U.S. 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, 2005
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number 000-29807
ENTROPIN, INC.
(Exact name of small business issuer as specified in its charter)
| DELAWARE | 68-0510827 | |
| (State or other jurisdiction of incorporation or organization) | (IRS employer Identification No.) |
45926 Oasis Street, Indio, CA 92201
(Address of principal executive offices)
(760) 775-8333
(Issuer’s telephone number)
N/A
(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. Yesx No¨
As of May 12, 2005, 30,645,341 shares of the issuer’s Common Stock, $.0001 par value per share, were outstanding.
Transitional Small Business Disclosure Format Yes¨ Nox
1
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 2004 and March 31, 2005
| December 31, 2004 | March 31, 2005 | |||||||
| (Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 444,611 | $ | 1,058,196 | ||||
Short-term investments | 1,273,000 | 196,418 | ||||||
Prepaid insurance | — | 70,677 | ||||||
Total current assets | 1,717,611 | 1,325,291 | ||||||
Patent costs, less accumulated amortization of $252,143 (2004) and $266,502 (2005) | 674,102 | 709,931 | ||||||
Property and equipment, net | 1,906 | 1,463 | ||||||
Total assets | $ | 2,393,619 | $ | 2,036,685 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 46,823 | $ | 160,085 | ||||
Contingencies (Note 2) | ||||||||
Stockholders’ equity: | ||||||||
Series A’ redeemable preferred stock, $.0001 par value; 3,210,487 shares authorized, issued and outstanding; liquidation preference of $3,210,487 | 3,210,487 | 3,210,487 | ||||||
Common stock, $.0001 par value; 200,000,000 shares authorized, 30,645,341 shares issued and outstanding | 3,065 | 3,065 | ||||||
Additional paid-in capital | 34,819,422 | 34,819,422 | ||||||
Deficit accumulated during the development stage | (35,686,178 | ) | (36,156,374 | ) | ||||
Total stockholders’ equity | 2,346,796 | 1,876,600 | ||||||
Total liabilities and stockholders’ equity | $ | 2,393,619 | $ | 2,036,685 | ||||
See accompanying notes to financial statements.
2
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2004 and 2005
and for the Period from August 27, 1984 (Inception) Through March 31, 2005
(Unaudited)
| 2004 | 2005 | Inception through March 31, 2005 | ||||||||||
Costs and expenses: | ||||||||||||
Research and development | $ | 309,578 | $ | 56,067 | $ | 15,968,880 | ||||||
General and administrative | 833,112 | 430,806 | 20,255,546 | |||||||||
Operating loss | (1,142,690 | ) | (486,873 | ) | (36,224,426 | ) | ||||||
Other income (expense): | ||||||||||||
Interest income | 1,962 | 16,677 | 1,525,173 | |||||||||
Interest expense | — | — | (242,811 | ) | ||||||||
Series B preferred stock redemption conversion incentive | — | — | (126,310 | ) | ||||||||
Total other income (expense), net | 1,962 | 16,677 | 1,156,052 | |||||||||
Net loss | (1,140,728 | ) | (470,196 | ) | (35,068,374 | ) | ||||||
Dividends applicable to Series B preferred stockholders | — | — | (1,103,184 | ) | ||||||||
Net loss applicable to common stockholders | $ | (1,140,728 | ) | $ | (470,196 | ) | $ | (36,171,558 | ) | |||
Basic and diluted net loss per common share | $ | (.06 | ) | $ | (.02 | ) | $ | (4.75 | ) | |||
Weighted average common shares outstanding | 18,315,000 | 30,645,000 | 7,623,000 | |||||||||
See accompanying notes to financial statements.
