10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

(Mark One)

þ   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   June 30, 2006

o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to________________

Commission file number          000-50960

Integrated Pharmaceuticals, Inc.

(Exact name of small business issuer in its charter)

Idaho	04-3413196
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

310 Authority Drive

Fitchburg, MA 01420

(Address of principal executive offices) (Zip Code)

(978) 696-0020

(Issuer’s telephone number, including area code)

Securities registered under Section 12(g) of the Act:

Title of class	Name of Exchange on Which Registered
Common Stock, par value $.01 per share	None
2006 Common Stock Purchase Warrants	None

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso       Noþ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.  Yes o  No o

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 11, 2006, the Issuer had 22,784,217 shares of common stock outstanding.

Transitional Small Business Disclosure Format (Check one):      Yeso         Noþ

INTEGRATED PHARMACEUTICALS, INC.

FORM 10-QSB

TABLE OF CONTENTS

	PAGE
PART I.  FINANCIAL INFORMATION	2
ITEM 1    Financial Statements	2
ITEM 2    Plan of Operation; Management’s Discussion and Analysis	15
ITEM 3    Controls and Procedures	16
	16
PART II. - OTHER INFORMATION
ITEM 1    Legal Proceedings	16
ITEM 2    Unregistered Sales of Equity Securities and Use of Proceeds	16
ITEM 3    Default Upon Senior Securities	16
ITEM 4    Submission of Matters to a Vote of Security Holders	16
ITEM 5    Other Information	16
ITEM 6    Exhibits and Reports on Form 8-K	17
SIGNATURES	18

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, certain information described in this document contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,”“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. You should read the statements that contain these words carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. Integrated Pharmaceuticals, Inc. believes that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control. The factors listed below in the section captioned “Risk Factors,” within the section “Description of Business” as well as any cautionary language in this Form, provide examples of risks, uncertainties and events that may cause our actual results and achievements expressed or implied to differ materially from the expectations we described in our forward-looking statements. Integrated Pharmaceuticals, Inc. believes that before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form could have a material adverse effect on our business, results of operations and financial position.

1

PART I

Item 1.Financial Statements

Integrated Pharmaceuticals, Inc.

Financial Statements

For The Quarter Ended June 30, 2006

(Unaudited)

CONTENTS

PAGE

3 Balance Sheets As At June 30, 2006 and December 31, 2005

4 Statements Of Operations And Income For The Three Months Ended June 30, 2006 and 2005

5 Statements Of Cash Flows For The Three Months Ended June 30, 2006 and 2005

6 - 14 Notes To Financial Statements - June 30, 2006

2

INTEGRATED PHARMACEUTICALS, INC.

(A Development Stage Company)

BALANCE SHEETS 

	June 30,
	2006			December 31,
	(unaudited)			2005
ASSETS
CURRENT ASSETS
Cash	$	406,937		$	182,582
Accounts receivable		39,085			20,173
Inventory		107,705			123,144
Prepaid expenses		34,038			58,220
Total Current Assets		587,765			384,119
PROPERTY AND EQUIPMENT, net		1,483,297			1,745,371
OTHER ASSETS
Investments		3,430			980
Deposits		—			763
Patents, net of amortization		97,580			57,796
Total Other Assets		101,010			59,539
TOTAL ASSETS	$	2,172,072		$	2,189,029
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	160,803		$	179,662
Accrued expenses		182,431			176,118
Related party short-term debt		40,381			52,815
Capital leases payable - current portion		—			195
Total Current Liabilities		383,615			408,790
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ EQUITY
Preferred stock, $0.10 par value, 20,000 shares
authorized; no shares issued		—			—
Common stock, $0.01 par value, 75,000,000 shares
authorized; 22,553,106 and 18,632,626 shares
issued and outstanding, respectively		225,530			186,326
Additional paid-in capital		7,457,730			6,736,346
Other comprehensive income (loss)		1,410			(1,040	)
Stock options and warrants		8,132,267			7,824,142
Accumulated deficit prior to development stage		(494,624	)		(494,624	)
Accumulated deficit during development stage		(13,533,856	)		(12,470,911	)
Total Stockholders’ Equity		1,788,457			1,780,239
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	2,172,072		$	2,189,029

The accompanying condensed notes are an integral part of these financial statements.

