UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
----------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ____________
Commission file number 33-23693
----------------
ENTROPIN, INC.
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1090424
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
21550 Oxnard Street, Suite 810, Woodland Hills, CA 91367
- --------------------------------------------------------------------------
(Address of principal executive offices)
(818) 340-2323
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
Yes X No
--- ---
As of May 17, 1999, 6,611,072 shares of the issuer's Common Stock, $.001
par value per share were outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
ENTROPIN, INC.
INDEX
-----
PART 1 FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
Item 1. Financial Statements:
Balance Sheet - December 31, 1998 and March 31, 1999 (unaudited) 2
Statement of Operations - For the Three Months Ended March 31, 1998
and 1999 and Cumulative Amounts from Inception (August 27, 1984)
Through March 31, 1999 (unaudited) 4
Statement of Stockholders' Equity - For the Three Months Ended
March 31, 1999 (unaudited) 5
Statement of Cash Flows - For the Three Months Ended March 31, 1998
and 1999 and Cumulative Amounts from Inception (August 27, 1984)
Through March 31, 1999 (unaudited) 6
Notes to Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operations 20
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1998 and March 31, 1999
(Unaudited)
ASSETS
1998 1999
------- --------
Current assets:
Cash and cash equivalents $ 445,333 $ 278,873
Advances - related party - 15,403
--------- ---------
Total current assets 445,333 294,276
Property and equipment, at cost:
Leasehold improvements 72,187 72,187
Office furniture and equipment 15,518 17,018
--------- ---------
87,705 89,205
Less accumulated depreciation (5,006) (9,359)
--------- ---------
Net property and equipment 82,699 79,846
Other assets:
Deposits 12,261 12,261
Patent costs, less accumulated amortization of
$59,600 (1998) and $64,950 (1999) 295,316 302,532
---------- ---------
Total other assets 307,577 314,793
---------- ---------
$ 835,609 $ 688,915
========= =========
See accompanying notes.
2
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1998 and March 31, 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1998 1999
------- --------
Current liabilities:
Accounts payable $ 59,141 $ 55,549
Notes payable (Note 2) - 200,000
Advances - related party 11,314 -
-------- --------
Total current liabilities 70,455 255,549
Deferred royalty agreement (Note 7) 169,783 173,355
Commitments and contingencies (Notes 2 and 7)
Series A redeemable preferred stock, $.001
par value, 3,210,487 shares authorized,
(Note 4) 3,210,487 3,210,487
Series B redeemable convertible preferred stock,
$.001 par value, 400,000 shares authorized,
245,500 shares issued and outstanding (Note 4) 1,142,750 1,142,750
Stockholders' equity (deficit) (Note 5):
Preferred stock, $.001 par value; 10,000,000 shares
authorized, Series A and B reported above - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 6,000,051 shares issued and out-
standing 6,000 6,000
Additional paid-in capital 7,474,210 8,304,210
Deficit accumulated during the development stage (7,578,802) (8,661,927)
Unearned stock compensation (Note 7) (3,659,274) (3,741,509)
Total stockholders' equity (deficit) (3,757,866) (4,093,226)
----------- -----------
$ 835,609 $ 688,915
========== ==========
See accompanying notes.
3
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1999 and for the
Period from August 27, 1984 (inception) to March 31, 1999
(Unaudited)
Cumulative
amounts from
1998 1999 inception
---- ---- ---------
Costs and expenses:
Research and development $ 3,772 $ 318,112 $ 5,171,685
General and administrative 95,372 758,115 3,172,945
Rent - related party 2,080 - 12,314
Depreciation and amortization 4,500 9,703 91,377
-------- --------- -----------
Operating loss (105,724) (1,085,930) (8,448,321)
--------- ----------- -----------
Other income (expense):
Interest income 4,509 2,805 27,543
Interest expense (479) - (241,149)
-------- ---------- ----------
Total other income (expense) 4,030 2,805 (213,606)
-------- ---------- ----------
Net loss (Note 3) (101,694) (1,083,125) (8,661,927)
Accrued dividends applicable to Series
B preferred stock (Note 4) - (30,688) (86,948)
---------- ----------- ----------
Net loss applicable to common
shareholders $ (101,694) $(1,113,813) $(8,748,875)
========== =========== ===========
Basic net loss per common share $ (.02) $ (.19) $ (1.66)
======= ======= ========
Weighted average common shares
outstanding (Note 6) 5,870,000 6,000,000 5,284,000
========= ========= =========
See accompanying notes.
4
<PAGE>
<TABLE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Three Months Ended March 31, 1999
(Unaudited)
<CAPTION>
Deficit
accumulated
Additional Unearned during the
Common stock paid-in stock development
Shares Amount capital compensation stage
------ ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 6,000,051 $ 6,000 $ 7,474,210 $(3,659,274) $(7,578,802)
Unearned stock compensation pursuant to issuance
of common stock options (Note 5) - - 830,000 (830,000) -
Amortization of unearned stock compensation
(Note 5) - - - 747,765 -
Net loss for the three months ended March 31, 1999 - - - - (1,083,125)
--------- ------- ----------- ---------- ----------
Balance, March 31, 1999 6,000,051 $ 6,000 $ 8,304,210 $(3,741,509) $(8,661,927)
========= ======= =========== ========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1999 and for the
Period from August 27, 1984 (inception) to March 31, 1999
(Unaudited)
Cumulative
amounts
from
1998 1999 inception
---- ---- ---------
Cash flows from operating activities:
Net loss $ (101,694) $(1,083,125)$(8,661,927)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,500 9,703 91,377
IBC partner royalty agreement 3,572 3,572 173,355
Services contributed in exchange
for stock or stock options - 747,765 3,195,491
Services contributed in exchange for
compensation agreements - - 2,231,678
Increase in advances - related party - (26,717) (15,403)
Increase (decrease) in accounts
payable (298,246) (3,592) 55,549
Increase in accrued interest - - 169,139
Other - - 131
---------- ---------- ----------
Total adjustments (290,174) 730,731 5,901,317
---------- ---------- ----------
Net cash used in operations (391,868) (352,394) (2,760,610)
Cash flows from investing activities:
Purchase of property and equipment - (1,500) (106,412)
Patent costs - (12,566) (367,482)
Deposits - - (12,261)
--------- --------- ----------
Net cash used in investing activities - (14,066) (486,155)
Cash flows from financing activities:
Proceeds from recapitalization 220,100 - 220,100
Deferred stock offering costs 10,746 - -
Proceeds from sale of common stock 798,110 - 1,153,110
Proceeds from sale of preferred stock - - 1,142,750
Proceeds from stockholder loans - - 809,678
Repayments of stockholder advances (98,873) - -
Proceeds from notes payable - 200,000 200,000
---------- --------- ----------
Net cash provided by financing
activities 930,083 200,000 3,525,638
---------- --------- ----------
Net increase (decrease) in cash 538,215 (166,460) 278,873
Cash and cash equivalents at beginning of
period 291 445,333 -
--------- --------- ---------
Cash and cash equivalents at end of period $ 538,506 $ 278,873 $ 278,873
========== ========== =========
See accompanying notes.