3
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2005
(Unaudited)
| Series A’ redeemable preferred stock | Common stock | Additional paid-in capital | Unearned stock compensation | Deficit accumulated during the development stage | Total stockholders’ equity | |||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||
Balance, January 1, 2005 | 3,210,487 | $ | 3,210,487 | 30,645,341 | $ | 3,065 | $ | 34,819,422 | $ | — | $ | (35,686,178 | ) | $ | 2,346,796 | |||||||||
Net loss for the period | — | — | — | — | — | — | (470,196 | ) | (470,196 | ) | ||||||||||||||
Balance, March 31, 2005 | 3,210,487 | $ | 3,210,487 | 30,645,341 | $ | 3,065 | $ | 34,819,422 | $ | — | $ | (36,156,374 | ) | $ | 1,876,600 | |||||||||
See accompanying notes to financial statements.
4
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2005
and for the Period from August 27, 1984 (Inception) Through March 31, 2005
(Unaudited)
| 2004 | 2005 | Inception through March 31, 2005 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (1,140,728 | ) | $ | (470,196 | ) | $ | (35,068,374 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation and amortization | 12,235 | 14,802 | 336,762 | |||||||||
Series B preferred stock redemption conversion incentive | — | — | 126,310 | |||||||||
Loss on disposal of assets | — | — | 1,837 | |||||||||
Services received in exchange for stock, stock options and warrants | 152,562 | — | 10,642,845 | |||||||||
Services received in exchange for compensation agreements | — | — | 2,231,678 | |||||||||
Prepaid insurance | — | (70,677 | ) | (70,677 | ) | |||||||
Increase (decrease) in accounts payable | (67,419 | ) | 113,262 | 367,782 | ||||||||
Other | — | — | 58,607 | |||||||||
Net cash used in operating activities | (1,043,350 | ) | (412,809 | ) | (21,373,229 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Maturities (purchase) of short-term investments, net | (2,653,000 | ) | 1,076,582 | (196,418 | ) | |||||||
Patent costs | (89,181 | ) | (50,188 | ) | (976,433 | ) | ||||||
Purchase of property and equipment | — | — | (130,515 | ) | ||||||||
Net cash provided by (used in) investing activities | (2,742,181 | ) | 1,026,394 | (1,303,365 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of common stock and warrants | 3,489,669 | — | 21,732,261 | |||||||||
Proceeds from issuance of preferred stock | — | — | 1,142,750 | |||||||||
Proceeds from stockholder loans | — | — | 809,679 | |||||||||
Proceeds from shares issued pursuant to recapitalization | — | — | 220,100 | |||||||||
Proceeds from stockholder advances | — | — | 98,873 | |||||||||
Repayments of stockholder advances | — | — | (98,873 | ) | ||||||||
Repurchase of common stock | — | — | (40,000 | ) | ||||||||
Payment for cancellation of common stock warrant | — | — | (330,000 | ) | ||||||||
Proceeds from convertible notes payable | — | — | 200,000 | |||||||||
Net cash provided by financing activities | 3,489,669 | — | 23,734,790 | |||||||||
Net (decrease) increase in cash and cash equivalents | (295,862 | ) | 613,585 | 1,058,196 | ||||||||
Cash and cash equivalents at beginning of period | 1,032,343 | 444,611 | — | |||||||||
Cash and cash equivalents at end of period | $ | 736,481 | $ | 1,058,196 | $ | 1,058,196 | ||||||
(Continued on following page)
See accompanying notes to financial statements.
5
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2005
and for the Period from August 27, 1984 (Inception) Through March 31, 2005
(Unaudited)
(Continued from preceding page)
Supplemental disclosure of cash flow information:
| 2004 | 2005 | Inception through March 31, 2005 | |||||||
Cash paid for interest during the period | $ | — | $ | — | $ | 242,811 | |||
Supplemental disclosure of non-cash investing and financing activities:
During the period from August 27, 1984 (inception) through March 31, 2005, the Company issued 3,210,487 shares of Series A preferred stock in exchange for an aggregate $1,710,487 of notes payable to stockholders plus accrued interest and a $1,500,000 compensation agreement.