3

INTEGRATED PHARMACEUTICALS, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS 

													Period from
													February 1, 2003
	Three Months Ended						Six Months Ended						(inception of
													development stage)
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005			to June 30, 2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
REVENUES	$	14,400		$	—		$	60,658		$	34,650		$	137,999
COST OF GOODS SOLD
Materials and supplies		13,112			—			56,101			5,694			101,079
Total Cost of Goods Sold		13,112			—			56,101			5,694			101,079
GROSS PROFIT		1,288			—			4,557			28,956			36,920
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization		64,286			63,467			130,786			125,497			654,552
Research and development		43,523			81,819			86,533			167,142			835,627
Marketing		6,777			79,106			8,849			151,153			580,186
Legal and professional fees		45,669			108,348			91,891			186,439			1,070,669
Consulting		14,719			152,864			74,078			354,393			3,108,077
Idle facility expense		131,469			287,496			285,264			616,623			1,714,446
Occupancy		36,274			75,378			69,210			178,568			1,095,327
Labor and benefits		21,843			80,988			47,668			150,507			801,690
Services paid by stock options		79,875			126,555			180,648			260,580			1,436,077
Office supplies and expenses		5,037			11,238			9,918			22,466			173,266
Travel		2,819			10,942			3,621			23,868			174,424
Other general and administrative expenses		25,453			38,732			76,075			65,227			511,577
Total General and Administrative Expenses		477,744			1,116,933			1,064,541			2,302,463			12,155,918
OPERATING INCOME (LOSS)		(476,456	)		(1,116,933	)		(1,059,984	)		(2,273,507	)		(12,118,998	)
OTHER INCOME (EXPENSES)
Interest income		3			312			76			1,128			10,274
Interest expense		(1,469	)		(165	)		(3,037	)		(410	)		(1,419,572	)
Other income (expense)		—			—			—			—			(5,560	)
Total Other Income and Expenses		(1,466	)		147			(2,961	)		718			(1,414,858	)
LOSS BEFORE TAXES		(477,922	)		(1,116,786	)		(1,062,945	)		(2,272,789	)		(13,533,856	)
INCOME TAXES		—			—			—			—			—
NET LOSS		(477,922	)		(1,116,786	)		(1,062,945	)		(2,272,789	)		(13,533,856	)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) in market value of
investments		900			(450	)		2,450			(780	)		1,410
COMPREHENSIVE LOSS	$	(477,022	)	$	(1,117,236	)	$	(1,060,495	)	$	(2,273,569	)	$	(13,532,446	)
NET INCOME (LOSS) PER COMMON SHARE,
BASIC AND DILUTED	$	(0.02	)	$	(0.07	)	$	(0.05	)	$	(0.14	)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED		20,231,949			16,555,317			20,231,949			16,555,317

The accompanying condensed notes are an integral part of these financial statements.