6
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
The accompanying financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Certain notes and other
information have been condensed or omitted from the interim financial statements
presented in this report. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the financial
statements reflect all adjustments considered necessary for a fair presentation.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998 as filed with the Securities and Exchange Commission.
1. Organization and summary of significant accounting policies
Organization:
Entropin, Inc., a Colorado corporation, was organized in August 1984, as a
pharmaceutical research company developing Esterom(R), a topically applied
compound for the treatment of impaired range of motion associated with acute
lower back sprain and acute painful shoulder. The Company is considered to be
a development stage enterprise as more fully defined in Statement No. 7 of
the Financial Accounting Standards Board. Activities from inception include
research and development activities, seeking the U.S. Food and Drug
Administration (FDA) approval for Esterom(R), as well as fund raising.
On January 15, 1998, the Company consummated an agreement and plan of merger
with Vanden Capital Group, Inc. (Vanden), in which Vanden acquired all of the
issued and outstanding common shares of the Company (see Note 5). The Company
was merged into Vanden, and Vanden changed its name to Entropin, Inc. For
accounting purposes the acquisition has been treated as a recapitalization of
the Company, based upon historical cost, a reverse acquisition with the
Company as the acquirer.
Basis of presentation and management's plans:
The Company's financial statements have been presented on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the
development stage and has been primarily involved in research and development
activities. This has resulted in significant losses and an accumulated
deficit at March 31, 1999 of $8,661,927. The Company's continued existence is
dependent on its ability to obtain the additional funding necessary to
complete the FDA approval process for Esterom(R) and market the product.
7
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
1. Organization and summary of significant accounting policies (continued)
As described in Note 5, the Company has successfully completed a private
placement and a recapitalization of the Company which provided additional
liquidity for the Company for current operations. The Company also sold a
private offering of 245,500 shares of Series B convertible preferred stock
for net proceeds of $1,142,750 (Note 4), $200,000 of convertible notes
payable, and 500,000 shares of common stock for gross proceeds of $1,000,000
(Note 9). However, the Company estimates it will require additional funding
of up to $10,000,000 over the next three years to successfully complete the
FDA approval process. The financial statements do not include any adjustment
relating to the recoverability and classification of recorded asset amounts
or the amount and classification of liabilities or other adjustments that
might be necessary should the Company be unable to continue as a going
concern in its present form.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes:
The Company provides for income taxes utilizing the liability approach under
which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which the taxes become payable.
Property and equipment:
Office furniture and equipment is recorded at cost. Depreciation commences as
items are placed in service and is computed on a straight-line method over
their estimated useful lives of five years.
Leasehold improvements are recorded at cost and amortized over the five-year
term of the lease.
Patents:
Patents are stated at cost less accumulated amortization which is calculated
on a straight-line basis over the useful lives of the assets, estimated by
management to average 16 years. Research and development costs and any costs
associated with internally developed patents (with the exception of legal
costs) are expensed in the year incurred.
8
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
1. Organization and summary of significant accounting policies (continued)
Esterom(R) is protected by a U.S. Composition Patent granted December 27,
1994 which includes safeguarding the discovery of three new molecules. The
Company's patents include the following: Patent #5,559,123 granted September
24, 1996 with the Company as Assignee; Patent #5,525,613 granted June 11,
1996 with the Company as Assignee; and Patent #5,376,667 granted December 27,
1994 with the Company as Assignee. In addition, Dr. Lowell M. Somers obtained
the following initial patents which he subsequently assigned to the Company
in September 1992; #4,512,996 granted April 1985; patent #4,469,700 granted
September 1984; and Patent #4,556,663 granted December 1985. Although the
Company has obtained approval of Patent Application #5,556,663, the Patent
has not yet been issued.
Impairment of long-lived assets:
The Company evaluates the potential impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". The Company annually reviews the amount of recorded
long-lived assets for impairment. If the sum of the expected cash flows from
these assets is less than the carrying amount, the Company will recognize an
impairment loss in such period.
Cash equivalents:
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents. The Company
places its cash with high quality financial institutions. At times during the
periods, the balances at financial institutions may exceed FDIC limits.
Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." FAS
130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements and is effective for fiscal years beginning after December 15,
1997. To date, the Company has not had any transactions that are required to
be reported in Comprehensive Income.
9
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
1. Organization and summary of significant accounting policies (continued)
Segment Information:
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, " Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers based on the provisions of FAS 131. The
Company has determined that it does not have separately reportable operating
segments.
Recent Accounting Pronouncements:
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133). The Company is required to adopt SFAS 133 in its fiscal year ending
December 31, 2000. FAS 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into
any derivative financial instruments or hedging activities.