During the period from August 27, 1984 (inception) through March 31, 2005, the Company converted promissory notes payable with outstanding principal and interest balances totaling $201,660 into 100,831 shares of common stock.
During the period from August 27, 1984 (inception) through March 31, 2005, the Company issued 94,850 shares of common stock at $5.00 per share as payment of accrued dividends on Series B preferred stock.
During the period from August 27, 1984 (inception) through March 31, 2005, the Company issued 1,337,333 shares of common stock totaling $1,336,609, for conversion of shares of Series B preferred stock.
See accompanying notes to financial statements.
6
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The accompanying financial statements of Entropin, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under such rules and regulations. Accordingly, they do not include all of the information and footnotes required by GAAP 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, 2005 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and notes thereto included in our annual report on Form 10-KSB for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on March 31, 2005, and subsequently amended on April 29, 2005.
| 1. | Organization and summary of significant accounting policies |
Organization and basis of presentation:
Entropin, Inc. (the “Company”), a Delaware corporation, was organized as a California corporation in August 1984. The Company is a pharmaceutical research and development company focused on the development of its proprietary compound, ENT-103, as a pain therapy. Activities from inception include research and development, seeking the U.S. Food and Drug Administration, or FDA, approval for its proprietary compounds, including its current drug candidate, ENT-103, as well as fund raising.
As of March 31, 2005, the Company had total current assets of $1,325,291. 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 operating losses and an accumulated deficit at March 31, 2005 of $36,156,374. Management anticipates additional operating losses for the foreseeable future. These factors, among others, indicate that the Company will be unable to continue as a going concern unless it can immediately obtain significant additional funds to support its operations. The financial statements do not include any adjustments related to the recoverability of recorded asset amounts that may be necessary should the Company be unable to continue as a going concern. In the absence of positive cash flows from operations which the Company expects will not be possible for several years, if at all, the Company is and will remain highly dependent on its ability to secure additional funding through the issuance of debt or equity instruments, corporate partnering or merger/acquisition arrangements. If the Company is unable to raise sufficient additional funds on a timely basis, or at all, it will be forced to cease its operations prior to the end of the second quarter of 2005.
Because the Company has not yet completed product development, obtained regulatory approval, or verified the market acceptance and demand for any products it may develop, its activities have been accounted for as those of a “development stage enterprise” as set forth in Statement of Financial Accounting Standards No. 7, “Accounting and Reporting by Development Stage Enterprises”.
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 asset and liability approach under which deferred income taxes are recognized based upon currently enacted tax laws and rates applicable to the periods in which the taxes are expected to become payable. A valuation allowance is established for deferred income tax assets when their realization is not reasonably assured.
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ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Property and equipment:
Office furniture and equipment is recorded at cost. Depreciation commences as items are placed in service and is computed using the straight-line method over their estimated useful lives of three years.
Leasehold improvements are recorded at cost and amortized using the straight-line method over the shorter of their estimated useful life or the related lease term.
Research and development costs:
Research and development costs are expensed as incurred.
Patents:
The Company believes that patents and other proprietary rights are important to its business. It is the Company’s policy to file patent applications to protect its technology, inventions and improvements to inventions that are considered important to the development of its business. Patent costs are capitalized and amortized on a straight-line basis over an estimated useful life of 16 years. Amortization expense related to amortizable patents was $11,531 and $14,359 for the three months ended March 31, 2004 and 2005, respectively, and $266,502 from inception through March 31, 2005.
Impairment of long-lived assets:
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Cash equivalents and short-term investments:
The Company considers cash equivalents to include only highly liquid securities with an original maturity of three months or less. Investments with an original maturity of more than three months are considered short-term investments and have been classified by management as held-to-maturity. At December 31, 2004, and March 31, 2005, the Company’s short-term investments consisted entirely of certificates of deposit carried at amortized cost with average remaining maturity period of 71 days and 79 days, respectively.