4

INTEGRATED PHARMACEUTICALS, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

							Period from
							February 1, 2003
							(inception of
	Period Ended			Period Ended			development stage)
	June 30, 2006			June 30, 2005			to June 30, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(1,062,945	)	$	(2,272,789	)	$	(13,533,856	)
Adjustments to reconcile net income (loss) to net cash
flows provided (used) by operating activities:
Depreciation and amortization		266,240			129,244			1,066,294
Loss on disposition of assets		—			—			7,024
Stock and warrants issued as incentive for notes payables		—			—			496,389
Stock issued for interest expense		—			—			149,878
Stock issued for rent expense		17,033			71,903			608,612
Stock issued for services		11,954			43,227			1,019,575
Stock issued for assets and securities		—			—			43,739
Stock options and warrants vested		254,726			323,254			3,644,633
Recognition of noncash deferred financing expense		—			—			578,699
Options and warrants issued for services and financing		—			—			253,753
Noncash recovery of other income		—			—			(1,850	)
Changes in assets and liabilities:
Receivables		(18,912	)		(14,650	)		(23,001	)
Inventory		15,439			(41,688	)		(107,705	)
Prepaid expenses		24,182			(22,398	)		113,521
Other assets		763			—			6,370
Accounts payable		(18,859	)		(121,063	)		62,256
Accrued expenses		6,313			(43,119	)		(552	)
Net cash used by operating activities		(504,066	)		(1,948,079	)		(5,616,221	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(4,167	)		(189,502	)		(2,678,265	)
Patent costs		(39,783	)		—			(104,001	)
Leasehold concessions received		—			—			185,000
Net cash used by investing activities		(43,950	)		(189,502	)		(2,597,266	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock units		785,000			—			7,417,375
Payments on capital leases		(195	)		(742	)		(9,563	)
Payments on related party loans		(12,434	)		—			(16,320	)
Proceeds from exercise of options		—			—			1,080
Proceeds from convertible debt		—			—			939,900
Net cash provided by financing activities		772,371			(742	)		8,332,472
Net increase in cash		224,355			(2,138,323	)		118,985
Cash, beginning of period		182,582			1,461,708			287,952
Cash, end of period	$	406,937		$	(676,615	)	$	406,937
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid	$	—		$	—		$	—
Interest paid	$	—		$	—		$	25,000
NON-CASH INVESTING AND FINANCING:
Stock and warrants issued for convertible debt	$	—		$	—		$	1,613,076
Stock issued for assets and securities	$	—		$	—		$	43,739
Stock issued as deferred incentive for notes payables	$	—		$	—		$	519,587
Warrants and options issued for deferred services and financing	$	—		$	—		$	520,102
Accounts payable paid by contributed capital	$	—		$	—		$	27,767
Noncash recovery of other income	$	—		$	—		$	1,850

The accompanying condensed notes are an integral part of these financial statements.

5

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

NOTE 1 - BUSINESS ORGANIZATION AND BASIS OF PRESENTATION

Integrated Pharmaceuticals, Inc., (hereinafter, “the Company”) is the successor to Advanced Process Technologies, Inc. (hereinafter, “APT”) a corporation formed on March 23, 1998 under the laws of the Commonwealth of Massachusetts. In February 2003, the Company began a new development stage whereby it began the development of technologies for the production of clinically active pharmaceutical compounds, including active small molecules and recombinant DNA technology derived products. The Company was involved in contract research for pharmaceutical companies, through January 2003, when it changed its primary focus to the development of its own technology and manufacturing capacity.

On September 5, 2000, the Company agreed to an exchange of its stock in an acquisition with Bitterroot Mining Company (hereinafter “Bitterroot”). This transaction was accounted for as an acquisition and recapitalization of an operating enterprise by a non-operating public company. The legal entity is that of Bitterroot, while the accounting entity is the operating company, which had been APT. At that time, the Company acquired new non-qualifying shareholders and automatically converted from an “S” corporation to a regular “C” corporation. On November 28, 2000, the Company changed its name to Integrated Pharmaceuticals, Inc. As a result of this transaction, Integrated Pharmaceuticals, Inc. changed it state of domicile to Idaho, and operates as an Idaho corporation.

In 2004, the Company obtained significant additional capital through a private placement of its stock and the issuance of convertible debt. Additionally, the majority of this convertible debt was converted to common stock during 2004. Management plans to use the majority of the proceeds from the financing to implement its business plan. As a result of the proceeds received from stock issuances and the conversion of debt to common stock, as well as the private placement which commenced in May 2005 and continued through June 2006, management has determined that it can continue as a going concern for at least the next twelve months.

At June 30, 2006, the Company was considered a development stage enterprise as it is devoting substantially all of its efforts to establishing a new business and substantial planned principal operations had not yet commenced.

The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10QSB and Regulation S-B as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2005. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the six-month period ended June

6

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

NOTE 2 - LIMITED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

Development Stage Activities

The Company began a new development stage February 1, 2003, when it discontinued outside contract research as its primary focus. It is now primarily engaged in the development and production of clinically active pharmaceutical compounds, including active small molecules and recombinant DNA technology derived products.

Fair Value of Financial Instruments

The Company’s financial instruments as defined by Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” include cash, receivables, and payable. All instruments are accounted for on an historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at June 30, 2006.

Inventory

The Company maintains an inventory of raw materials, work in process, and finished goods. Inventories are stated at the lower of cost or market. Cost has been determined by using the first-in first-out method. As of June 30, 2006, the Company’s raw material, work in process, and finished goods inventories totaled $57,807, $5,986, and $43,912 respectively.

Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial

7

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. The statement further permits, at its initial adoption, a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available for sale securities under Statement 115, provided that the available for sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations at June 30, 2006.

In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments, an Amendment of FASB Standards No. 133 and 140” (hereinafter “SFAS No. 155”). This statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133 as well as eliminating a restriction on the passive derivative instruments that a qualifying special-purpose entity (“SPE”) may hold under SFAS No. 140. This statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would be required to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no impact immediate on the Company’s financial condition or results of operations at June 30, 2006.

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections,” (hereinafter “SFAS No. 154”) which replaces Accounting Principles Board Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements -

8

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

An Amendment of APB Opinion No. 28.” SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections. SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005. The Company does not expect SFAS No. 154 to have an immediate impact on its consolidated financial position, results of operations, or cash flows at June 30, 2006.

In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies that the term “conditional asset retirement obligation,” which as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The entity must record a liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations at June 30, 2006.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153.  This statement addresses the measurement of exchanges of nonmonetary assets.  The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  The guidance in that opinion, however, included certain exceptions to that principle.  This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance.  A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  This statement is effective for financial statements for fiscal years beginning after June 15, 2005.  Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued.  Management believes the adoption of this statement will have no immediate impact on the financial statements of the Company at June 30, 2006. 

In December 2004, the Financial Accounting Standards Board issued a revision to Statement of Financial Accounting Standards No. 123R, “Accounting for Stock Based Compensation.”  This statement supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance.  This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.  This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. 

9

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

This statement does not change the accounting guidance for share based payment transactions with parties other than employees provided in Statement of Financial Accounting Standards No. 123.  This statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans.” The Company expects no changes to its financial reporting as it is currently reporting and complying with the fair value method of SFAS No. 123.

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, “Inventory Costs— an amendment of ARB No. 43, Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company had previously adopted this statement for its year ended December 31, 2004. For the period ended June 30, 2006, the Company has recorded $285,263.68 as idle facility expense.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from 5 to 10 years. The following is a summary of property, equipment and accumulated depreciation at June 30, 2006 and December 31, 2005:

	2006			2005
Equipment	$	1,734,981		$	1,730,815
Furniture and fixtures		120,114			120,114
Leasehold improvements		826,511			826,511
		2,681,606			2,677,440
Less: Accumulated depreciation		(1,198,309	)		(932,069	)
Total	$	1,483,297		$	1,745,371

Depreciation and amortization expense for the periods ended June 30, 2006 and December 31, 2005 were $266,240 (of which $139,875 is included in “idle facility expense”), and $528,956 (of which $276,328 is included in “idle facility expense”), respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts.

10

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.

Patents

During the second quarter of 2006 the company has filed one non-provisional patent to the United States Patent and Trade Mark office.

NOTE 4 - CAPITAL STOCK

Preferred Stock

In November 2004, the Company amended the authorized capital stock section of its articles of incorporation. The Company is authorized to issue 20,000 shares of non-assessable $0.10 par value preferred stock. As of June 30, 2006, the Company has not issued any preferred stock.

Common Stock

In November 2004, the Company amended the authorized capital stock section of its articles of incorporation. The Company is authorized to issue 75,000,000 shares of non-assessable $0.01 par value common stock. Each share of stock is entitled to one vote at the annual shareholders’ meeting.

In May 2005, the Company commenced a private placement offering of its common stock to accredited investors. During the first round of investment, the Company sold 1,044,166 units for $0.75 per unit, with each unit consisting of one share of common stock and 40% of a warrant to purchase an additional share of common stock, raising $783,125. The exercise price of the warrants is $1.50, and they expire on December 31, 2007. The value of the warrants attached to the stock issued was $110,454, based upon the Black-Scholes calculation.

In November 2005, during the second round of investment, the Company sold 954,001 units for $0.25 per unit, with each unit consisting of one share of common stock and 80% of a warrant to purchase an additional share of common stock, raising $238,500. The exercise price of the warrants is $0.90, and they expire on June 30, 2008. The value of the warrants attached to the stock issued was $25,540, based upon the Black-Scholes calculation.