2. Notes payable
On March 24, 1999, the Company received cash proceeds aggregating $200,000
pursuant to eight convertible note payable agreements with various unrelated
individuals and entities. Each note is unsecured, bears interest at 10%, and
is due the earlier of 90 days from the date of issue or upon the receipt by
the Company of certain proceeds from a private offering of its securities. In
the event of default, each note and the unpaid interest will be converted by
the Company into one share of restricted common stock for each two dollars of
principal and interest outstanding (see Note 9). Each note agreement also
provides a warrant granting the holder the right to purchase three and one
half restricted shares of the Company's common stock for each dollar of
principal received by the Company, for an aggregate of 700,000 shares (see
Note 5).
3. Income taxes
The consummation of the stock exchange with Vanden and the issuance of
preferred stock in January 1998 (see Note 5), resulted in a change in the
Company's tax status from an S corporation to a taxable corporation. The
effect of the change is to provide for income tax based upon reported results
of operations, and to provide deferred tax assets and liabilities on
temporary differences between reported earnings and taxable income.
10
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
3. Income taxes (continued)
At March 31, 1999, the Company has net operating loss carryforwards of
approximately $1,704,000 and future tax deductions of $2,496,000 which may be
used to offset future taxable income. The future tax deductions result from
utilizing the cash basis for income tax reporting purposes and unearned stock
compensation. The difference between the tax loss carryforwards and future
tax deductions and the cumulative losses from inception result from the
losses previously incurred by the S corporation. The net operating loss
carryforwards expire in 2018 and 2019. Approximately $250,000 of the net
operating loss carryforward is limited as to the amount which may be used in
any one year. At March 31, 1999, total deferred tax assets and valuation
allowance are as follows:
Deferred tax assets resulting from:
Net operating loss carryforwards $ 596,000
Accrual to cash adjustments 874,000
Unearned stock compensation 787,000
---------
Total 2,257,000
Less valuation allowance (2,257,000)
----------
$ -
==========
A 100% valuation allowance has been established against the deferred tax
assets, as utilization of the loss carryforwards and realization of other
deferred tax assets cannot be reasonably assured.
4. Redeemable preferred stock
In December 1997, the Board of Directors approved an amendment to the
Articles of Incorporation to authorize 10,000,000 shares of $.001 par value
preferred stock. On January 15, 1998, the Company issued 3,210,487 shares of
its Series A redeemable, non-voting, non-cumulative 8% preferred stock in
exchange for an aggregate $1,710,487 of notes payable to shareholders and
accrued interest, and a $1,500,000 compensation agreement. The annual 8%
dividend is based upon a $1.00 per share value, and is only payable out of
earnings.
The Series A preferred stock is subject to mandatory redemption. The funds
available for redemption will be equal to more than 20% but less than 50% of
annual earnings, as determined annually by the Board of Directors, but not
exceeding cash flow from operations and will automatically cancel in seven
years if not fully redeemed. The Company may voluntarily redeem outstanding
shares of preferred stock at $1 per share.
11
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
4. Redeemable preferred stock (continued)
In July 1998, the Company completed a private placement of 245,500 shares of
Series B preferred stock at $5.00 per share, for total net proceeds of
$1,142,750. The Series B preferred stock is designated as redeemable 10%
cumulative non-voting convertible preferred stock with $.001 par value. The
dividends will accrue at the rate of $.50 per share per annum and will be
paid annually in arrears commencing July 15, 1998. At the Company's election,
annual dividends may be paid in cash and/or in shares of the Company's common
stock valued at $5.00 per share. Dividends are added to net loss in
determining net loss per common share. None of the Series B preferred shares
have been converted as of March 31, 1999.
5. Stockholders' equity
Recapitalization:
On December 9, 1997, the Company entered into an agreement and plan of merger
with Vanden to exchange all of the issued and outstanding common shares of
the Company, in exchange for 5,220,000 shares of Vanden's $.001 par value
common stock, a reverse acquisition.
Pursuant to the agreement, Vanden agreed to have cash of $220,000 and no
unpaid liabilities at the effective date of the transaction. The exchange was
consummated on January 15, 1998. In connection with the recapitalization, the
Company issued options to purchase 180,001 shares of its $.001 par value
common stock for cash of $100 and options to purchase an additional 180,001
shares of common stock for $2.80 per share, as required by a management
advisory services contract as compensation for arranging a merger or
acquisition acceptable to the Company. The difference between the fair value
of the stock, estimated by the Company to be $2.75 per share, and the
purchase price for the initial 180,001 shares was treated as additional cost
of the merger and charged to capital, consistent with accounting for the
reverse acquisition as a recapitalization. The net effect of this transaction
was to record an increase and related decrease to additional paid-in capital
of $495,000. The remaining options to acquire 180,001 shares are exercisable
for a five-year period.
Following the exchange, the Company's shareholders own approximately 95% of
the outstanding common stock of Vanden. The reverse acquisition has been
accounted for as a recapitalization of the Company based upon historical
cost. Accordingly, the number of authorized and issued common shares, par
value of common stock and additional paid-in capital have been restated on
the balance sheet and the statement of stockholders' equity to give
retroactive effect to the recapitalization.
12
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
5. Stockholders' equity (continued)
Private placement:
On January 15, 1998, the Company completed a private placement of 300,000
shares of its $.001 par value common stock for gross proceeds of $825,000,
$2.75 per share.
Stock options:
On August 4, 1998, the Company granted to each director options to purchase
up to 60,000 shares of the Company's common stock (300,000 shares in the
aggregate), exercisable at $3.00 per share. The options vest at the rate of
20,000 shares per year commencing February 1999 through February 2001. Should
any of the directors cease to serve on the board of directors, all non-vested
options shall be forfeited.
On September 11, 1998, the board of directors approved a compensation plan
for three officers and directors, to serve on a management team, which
included stock options aggregating 295,000 shares, at an exercise price of
$4.00 per share. Other terms and conditions of the options are the same as
the director options described above.
In October 1998, the Company provided a 100,000 share stock option agreement
to an organization, with whom the Company entered into a one year consulting
agreement. The consultant will provide investor relations and development
services, and will receive compensation of $5,000 per month. The options are
exercisable at $4.00 per share and vest 50,000 shares as of the date of the
agreement, 25,000 shares on March 31, 1999 and 25,000 shares on June 30,
1999.