Concentrations of credit risk:
The Company invests its excess cash principally in certificates of deposit. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Company has not experienced any losses on its cash equivalents or short-term investments.
Stock-based compensation:
The Company follows the fair value method of accounting for employee stock-based compensation provided for in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”. Compensation cost for stock option grants is measured as the fair value of the options using the Black-Scholes option pricing model. Amounts recorded for options granted to non-employees are determined in accordance with Statement of Financial Accounting Standards No. 123 and EITF 96-18 based on the fair value of the consideration or the fair value of the equity instruments issued, whichever is more reliably measured.
Fair value of financial instruments:
The carrying amounts of cash, cash equivalents, short-term investments and accounts payable are considered to be representative of their respective fair values because of their short-term nature.
8
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Loss per share:
Net loss per common share is computed using the weighted average number of common shares outstanding. Basic and diluted net loss per common share amounts are equivalent for the periods presented as the inclusion of common stock equivalents in the number of shares used for the diluted computation would be anti-dilutive. Dividends on preferred stock, consisting of 10% cumulative dividends and deemed dividends related to the beneficial conversion feature and mandatory redemption accretion of Series B preferred stock, are added to net loss for the purpose of determining net loss and net loss per share amounts applicable to common stockholders.
Segment reporting:
The Company currently operates in a single segment. In addition, financial results are prepared and reviewed by management as a single operating segment. The Company continually evaluates its operating activities and the method utilized by management to evaluate such activities and will report on a segment basis when appropriate to do so.
| 2. | Litigation |
The Company is currently a named defendant in three securities lawsuits. The first lawsuit was filed in the Superior Court of the State of California (hereinafter, the “State Action”). The second lawsuit was filed in the U.S. District Court for the Central District of California (hereinafter, the “Federal Action”). The third lawsuit was filed in the District Court for the City and County of Denver, Colorado (hereinafter, the “Colorado Action”). The allegations in each of the three actions—e.g., the State Action, the Federal Action and the Colorado Action, are virtually identical. Essentially, the Company is accused of making false and misleading statements regarding the clinical development of its developmental drug Esterom®.
The Superior Court formally dismissed the State Action and entered judgment in favor of the Company and its two directors on August 13, 2004. The plaintiffs, however, filed a notice of appeal with the Superior Court on August 24, 2004. The plaintiffs in the State Action have filed their opening appellate brief and the Company is currently preparing its response.
In the Federal Action, the Company’s summary judgment motion was denied on April 11, 2005. In denying the Company’s motion, the court commented that the legal arguments the Company raised were inappropriate for resolution at this early stage of the litigation. The parties are scheduled to appear before the court on May 23, 2005. At this court appearance, the court is likely to establish mandatory mediation procedures, a discovery schedule and a trial date.
There has been little activity with respect to the Colorado Action, which was filed on March 11, 2005. On May 2, 2005 the Company accepted service of the complaint in this action. The parties are currently in negotiations regarding the execution of an agreement that would temporarily stay all proceedings in the Colorado Action.
The Company feels that it has strong defenses in each of the pending actions. However, there is no guarantee that the Company will be successful in defending against the plaintiffs’ claims. If the Company is unsuccessful in any one of the three actions, it will need to continue to divert resources and attention away from the development of ENT-103 and the other operations of the Company. Moreover, the existence of the lawsuits, irrespective of the merits, makes it more difficult for the Company to raise the additional funds needed to support its continued operations. As of the date of this report, the Company is not party to any other material legal proceedings.