In November 2005 individuals that had invested during the first round of the private placement offering, received additional warrants. They received 20% of the number of shares originally purchased. The exercise price of these warrants was $1.50, and they expire on December 31, 2007.

In November 2005 individuals that invested during both rounds of the private placement offering received additional warrants. They received 40% of the number of shares purchased during the first round. The exercise price of these warrants was $1.50, and they expire on December 31, 2007.

11

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

In January 2006 the Company raised an additional $100,000 from investors based on the terms of the second round of financing. The company sold 400,000 units for $0.25 per unit, with each unit consisting of one share of common stock and 80% of a warrant to purchase an additional share of common stock. The exercise price of the warrants is $0.90, and they expire on June 30, 2008. The value of the warrants attached to the stock issued was $6,000, based upon the Black-Scholes calculation.

In March 2006 a third round of investing was started. During the period ended June 30, 2006, the Company sold 3,425,000 units for $.20 per unit, with each unit consisting of one share of common stock and 40% of a warrant to purchase an additional share of common stock, raising $685,000. The exercise price of the warrants is $0.45, and they expire on June 30, 2008. The value of the warrants attached to the stock issued was $77,050, based upon the Black-Scholes calculation.

The Company has a lease for its facility in Fitchburg, Massachusetts whereby the base rent is paid with one share of common stock for each $1.00 of rent. A total of 59,148 shares, valued at approximately $17,033, were issued during the six-month period ended June 30, 2006 for payment of rent. Additionally, the Company issued 36,332 shares of common stock at an average price of $.33 per share in exchange for services.

NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS

2002 Stock Plan

During the six months ended June 30, 2006, the Company recorded an expense of approximately $180,648 for vested options. Options in the amount of $29,651 were rescinded.

The following is a summary of the Company’s equity compensation plans:

Plan	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plan approved by security holders (1)	1,025,000	$  0.62	575,000
Total	1,025,000		575,000

(1) Second Amended and Restated 2002 Stock Plan

12

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

Following is a summary of the status of the options outstanding during the periods ended December 31, 2005 and June 30, 2006.

	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2004		1,283,000		$	0.96
Granted		2,000			.65
Exercised		(6,000	)		.18
Rescinded		(119,000	)		—
Outstanding at December 31, 2005		1,160,000			0.60
Granted		—			—
Exercised		—			—
Rescinded		(135,000	)		—
Options outstanding at June 30, 2006		1,025,000		$	0.62
Options exercisable at June 30, 2006		765,000		$	0.72
Weighted average fair value of options granted in 2006					—

At June 30, 2006, the Company had granted but unvested options with a fair market value of $203,804.

Warrants

At June 30, 2006 and December 31, 2005, there were outstanding warrants to purchase 7,760,401 and 6,729,068 shares respectively, of the Company’s common stock, at prices ranging from $.45 to $2.50 per share. The warrants vest at various rates ranging up to 4 years and expire at various dates through 2014.

NOTE 6 - CONCENTRATIONS

Credit Risk for Cash Held at Banks

The Company maintains its cash accounts primarily at a Massachusetts bank. These funds are insured to a maximum of $100,000. At June 30, 2006, approximately $306,937 was at risk.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

Patent License Agreement

During 2001, the Company entered into a license agreement, with a related party, for the rights to a patent application. The Company may further develop, make, use, sub-lease, promote, distribute, sell and market the patent product or process. The Company is responsible for the

13

INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006

expenses of prosecuting the patent application, which matured into an issued patent in 2002. In addition, a royalty of 3% of net sales, less discounts, is obligated to be paid on a quarterly basis for the license, with minimum annual royalties of $100,000, before discounts. During the periods ended December 31, 2005 and June 30, 2006, applicable royalties were waived by the patent holder.

On October 13, 2005, the license agreement was amended. The related party agreed to waive any royalties until the Company reaches annual sales of $5,000,000. In addition, the related party agreed to waive any royalties if the products produced by the licensed technology don’t make a profit of more than 12.5% before payment of income taxes (EBITA). No royalties were paid or accrued during the period ended June 30, 2006.