On December 15, 1998, the board of directors approved a resolution whereby
the Company granted to a company and an individual two stock options to
purchase up to 17,500 shares of the Company's common stock (35,000 shares in
the aggregate) in exchange for services the Company received during 1998. The
options are exercisable at $4.00 per share and are fully vested as of the
date of the resolution.
On March 11, 1999, the Company provided a 175,000 share stock option
agreement to an organization with whom the Company entered a one year
consulting agreement. The organization will provide investment community
relations services, and will receive compensation of $3,000 per month. The
option is exercisable at $3.00 per share. The option provides certain
registration rights to the holder, and is exercisable the earlier of January
1, 2000 or when the shares become registered. The exercise period is five
years from the date the shares become freely tradeable. To the extent that
the shares underlying the options are not registered within two years of
grant date, the holders have the right to exercise the options on a cashless
basis for a period of five years.
13
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
5. Stockholders' equity (continued)
On March 15, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was engaged to raise a total of
$8 million and provide financial advisory services, and will receive a
retainer of $7,000 per month (see Note 7). The warrants are exercisable at
$4.50 per share (fair value at March 15, 1999), provide certain registration
rights, and vest 100,000 shares as of the date of the agreement, 100,000
shares when the Company has received $2 million in funding on or about May
15, 1999 and 100,000 shares when the Company has received $4 million in
funding on or about August 15, 1999. The 200,000 shares vesting in May and
August are subject to ratable reductions to the extent that any of the
funding is not attributable to the organization. The term of the warrant will
be through March 15, 2004.
On March 22, 1999, the Company provided a 125,000 share stock option
agreement to a partnership, with whom the Company entered into a six month
consulting agreement. The partnership will provide financial community
relations and debt funding services. The options are exercisable at $3.00 per
share. The options provide certain registration rights to the holder, and are
exercisable the earlier of January 1, 2000 or when the shares become
registered. The exercise period is five years from the date the shares become
freely tradable. To the extent that the shares underlying the options are not
registered within two years of grant date, the holders have the right to
exercise the options on a cashless basis for a period of five years.
On March 24, 1999, the Company issued eight convertible note payable
agreements with various unrelated individuals and entities (see Note 2). Each
note agreement also provides a warrant granting the holder the right to
purchase three and one half restricted shares of the Company's common stock
for each dollar of principal received by the Company, for an aggregate of
700,000 shares. The warrants have certain registration rights, an exercise
price of $3.00 per share and are exercisable for five years from the date the
shares become freely tradable. To the extent that the shares underlying the
warrants are not registered within two years of grant date, the holders have
the right to exercise the warrants on a cashless basis for a period of five
years.
On March 31, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was engaged to raise a total of
$8 million and provide financial advisory services. The warrants are
exercisable at $3.00 per share, provide certain registration rights, and vest
100,000 shares as of the date of the agreement, 100,000 shares when the
Company has received $2 million in funding on or about May 15, 1999 and
100,000 shares when the Company has received $4 million in funding on or
about August 31, 1999. The 200,000 shares vesting in May and August are
subject to ratable reductions to the extent that any of the funding is not
attributable to the organization. The term of the warrant will be through
March 22, 2004.
14
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
5. Stockholders' equity (continued)
The following is a summary of stock option and warrant activity:
Weighted
Option average
Price per exercised Number
share price of shares
------------ --------- ---------
Balance December 31, 1998 $1.50 to $4.00 $2.79 1,360,001
Granted $3.00 to $4.50 $3.28 1,600,000
Exercised - - -
-------------- ------- ----------
Balance March 31, 1999 $1.50 to $4.50 3.06 2,960,001
=========
The following is additional information with respect to those options and
warrants outstanding at March 31, 1999:
Weighted
average Weighted
remaining average
contractual exercise Number
Option price per share life in years price of shares
---------------------- ------------- ----- ---------
$2.80 3.8 $2.80 180,001
$1.50 4.1 $1.50 450,000
$4.00 5.1 $4.00 100,000
$3.00 8.9 $3.00 300,000
$4.00 4.4 $4.00 295,000
$4.00 5.0 $4.00 35,000
$3.00 5.0 $3.00 1,300,000
$4.50 5.0 $4.50 300,000
---------
2,960,001
=========
Unearned stock compensation:
At March 31, 1999, the Company had granted an aggregate of 2,960,001 options
and warrants of which 2,660,001 were at purchase prices lower than fair value
of the stock at date of grant, including the stock options and warrants
disclosed above and the 450,000 granted to the Western Center for Clinical
Studies, Inc. (see Note 7). The excess of the fair value of the options and
warrants, using the Black-Scholes option pricing model, over the exercise
price has been recorded as additional paid-in capital and unearned stock
compensation. Unearned compensation is being amortized to expense over the
term of the related agreements.
15
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
6. Basic net loss per share
Basic net loss per share is based on the weighted average number of shares
outstanding during the periods. Shares issued for nominal consideration are
considered outstanding since inception. Diluted loss per share has not been
presented as exercise of the outstanding stock options and warrants would
have an anti-dilutive effect. The 10% cumulative dividends on Series B
preferred stock have been accrued and added to net loss for the purpose of
determining net loss and net loss per share applicable to common
shareholders.
7. Commitments and contingencies
Compensation agreements:
In 1993, the Company entered into a 30 year compensation agreement with
I.B.C. limited partners owning 64.28% of the limited partnership. The I.B.C.
Limited Partnership participated in the early development of Estrom(R) (the
medicine) and owned the patent rights to three patents and all intellectual
property rights. Under the terms of the Agreement, the Company acquired all
of the patent and intellectual property rights in exchange for certain
compensation to the limited partners, which is dependent upon the Company's
receipt of a marketing partners technological access fee and royalty
payments. The partnership was subsequently dissolved. Compensation under the
agreement includes a bonus payment of $96,420 to be paid at the time the
Company is reimbursed by a drug company for past expenses paid for
development of the medicine, as well as 64.28% of a decreasing payment rate
(3% to 1%) on cumulative annual royalties received by the Company. As of
March 31, 1999, no liabilities have been accrued with respect to this
agreement.