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| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I – Item 1 of this report, and the audited financial statements and notes thereto contained in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, as amended.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this Form 10-QSB contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the Safe Harbor provisions created by that statute. In some cases, you can identify the forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Our business and results of operations are subject to various risks and uncertainties as disclosed under the caption “Factors That May Affect Our Future Results and the Trading Price of Our Common Stock” in this Form 10-QSB. These risks and uncertainties include our need and ability to raise significant additional capital; our history of significant operating losses; our ability to successfully complete formulation, development and preclinical studies for our sole drug candidate, ENT-103; the time, cost and uncertainty of obtaining regulatory approvals; and our ability to successfully commercialize products. The actual results that we achieve may differ materially from any forward-looking statements due to these risks and uncertainties and we undertake no obligation to update any such forward-looking statements.
We were incorporated in California in 1984 as Entropin, Inc., or old Entropin, and in 1998 completed a merger with and into Vanden Capital Group, Inc. pursuant to which all of the issued and outstanding common shares of old Entropin were converted into a majority of Vanden’s common stock. Vanden subsequently changed its name to Entropin, Inc. For accounting purposes, the acquisition was treated as a recapitalization of old Entropin based upon historical cost, with old Entropin as the acquirer. In conjunction with the merger, Entropin, Inc. became a Colorado corporation. In June 2002, we changed our state of incorporation from Colorado to Delaware.
From our inception in August 1984, we have devoted our resources primarily to funding our research and development efforts and conducting clinical trials with our products. We have been unprofitable since inception and have had no revenue from the sale of products, and do not expect revenue for the foreseeable future until we have received FDA approval for one of the proprietary compounds we are attempting to develop. We expect to continue to incur losses for the foreseeable future through the completion of our preclinical and clinical trials and the FDA approval process. As of March 31, 2005, our accumulated deficit was approximately $36.2 million.
We have an immediate need to raise additional funds to continue our operations. As of March 31, 2005, we had total current assets of $1,325,291. Our available funds are not sufficient to allow us to pursue any further development of our proprietary drug candidate, ENT-103, including the preclinical work necessary to prepare and file an Investigational New Drug (IND) application with the FDA or to commence human clinical trials for ENT-103. If we are unable to immediately obtain significant additional funds to support our operations, we will be forced to cease our operations prior to the end of the second quarter of 2005, and our existing stockholders may lose their entire investment in the Company.
Research and Development
Prior to our current focus on ENT-103, we completed four preclinical animal studies, Phase I, Phase II and Phase II/III human clinical trials for our first product, known as Esterom solution. In January 2002, we reported that our researchers at Harvard Medical School had identified the active ingredient in Esterom solution, which we named ENT-102. Results of our initial preclinical studies revealed that ENT-102 effectively blocks nerve impulse conduction and when injected into animals may have long-lasting properties to reduce and manage pain.
Based on these findings and the results of our Phase II/III clinical study with Esterom solution, we decided to forego further development of Esterom solution and pursue development of ENT-102. In January 2003, we announced the discovery of a new chemical entity, ENT-103, a simplified derivative of ENT-102. ENT-103 is a single chemical compound that exists as a single molecular species. In contrast, ENT-102 is a single chemical compound comprised of a mixture of four chemical species. Due to the demonstrated pain reduction equivalency of ENT-103 and ENT-102 in preclinical studies, and the advantages of pursuing regulatory approval with a single molecule versus a mixture of four molecules, we decided to focus on the development of ENT-103 as a therapy for treatment of acute pain.
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Our current resources are not sufficient to complete the required preclinical testing nor to begin or complete a Phase I clinical trial for ENT-103. Assuming that we can raise funds to support our operations and our clinical trials are successful and we do not experience unexpected delays, we estimate that it will take at least an additional four to five years to complete the preclinical and clinical development and testing of ENT-103 so that it can be commercialized. Any significant delays in our preclinical development, clinical trials or regulatory approval will affect our ability to generate revenue and may harm our ability to continue to raise the capital needed to complete the commercialization of ENT-103. We estimate that an additional $45 million will be required to complete development and FDA approval of ENT-103. These expenditures primarily represent research, clinical trials and general and administrative costs. As of March 31, 2005, we have spent a total of approximately $36.2 million developing ENT-103 and its predecessor products, ENT-102 and Esterom solution.
