabilities
|
|||||||||||||||||
|
Accounts and notes
payable:
|
|||||||||||||||||
|
Payroll taxes payable
|
$- | $52,576 | $- | $52,576 | |||||||||||||
|
Accounts payable, related
parties
|
83,850 | - | - | 83,850 | |||||||||||||
|
Accounts payable,
other
|
300,811 | 239,224 | - | 540,035 | |||||||||||||
|
Derivative liability, convertible notes
payable
|
26,583 | - | - | 26,583 | |||||||||||||
|
Notes payable, related
party
|
216,766 | 22,147 | - | 238,913 | |||||||||||||
|
Notes payable,
other
|
35,200 | 124,999 | - | 160,199 | |||||||||||||
|
Convertible notes payable, net of
discount
|
246,798 | 150,000 | - | 396,798 | |||||||||||||
|
Convertible notes payable related
net of discount
|
- | 36,800 | - | 36,800 | |||||||||||||
|
Accrued interest
payable:
|
|||||||||||||||||
|
Interest payable, convertible
notes
|
6,306 | 21,426 | - | 27,732 | |||||||||||||
|
Interest payable, related party
notes
|
39,163 | - | - | 39,163 | |||||||||||||
|
Interest payable, notes payable
other
|
9,761 | 2,070 | - | 11,831 | |||||||||||||
| 965,238 | 649,242 | - | 1,614,480 | ||||||||||||||
|
Commitments and
contingencies
|
|||||||||||||||||
|
Shareholders'
deficit:
|
|||||||||||||||||
|
Preferred
stock
|
- | - | 418 |
B
|
418 | ||||||||||||
|
Common
stock
|
22,076 | 1,636,800 | (1,465,677 | ) |
A,B
|
193,199 | |||||||||||
|
Additional paid-in
capital
|
2,550,522 | - | 926,362 |
A,B,C
|
3,476,884 | ||||||||||||
|
Retained
deficit
|
(3,537,181 | ) | (2,126,225 | ) | 538,897 |
A,C
|
(5,124,509 | ) | |||||||||
| (964,583 | ) | (489,425 | ) | - | (1,454,008 | ) | |||||||||||
| $655 | $159,817 | $- | $160,472 | ||||||||||||||
See notes
to unaudited pro forma condensed financial statements.
F-28
INHIBITON
THERAPEUTICS, INC.
(A
Development Stage Company)
Notes
to Financial Statements (Continued)
Unaudited
Pro Form Condensed Statement of Operations
|
Inhibiton Therapeutics., Inc.
January 31,
2009
|
HPI Partners,
LLC
December 31, 2008 (Unaudited)
|
Pro forma Entries
|
Consolidation
|
|||||
|
Revenues
|
$ -
|
$ 24,948
|
$ -
|
$ 24,948
|
||||
|
Net loss
|
(809,216)
|
(2,114,100)
|
(1,587,328)
|
C
|
(4,510,644)
|
|||
|
Net loss applicable to common
stockholders
|
$ (809,216)
|
$ (2,114,100)
|
$(1,587,328)
|
C
|
$ (4,510,644)
|
|||
|
Basic and diluted loss per common
share
|
$ (0.04)
|
$ (1.29)
|
$ -
|
$ (0.02)
|
||||
|
Shares used in per share
calculation
|
18,979,976
|
1,636,800
|
169,486,497
|
D
|
190,103,273
|
See notes
to unaudited pro forma condensed financial statements.
Pro Forma
Adjustments:
|
A.
|
To
close out the equity of HPI Partners following the
transaction.
|
|
B.
|
To
adjust the stockholders’ deficit to reflect the recapitalization of the
Company with 193,100,290 shares outstanding at $.001 par
value of common stock and 418,500 shares outstanding at $.001
par value of Series A preferred stock outstanding following the
transaction.
|
|
C.
|
To
record stock compensation expense for warrants issued in the
transaction.
|
|
D.
|
To
adjust the weighted average common shares outstanding to reflect the
issuance of 171,123,297 shares of common stock as if they were issued at
the beginning of the period.
|
F-29