In a separate agreement with certain former I.B.C. limited partners, the
Company has agreed to pay the partners 35.72% of a decreasing earned payment
(3% to 1% on cumulative annual sales of products by the Company) until
October 10, 2004. From October 10, 2004 until October 10, 2014, the Company
will pay the partners 17.86% of the earned payment. In accordance with the
agreement, the Company has agreed to pay these former limited partners the
amount of $40,000 and a minimum earned payment of $3,572 per calendar quarter
beginning on December 1, 1989. Such minimum earned payment is to be evidenced
by a promissory note issued each quarter and payable when the Company is
either reimbursed for expenses paid for the development of the medicine or
from the first income received from the Company from net sales of the
medicine. The quarterly payments are to be applied against the earned payment
to be received by the limited partners. As of March 31, 1999, the total
liability accrued with respect to this agreement totaled $173,355. The
Company will receive a credit against the earned payments of 50% of monies
which are expended in connection with preparing, filing, obtaining, and
maintaining patents involved with the sold rights.
16
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
7. Commitments and contingencies (continued)
Development and Supply Agreements:
On January 1, 1997, the Company entered into 10 year Development and Supply
Agreements with Mallinckrodt, Inc. to develop all of the chemistry,
manufacturing and controls to comply with the drug master file of the Food
and Drug Administration as well as supply the bulk active product for
marketing. In exchange for these services, Mallinckrodtl received exclusive
rights as a supplier of the bulk active product to the Company in North
America. For the first year ended December 31, 1997, the contract price of
the ingredient was fixed based on the number of liters ordered by the
Company. Subsequent to December 31, 1997, the cost per liter has been
adjusted based on changes in the price of the components in the bulk active
product.
In addition, pursuant to the agreements, the Company has granted Mallinckrodt
a right of first refusal to supply the Company's requirements of the bulk
active product in all other parts of the world outside of North America.
License Agreement:
In January 1998, the Company entered into an agreement with a director of the
Company, whereby the Company granted the director a non-exclusive right to
make, import and use the Company's product, Esterom(R), under the Company's
licensed patents and to use the Company's confidential information to develop
new products that contain the same active ingredients as Esterom(R), but are
formulated differently. All rights to the improved products will remain the
exclusive property of the Company and the director will receive a two percent
royalty on the net sales of all improved products, and a negotiated royalty
on new products. The expiration date of this agreement is January 1, 2003.
Management agreement:
During April 1998, the Company entered into an agreement with the Western
Center for Clinical Studies, Inc. (WCCS), a company experienced in managing
pharmaceutical development, including providing assistance in taking
pharmaceutical products to the FDA and through the clinical trials and New
Drug Application stages of development. The Company is required to pay
management fees of $880,400 over the 33 month term of the agreement, and has
granted stock options to WCCS to purchase 450,000 shares of Entropin common
stock. The options have a term of five years from the grant date and an
exercise price of $1.50. The options are exercisable in varying amounts on
dates ranging from August 1998 to December 2000.
17
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
7. Commitments and contingencies (continued)
The difference between the fair value of the options at date of grant and the
exercise price, totaling approximately $1,950,000 using the Black-Scholes
option - pricing model, has been recorded as additional paid-in capital and
unearned stock compensation. The unearned stock compensation is being
amortized to expense on a straight-line basis over the 33 month term of the
agreement.
Consulting agreements:
On January 11, 1999, the Company entered into a consulting agreement with a
company to provide advisory services relating to the formulation,
manufacturing and packaging of Esterom(R). Compensation for the consulting
agreement is $2,000 per day with a minimum of one day per month which the
services must be used. The term of the agreement is continuous until
terminated by either party.
On March 11, 1999, the Company signed an agreement with a company to provide
consulting services concerning the introduction of the Company's business
plan to the investment banking community. The term of the agreement is twelve
months; however, the Company may terminate the agreement after six months. As
compensation, the Company will pay a retainer of $3,000 per month and has
issued an option to purchase 175,000 shares of the Company's common stock at
an exercise price of $3.00 per share (see Note 5).
On March 15, 1999, the Company signed a financial advisory agreement with a
company experienced in raising investment capital. Pursuant to the agreement,
the company is engaged to raise a total of $8 million in three traunches, the
first $2 million on or about May 15, 1999, the next $4 million on or about
August 15, 1999 and the remaining $2 million on or about November 15, 1999.
The initial term of the agreement is eight months, commencing March 15, 1999
through November 15, 1999. The company will be paid a monthly retainer of
$7,000 through the duration of the agreement. In addition, the company will
also be granted a warrant to acquire 300,000 shares of the Company's common
stock at an exercise price of $4.50 per share (see Note 5). The Company will
also pay contingent fees of 8% of total financing, payable if financing is
obtained.
8. Financial instruments
The carrying values of cash and cash equivalents, advances-related party,
notes payable and accounts payable approximated fair value due to the
short-term maturities of these instruments.
The Company believes that it is not practical to estimate a fair market value
different from the carrying value of long-term debt. Long-term debt,
excluding the deferred royalty agreement, was converted into redeemable
preferred stock on January 15, 1998. Both the redeemable preferred stock and
the deferred royalty agreement have numerous features unique to these
securities and agreements as described in Notes 4 and 7.
18
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
9. Subsequent events
On April 20, 1999, the Company completed a private placement of 500,000
shares of its $.001 par value common stock for gross proceeds of $1,000,000,
$2.00 per share.
On April 20, 1999, The Company amended its 10% convertible promissory note
agreements to allow the note holders to convert their promissory notes to
shares of common stock. Upon issuing the amendment, all note holders
converted their promissory notes, including accrued interest, to common stock
resulting in new issuances of common stock totaling 100,831 shares.
On April 20, 1999, the Company commenced a private placement of
1,600,000 shares of the Company's .001 par value common stock in
order to raise capital of up to $8,000,000 ($5.00 per share). The
offering period ends July 19, 1999.