Plan of Operation
We have an immediate need to raise additional funds to continue our operations. Our available funds are not sufficient to allow us to pursue any further development of our proprietary drug candidate, ENT-103, including the preclinical work necessary to prepare and file an Investigational New Drug (IND) application with the FDA or to commence human clinical trials for ENT-103. We are actively seeking additional funding through potential merger/acquisition transactions coupled with public or private sales of our equity or debt securities. We also intend to seek additional funding from corporate partnerships or licensing arrangements or through public or private sales of our equity or debt securities. Any such transactions may require us to relinquish rights to some of our technologies or products, and will be dilutive to our existing stockholders. We cannot guarantee that we will be able to complete any such transaction or secure additional funds on a timely basis, or at all, and we cannot assure that such transaction will be on reasonable terms. If we are unable to obtain the significant additional funds to support our operations, we will need to cease our operations prior to the end of the second quarter of 2005.
Results of Operations
Three months ended March 31, 2005, compared to three months ended March 31, 2004.
The net loss for the first three months of 2005 was approximately $470,000, or $0.02 per share on approximately 30.6 million weighted average shares outstanding. In comparison, the net loss for the first three months of 2004 was approximately $1.1 million, or $0.06 per share on approximately 18.3 million weighted average shares outstanding.
Total research and development expenses were approximately $56,000 during the first three months of 2005, as compared to approximately $310,000 for the first three months of 2004. The decrease in research and development expenses during the first three months of 2005 compared with the same period during 2004 reflects the fact that preclinical research was restricted during the first three months of 2005 due to cash constraints.
Total general and administrative expenses were approximately $431,000 for the first three months of 2005, as compared to approximately $833,000 for the first three months of 2004. Approximately $153,000 of the general and administrative expense incurred during the first three months of 2004 reflected charges to non-cash compensation for the fair value of stock options and warrants issued for services. No such non-cash charges were incurred during the first quarter of 2005.
Interest income during the first three months of 2005 was approximately $16,700 as compared to approximately $2,000 during the first nine three months of 2004. This increase in interest income reflects higher average balances for cash, cash equivalents and short-term investments during the first three months of 2005.
Liquidity and Capital Resources
As of March 31, 2005, we had total current assets of approximately $1.3 million. Our financial statements have been presented on a going concern basis. We have an immediate need to raise additional funds to continue our operations. There can be no assurance that such additional capital will be available on a timely basis or on terms acceptable to us, if at all. If we are unable to obtain the significant additional funds to support our operations, we will need to cease our operations prior to the end of the second quarter of 2005.
We are in the development stage and have been primarily involved in research and development activities. This has resulted in significant operating losses and an accumulated deficit at March 31, 2005 of approximately $36.2 million. Our management anticipates additional operating losses for the foreseeable future. These factors, among others, indicate that we will be unable to continue as a going concern unless it can immediately obtain significant additional funds to support its operations. We have financed our operations since inception primarily through the net proceeds generated from the sale of our common and preferred stock, and through loans and advances from stockholders that were subsequently converted into equity securities. From
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inception through March 31, 2005, we have received net cash proceeds from financing activities aggregating approximately $23.7 million. As of March 1, 2005, our working capital was approximately $1.2 million.
Our liquidity and capital needs relate primarily to working capital, research and development of ENT-103, and other general corporate requirements. We have not received any cash from operations since inception.
Net cash used in operating activities was approximately $413,000 during the first three months of 2005, compared with approximately $1.0 million during three first three months of 2004. The cash used in operations was primarily related to conducting preclinical research studies and maintaining our administrative infrastructure.