Building Lease in Fitchburg

In September 2003, the Company signed a five-year lease agreement for a commercial real estate property in Fitchburg, Massachusetts. The base rent, which for the first year was $10,843 per month, will be paid with one share of common stock for each $1.00 of rent. The Company has the option to purchase this property in September 2006 and is obligated to do so by September 2008. If the Company has not purchased the property by September 2006, then the rent becomes payable 50% in cash and 50% in stock.

Total rental expense, including common area charges, for the periods ending June 30, 2006 and December 31, 2005 was approximately $31,033 (of which $20,689 is included in “idle facility expense”) and $169,920 (of which $113,280 is included in “idle facility expense”).

NOTE 8 -SUBSEQUENT EVENTS

Application for Bulletin Board Listing

Subsequent to June 30 2006, the Company has submitted an application to the NASD to list it’s stock on the Bulletin Board Exchange. The application is under review.

14

Item 2.   Management’s Discussion and Analysis

Management’s Discussion and Analysis of Financial Conditions and Results of Operations:

The following management discussion, analysis and results of operations should be read in conjunction with the financial information set forth above in this Form 10-QSB. There are many factors which may affect our future business operations, some of which are described in the risk factors section of amendment no. 4 of our Form-10SB, filed August 19, 2005 and hereby incorporated by reference. This discussion contains forward looking statements which include our beliefs, estimates, projections and anticipated operating conditions and revenues, all of these may change in the near future due to uncertainties and risks involved in our business.

Plan of Operation

We are a development stage company. We are seeking to market products that incorporate or are made with our proprietary products and processes. We are also growing our intellectual property portfolio relating to our products and processes. In particular, we are focusing our efforts on the development of products that use our proprietary calcium technology, including a powdered calcium supplement that a third party has begun to market under the brand name “Calsap™”. This product is now available in certain supermarkets and over the internet at www.calsap.com.

In the first six months of 2006, we raised $785,000 through the sale of unregistered securities. We currently project that our cash on hand is sufficient to sustain our operations through the third quarter, and into the fourth quarter, of 2006. We anticipate raising additional capital in the fourth quarter of 2006 through the sale of common stock and warrants, market conditions permitting. Most of the capital that we have raised recently and plan to raise has been and will be used to continue operating our production facility in Fitchburg, Massachusetts. We have not hired any additional permanent employees during the second quarter of 2006 and have no plans to do so in the near term.

We have filed one patent application in the second quarter of 2006 which we believe will help us to protect our product portfolio and business expansion activities. In the second quarter of 2006 we concentrated on production of our calcium dietary supplement product. We are supplying this product in bulk to a distributor who is packaging the product as a consumer item and supplying it to a chain of about 59 grocery stores in New England. Our distributor is also in discussions with other substantial distribution channels. The product is available at the distributor’s website www.calsap.com.

Management Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition and Operations. We increased our revenue to $14,400 in the second quarter 2006 from $0 in second quarter 2005. We have reduced our operating loss from $1,116,933 in the second quarter of 2005 to $476,456 for the second quarter of 2006. We reduced our cost of operations in almost every aspect of our business activities. We reduced the research and development expenses from $81,819 in the second quarter of 2005 to $43,523 during the same period in 2006. Our consulting fee expenses were reduced from $152,864 to $14,719 due to termination of all consulting agreements. Our legal fees have been reduced due to reduced filing-related activities with the SEC. In the second quarter of 2005 we were heavily involved with the preparation of Form 10 KSB to be a reporting company. Our employee labor and benefits went down in the second quarter of 2006 because of the reduction in our work force in August 2005.

15

Liquidity. At the end of the year 2005 we had $182,000 of cash on hand. At the end of the second quarter of 2006, our cash level was $406,937 and our operations cost us approximately $75,000 per month on a cash flow basis. Thus we will need to raise additional capital this year in order to keep operating, and in fact have raised an additional $515,000 during the second quarter of 2006. We expect that a combination of additional capital and additional sales orders to provide us with funds necessary to continue our operations for at least one year.

Material Commitments for Capital Expenditures. We have no such commitments outstanding. We have four scientists actively engaged in research and development and in quality control. We anticipate spending $30,000 in R&D activities by the end of the year, if funds are available, for improvements of our calcium supplement related products, bakery and dairy related products and our generic drug development project.

Trends and Seasonality. We are not aware of any trends that are likely to have a material impact on our liquidity, or on our net sales or revenues or income from continuing operations. We are not aware of any seasonality in our business.