19
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
Item 2. Management's discussion and analysis or plan of operation
Plan of Operation:
Entropin, Inc. is a development stage pharmaceutical company and has not
generated any revenues from operations for the period from August 27, 1984
(inception) through March 31, 1999. Entropin has devoted substantially all
it's resources to acquisition of patents, research and development of the
medicine, and expenses related to the startup of its business.
Entropin has been unprofitable since inception and expects to incur
substantial additional operating losses for the next twelve months, as
well as for the next few years, as it increases expenditures on research
and development and begins to allocate significant and increasing
resources to clinical testing, marketing and other activities. As
described below, in January 1998, the Company successfully completed a
private placement of both common and Series B preferred stock and a
reverse acquisition accounted for as a recapitalization of the Company.
These events have provided additional liquidity for the Company for
current operations. The Company conducted an additional private placement
of $1,227,000 in convertible Series B preferred stock which funds were
used to fund operations through February 1999, and in March 1999, the
Company received cash proceeds aggregating $200,000 pursuant to
convertible notes payable. The Company is currently pursuing additional
interim funding and/or a strategic partner to provide total additional
funding of up to $10,000,000 over the next three years to successfully
complete the FDA approval process.
During 1998, the Company entered into an agreement with the Western Center
for Clinical Studies, Inc. (WCCS), a California corporation experienced in
managing pharmaceutical development. During the 33 month term of the
agreement, WCCS will assist the Company in obtaining FDA approval for its
product Esterom(R), implementing a business plan and providing experienced
personnel to bring Esterom(R) to commercialization. The Company is
required to pay management fees of approximately $880,400 over the term of
the agreement, as well as provide stock options to purchase 450,000 shares
of Entropin common stock over the 33 month period at an exercise price of
$1.50 per share.
Results of Operations:
During the three months ended March 31, 1999, Entropin incurred a net loss
of $1,083,125 as compared to $101,694 for the three months ended March 31,
1998. The increase resulted primarily from an increase of $662,743 in
general and administrative expenses and an increase of $314,340 in
research and development expenses. The amortization of unearned stock
compensation expense recorded in conjunction with the issuance of stock
options pursuant to various consulting agreements contributed
significantly to both increases, as well as initiation of the agreement
with WCCS.
Entropin's activities to date are not as broad in depth or scope as the
activities it must undertake in the future, and Entropin's historical
operations and financial information are not indicative of Entropin's
future operating results or financial condition or its ability to operate
profitably as a commercial enterprise when and if it succeeds in bringing
any product to market.
20
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
Capital Resources and Liquidity:
In the years since inception, Entropin has financed its operations
primarily through the sale of shares of Entropin common and preferred
stock, and loans and advances from shareholders. On January 15, 1998, the
Company completed a private placement of 30 units (10,000 shares of its
$.001 par value common stock per unit) at $27,500 per unit, or $2.75 per
share, which resulted in gross proceeds of $825,000. Concurrent with the
private placement, the Company completed an agreement and plan of merger
with Vanden Capital Group, Inc. to exchange all of the issued and
outstanding common shares of the Company for 5,220,000 shares of Vanden's
$.001 par value common stock. The Company was merged into Vanden, and
Vanden changed its name to Entropin, Inc. For accounting purposes, the
acquisition has been treated as a recapitalization of the Company based
upon historical cost (a reverse acquisition), with the Company as the
acquirer. Pursuant to the agreement, Vanden provided cash of $220,000.
On January 15, 1998, the Company issued 3,210,487 shares of Series A
redeemable non-voting, noncumulative 8% preferred stock in exchange for an
aggregate $3,210,487 of notes payable to shareholders and accrued interest
and various other liabilities of the Company.
In July 1998, the Company completed a private placement of 245,500 shares
of Series B preferred stock at $5.00 per share, for net proceeds of
approximately $1,143,000. The Series B preferred stock is designated as
redeemable 10% cumulative non-voting convertible preferred stock with
$.001 par value. Dividends will accrue at the rate of $.50 per share per
annum and will be paid annually in arrears commencing July 15, 1998. At
the Company's election, annual dividends may be paid in cash and/or in
shares of the Company's common stock valued at $5.00 per share.
On March 11, 1999, the Company provided a 175,000 share stock option
agreement to an organization with whom the Company entered a one year
consulting agreement. The organization will provide investment community
relations services, and will receive compensation of $3,000 per month. The
option is exercisable at $3.00 per share. The option provides certain
registration rights to the holder, and is exercisable the earlier of
January 1, 2000 or when the shares become registered. The exercise period
is five years from the date the shares become freely tradeable. To the
extent that the shares underlying the options are not registered within
two years of grant date, the holders have the right to exercise the
options on a cashless basis for a period of five years.
On March 15, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was engaged to raise a total
of $8 million and provide financial advisory services, and will receive a
retainer of $7,000 per month. The warrants are exercisable at $4.50 per
share (fair value at March 15, 1999), provide certain registration rights,
and vest 100,000 shares as of the date of the agreement, 100,000 shares
when the Company has received $2 million in funding on or about May 15,
1999 and 100,000 shares when the Company has received $4 million in
funding on or about August 15, 1999. The 200,000 shares vesting in May and
August are subject to ratable reductions to the extent that any of the
funding is not attributable to the organization. The term of the warrant
will be through March 15, 2004.
21
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
On March 22, 1999, the Company provided a 125,000 share stock option
agreement to a partnership, with whom the Company entered into a six month
consulting agreement. The partnership will provide financial community
relations and debt funding services. The options are exercisable at $3.00
per share. The options provide certain registration rights to the holder,
and are exercisable the earlier of January 1, 2000 or when the shares
become registered. The exercise period is five years from the date the
shares become freely tradable. To the extent that the shares underlying
the options are not registered within two years of grant date, the holders
have the right to exercise the options on a cashless basis for a period of
five years.