Item 3.   Controls and Procedures

Chinmay Chatterjee, President, CEO and Chief Financial Officer, has evaluated the Company’s disclosure controls and procedures in effect as of June 30, 2006 and concluded that they are effective. He concluded that the controls and procedures provided the officers, on a timely basis, with all information necessary for them to determine that the Company has disclosed all material information required to be included in the Company’s periodic reports filed with the Securities and Exchange Commission. Based upon the officer’s evaluation, there were not any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II. - OTHER INFORMATION

Item 1.   Legal Proceedings.

The Company is not a party to any pending legal proceedings, nor is its property the subject of any pending legal proceeding.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company raised $515,000 through the sale of stock and warrants in a private placement during the three month period ended June 30, 2006. These shares were sold at $0.20 per share. Purchasers also received common stock purchase warrants, exercisable $0.45 per share, permitting them to purchase additional shares of common stock equal in number to 40% the shares that they purchased in the offering. It also paid base rent on its building in Fitchburg, Massachusetts in the form of common stock; and it paid a portion of its legal fees in the form of common stock.

Item 3.   Default Upon Senior Securities

The Company has no senior securities outstanding.

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

No matter was submitted during the first quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.

Item 5.  Other Information.

None.

16

ITEM 6.   Exhibits and Reports on Form 8-K

The following documents are filed as exhibits to this Form 10-QSB:

Number	Description of Exhibit
3.1	Amended and Restated Articles of Incorporation of Integrated Pharmaceuticals, Inc. (1)
3.2	Amended and Restated Bylaws of Integrated Pharmaceuticals, Inc. (2)
4.1	Specimen Certificate for Integrated Pharmaceuticals, Inc. Common Stock, par value $.01 per share (2)
4.2	Form of Common Stock Purchase Warrant (2)
10.1	Amended and Restated Patent License Agreement with NEC Partners (2)
10.2	Lease Agreement with Chantilas Properties, LLC and Advanced Process Technologies, Inc. (2)
10.3	Assignment and Assumption of Lease(2)
10.4	Consulting and Warrant Agreements with James Czirr (2)
10.5	2002 Stock Plan (2)
10.6	Registration Rights Agreement(2)
10.7	Letter dated May 5, 2005 amending the Patent License Agreement with NEC Partners (3)
10.8	Letter dated October 13, 2005 amending the Patent License Agreement with NEC Partners (4)
14	Financial Code of Ethics (5)
21	Subsidiaries of Integrated Pharmaceuticals (5)

(1) Previously filed and incorporated by reference to Amendment No. 1 to the Company’s Form 10-SB Registration Statement filed with the Securities and Exchange Commission on December 3, 2004.

(2) Previously filed and incorporated by reference to the Company’s Form 10-SB Registration Statement filed with the Securities and Exchange Commission on September 27, 2004.

(3) Previously filed and incorporated by reference to Amendment No. 3 to the Company’s Form 10-SB Registration Statement filed with the Securities and Exchange Commission on May 12, 2005.

(4) Previously filed and incorporated by reference to the Company’s Form 10-QSB filed with the Securities Exchange Commission on November 14, 2005.

(5) Previously filed and incorporated by reference to the Company’s Form 10-KSB filed with the Securities Exchange Commission on September 29, 2005.

17

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/  Chinmay Chatterjee

By: Chinmay Chatterjee

Its: CEO

Date: August 15, 2006

18

EX-31

EXHIBIT 31

CERTIFICATION AS REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a)

I, Chinmay Chatterjee, certify that:

1.   I have reviewed this quarterly report of Integrated Pharmaceuticals, Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.   The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(3)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.   The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design of operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Dated: August 15, 2006

/s/ Chinmay Chatterjee

Chinmay Chatterjee

Chief Financial Officer and

Chief Executive Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the report of Integrated Pharmaceuticals, Inc. (the “Company”), on Form 10-QSB for the quarter ending September 30, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, Chinmay Chatterjee, Chief Financial Officer of the Company, certify, pursuant to Sect. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sect. 1350), that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Chinmay Chatterjee

Chinmay Chatterjee, Chief Financial Officer

and Chief Executive Officer

Dated: August 15,, 2006