On March 24, 1999, the Company received cash proceeds aggregating $200,000
pursuant to eight convertible note payable agreements with various
unrelated individuals and entities. Each note is unsecured, bears interest
at 10%, and is due the earlier of 90 days from the date of issue or upon
the receipt by the Company of certain proceeds from a private offering of
its securities. In the event of default, each note and the unpaid interest
will be converted by the Company into one share of restricted common stock
for each two dollars of principal and interest outstanding. Each note
agreement also provides a warrant granting the holder the right to
purchase three and one half restricted shares of the Company's common
stock for each dollar of principal received by the Company, for an
aggregate of 700,000 shares. On April 20, 1999, The Company amended the
promissory note agreements to allow the note holders to convert their
promissory notes to shares of common stock. Upon issuing the amendment,
all note holders converted their promissory notes including accrued
interest to common stock resulting in new issuances of common stock
totaling 100,831 shares.
On March 31, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was engaged to raise a total
of $8 million and provide financial advisory services. The warrants are
exercisable at $3.00 per share, provide certain registration rights, and
vest 100,000 shares as of the date of the agreement, 100,000 shares when
the Company has received $2 million in funding on or about May 15, 1999
and 100,000 shares when the Company has received $4 million in funding on
or about August 31, 1999. The 200,000 shares vesting in May and August are
subject to ratable reductions to the extent that any of the funding is not
attributable to the organization. The term of the warrant will be through
March 22, 2004.
On April 20, 1999, the Company completed a private placement of 500,000
shares of its $.001 par value common stock for gross proceeds of
$1,000,000, $2.00 per share.
On April 20, 1999, the Company commenced a private placement of 1,600,000
shares of the Company's .001 par value common stock in order to raise
capital of up to $8,000,000. The offering period ends July 19, 1999.
22
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated.
ITEM 2. CHANGES IN SECURITIES.
(c) During the period covered by this report, the Registrant issued
its stock to the persons set forth below for the cash consideration
indicated in transactions that were not registered under the 1933 Act.
In March 1999, the Registrant entered into an agreement with J. Paul
Consulting Corporation ("JPC"). As partial consideration for JPC's services
under the agreement, the Registrant issued JPC an option to purchase
175,000 shares of the Registrant's common stock, exercisable at $3.00 per
share. The option would become exercisable the earlier of January 1, 2000,
or when the shares become registered. The exercise period is five (5)
years from the date the shares become freely tradeable. The issuance of
the option to JPC was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act. No broker/dealers were involved
in the sale and no commissions were paid. JPC represented that JPC
acquired the option for investment and not with a view to distribution.
In March 1999, the Registrant entered into an agreement with GJM
Trading Partners, Ltd.("GJM"). As partial consideration for GJM's services
under the agreement, the Registrant issued GJM an option to purchase
125,000 shares of the Registrant's common stock, exercisable at $3.00 per
share. The option would become exercisable the earlier of January 1, 2000,
or when the shares become registered. The exercise period is five (5)
years from the date the shares become freely tradeable. The issuance of
the option to GJM was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act. No broker/dealers were involved
in the sale and no commissions were paid. GJM represented that GJM
acquired the option for investment and not with a view to distribution.
In March 1999, the Registrant entered into an agreement with
Transition Partners, Limited ("TPL"). As partial consideration for TPL's
services under the agreement, the Registrant issued TPL a warrant to
purchase up to 300,000 shares of the Registrant's common stock at $4.50 per
share, exercisable as follows: 100,000 shares exercisable immediately; an
additional 100,000 shares shall become exercisable provided that the
Registrant has received $2 million in funding on or before May 5, 1999;
and, the remaining 100,000 shares shall become exercisable provided that
the Registrant has received an additional $4 million in funding on or
before August 15, 1999, subject to ratable reductions to the extent that
any of the funding is not attributable to TPL. The
-23-
<PAGE>
warrant expires March 15, 2004. The issuance of the warrant to TPL was
made in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. No broker/dealers were involved in the sale and no
commissions were paid. TPL represented that TPL acquired the option for
investment and not with a view to distribution.
In March 1999, the Registrant entered into an agreement with Grayson
& Associates, Inc. ("G&A"). As partial consideration for G&A's services
under the agreement, the Registrant issued G&A a warrant to purchase up to
300,000 shares of the Registrant's common stock at $3.00 per share,
provided however, if the average of the closing bid/ask price for Entropin
Common Stock for the 20 consecutive trading days prior to March 30, 2000 is
less than $3.00 per share, the exercise price for the first 100,000 Shares
represented by the Warrant will be adjusted down to reflect a 25% discount
from the average of the closing bid/ask price for such period, exercisable
as follows: 100,000 shares exercisable immediately; an additional 100,000
shares shall become exercisable provided that the Registrant has received
$2 million in funding on or before May 15, 1999; and, the remaining 100,000
shares shall become exercisable provided that the Registrant has received
an additional $4 million in funding on or before August 31, 1999, subject
to ratable reductions to the extent that any of the funding is not
attributable to G&A. The warrant expires March 22, 2004. The issuance of
the warrant to G&A was made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. No broker/dealers
were involved in the sale and no commissions were paid. G&A represented
that G&A acquired the option for investment and not with a view to
distribution.
In March 1999, the Registrant conducted a private offering of its 10%
90-Day Promissory Notes, as amended ("Note"), convertible at the election
of the note holders into shares of the Registrant's common stock, $.001 par
value per share, at $2.00 per share, to the following:
Name Consideration No. of Warrants*
- ---- ------------- ----------------
J. Paul Consulting Corp. $60,000 210,000
James Toot $30,000 105,000
Claudia McAdam $15,000 52,500
GJM Trading Partners, LTD $15,000 52,500
Great Expectations Family L.P. $30,000 105,000
Bateman Dynasty $30,000 105,000
Cambridge Holdings, Ltd. $15,000 52,500
Underwood Family Partners $5,000 17,500
------ ------
Total $200,000 700,000
======== =======
______________________
* Three and one-half warrants for each $1 of Promissory Note
purchased, exercisable over a five year period commencing March 24, 1999 at
$3.00 per share.
-24-
<PAGE>
The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were accredited investors.
No broker/dealers were involved in the sale and no commissions were paid.
All of such purchasers represented that they purchased the securities for
investment, and all Notes and Warrants issued to the purchasers were
impressed with a restrictive legend advising that the Notes and Warrants
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.
In April 1999, the Registrant issued the following shares at $2.00 per
share, in exchange for the surrender of its 10% 90-Day Convertible
Promissory Notes, as amended ("Notes"), and the unpaid accured interest on
such Notes:
Principal Amount of Note
------------------------
Name plus Interest No. of Shares
- ---- ------------- -------------
J. Paul Consulting Corp. $60,500 30,250
James Toot $30,250 15,125
Claudia McAdam $15,124 7,562
GJM Trading Partners, LTD $15,124 7,562
Great Expectations Family L.P. $30,250 15,125
Bateman Dynasty $30,250 15,125
Cambridge Holdings, Ltd. $15,124 7,562
Underwood Family Partners $5,040 2,520
------ -----
Total $201,662 100,831
======== =======
The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were accredited investors.
No broker/dealers were involved in the sale and no commissions were paid.
All of such purchasers represented that they purchased the securities for
investment, and all Notes and Warrants issued to the purchasers were
impressed with a restrictive legend advising that the Notes and Warrants
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.
-25-
<PAGE>
In April 1999, the Registrant completed a private placement of Common
Stock at a price of $2.00 per share as follows:
Name Consideration No. of Shares
- ---- ------------- -------------
Deloras Decker Hunter, Trustee $50,000 25,000
W. Douglas Moreland $40,000 20,000
L. Michael Underwood $15,000 7,500
Gladys F. Decker, Trustee $23,000 11,500
Paul C. and Carol A. Rivello $14,000 7,000
Max Gould $15,000 7,500
John J. Turk, Jr. $10,000 5,000
Myron A. Leon $20,000 10,000
Michael J. Kirby $10,000 5,000
Kenton Roy Holden IRA $10,000 5,000
Inverness Investment Profit Sharing Plan $15,000 7,500
Bleu Ridge Consultants Profit $10,000 5,000
Danny Yu Defined Benefit Pension Plan $18,000 9,000
Gulfstream Financial Partners, LLC $15,000 7,500
Frank J. Kostro $15,000 7,500
Samuel F. Trussell $20,000 10,000
David M. Chapman $20,000 10,000
Richard F. and Barbara A. Vandresser $10,000 5,000
Charles C. Bruner $6,500 3,250
Anthony B. Petrelli $6,500 3,250
Eugene L. Neidiger $7,000 3,500
Heather Evans $2,000 1,000
Steve Schulz Defined Benefit Trust $25,000 12,500
Nancy Nita Macy, Trustee $40,000 20,000
William E. Ambrose $10,000 5,000
-26-
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
C. Richard and Johanna W. Harrison $10,000 5,000
Business Development Corporation $10,000 5,000
Nanna B. Schov Custodian for
Davie Mork and Andreas B. Mork $8,000 4,000
Barry A. Bates $15,000 7,500
Thomas A. Forti, DDS $25,000 12,500
Brad Rhodes $10,000 5,000
Ronald Glosser $20,000 10,000
Brian P. and Cheri Bertelsen $10,000 5,000
Jeanette Y. Mihaly $10,000 5,000
Benedetto Casale $20,000 10,000
Colin David Rickson $10,000 5,000
Arthur Kassoff $16,000 8,000
Michael O'Hare $10,000 5,000
Arianne Nemelka $30,000 15,000
Boulder Family Partnership, Ltd. $50,000 25,000
Heribert Obser $5,000 2,500
Carla Johnson $10,000 5,000
Patrick N. Kephart $5,000 2,500
Dale Duncan $15,000 7,500
Len Rothstein $15,000 7,500
Abdallah E. Ghusn $12,000 6,000
Leona Connelly $10,000 5,000
Albert W. White $10,000 5,000
David L. Gertz $10,000 5,000
Gregory Pusey $10,000 5,000
Jill Pusey, Custodian for Jacqueline Pusey $5,000 2,500
-27-
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
Jill Pusey, Custodian for Christopher Pusey $5,000 2,500
Cambridge Holdings, Ltd. $50,000 25,000
Arthur Marsh Lavenue $10,000 5,000
Paul Ernst $30,000 15,000
Sharon M. McDonald $30,000 15,000
Douglas L. Ray $8,000 4,000
Scott Deitler $10,000 5,000
Michael P. Noonan $15,000 7,500
Russell L. Davis Profit Sharing Plan $20,000 10,000
Cardiovascular Associates, PC
FBO L. Lockspeiser, M.D. $10,000 5,000
Charles Kirby $24,000 12,000
------- ------
TOTAL $1,000,000 500,000
========== =======
The Company claims the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of
Regulation D adopted thereunder for the transactions described above. All
of the purchasers were either known to the Registrant, or were referred to
the Registrant by a consultant to the Company. Based upon the Registrant's
knowledge of the purchasers and upon written representations made by the
purchasers, the Company believes each purchaser was capable of evaluating
the merits and risks of an investment in the Company's securities. All
certificates were endorsed with a legend restricting the sale or transfer
of the securities except in accordance with federal securities laws. No
brokers or dealers received compensation in connection with the sale of
these shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the three months
ended March 31, 1999.
-28-
<PAGE>
(1) Form 8-K, dated May 7, 1999, reporting developments in the
Company's business under Item 5 thereof, filed with the
Securities and Exchange Commission on May 7, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENTROPIN, INC.
Date: May 17, 1999 By: /s/ WELLINGTON A. EWEN
------------------------------
Wellington A. Ewen
Chief Financial Officer
-29-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED
MARHC 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FORM
10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 278,873
<SECURITIES> 0
<RECEIVABLES> 15,403
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 294,276
<PP&E> 89,205
<DEPRECIATION> (9,359)
<TOTAL-ASSETS> 688,915
<CURRENT-LIABILITIES> 255,549
<BONDS> 0
4,353,237
0
<COMMON> 6,000
<OTHER-SE> (4,099,226)
<TOTAL-LIABILITY-AND-EQUITY> 688,915
<SALES> 0
<TOTAL-REVENUES> 2,805
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,085,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,083,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,083,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,083,125)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