Critical Accounting Policies
We routinely grant stock options to compensate officers, directors and employees for their services. This practice allows us to conserve our cash resources for our drug development program. We have adopted the fair value accounting provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”. Under these provisions, stock based compensation is measured based on the fair value of the options granted using the Black-Scholes option-pricing model. Amounts recorded for options granted to non-employees are determined in accordance with Statement of Financial Accounting Standards No. 123 and EITF 96-18 based on the fair value of the consideration or the fair value of the equity instruments issued, whichever is more reliably measured.
Factors That May Affect Our Future Results and the Trading Price of Our Common Stock
An investment in shares of our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with other information contained in this report and our other filings with the Securities and Exchange Commission before you decide to buy our stock. If any of the following risks actually occur, our business, financial condition and prospects would likely suffer. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations.
We need to raise additional funds immediately to support our operations. If we are unable to raise these funds, we will be forced to cease our operations.
We have an immediate need to raise additional funds to continue our operations. As of March 31, 2005, we had total current assets of $1,325,291. Our financial statements have been presented on a going concern basis. Our available funds are not sufficient to allow us to begin any further development of our proprietary drug candidate, ENT-103, including the preclinical work necessary to prepare and file an Investigational New Drug (IND) application with the FDA or to commence human clinical trials for ENT-103. We are actively seeking additional funding through potential merger/acquisition transactions coupled with public or private sales of our equity or debt securities. We also intend to seek additional funding from corporate partnerships or licensing arrangements or through public or private sales of our equity or debt securities. Any such transactions may require us to relinquish rights to some of our technologies or products, and will be dilutive to our existing stockholders. We cannot guarantee that we will be able to complete any such transaction or secure additional funds on a timely basis, or at all, and we cannot assure that such transaction will be on reasonable terms. If we are unable to obtain significant additional funds to support our operations, we will need to cease our operations prior to the end of the second quarter of 2005, and you may lose your entire investment in our company.
We expect the development of ENT-103 (topical and injectable formulations) and the FDA approval process will cost at least $45 million beyond our total expenditures to date and will take at least an additional four to five years. Our future funding requirements will depend on many factors, including:
| • | progress with preclinical and toxicology studies of ENT-103; |
| • | the costs of clinical tests and obtaining regulatory approval for ENT-103; |
| • | the costs and expenses associated with defending against the securities lawsuits filed against us; |
| • | the magnitude of our research and development programs; |
| • | the costs involved in obtaining and maintaining patent and other intellectual property rights; and |
| • | the cost of commercial manufacturing. |
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It is possible that our actual expenditures could exceed our estimates. In addition, any significant delay in the completion of preclinical studies could significantly harm our prospects.
We have a history of losses and we may never achieve or maintain profitability.
To date we have experienced significant operating losses in funding the research, development and testing of our previous drug candidate, Esterom solution, and our subsequent and current drug candidates, ENT-102 and ENT-103. We expect to continue to incur substantial operating losses during our research, development and preclinical testing of ENT-103. From our inception through March 31, 2005, we have incurred cumulative net losses applicable to common stockholders of $36.2 million. We will not be able to pursue generating revenues from sales of ENT-103 unless it is approved by the FDA for marketing. FDA approval will take several years, if ENT-103 is approved at all, and we may never achieve profitable operations.
If we fail to obtain regulatory approval to commercialize ENT-103, or if approval is delayed, it will increase the cost of development, and will likely prevent or delay our ability to sell ENT-103 and generate revenue.
Our sole current drug candidate, ENT-103, has undergone only limited preclinical development and we cannot complete any further development of ENT-103 given our limited resources. Furthermore, even if we obtain additional funds, we can give no assurances as to the results of or the time to complete the preclinical studies required to commence clinical studies. We have not yet filed an application to commence human clinical trials, known as an Investigational New Drug, or IND, application, nor have we requested or received regulatory approval from the FDA for marketing products containing ENT-103. Neither ENT-103 nor any other products that may result from our research and development programs are expected to be commercially available for several years, if at all. Any delay in the timing of the preclinical studies will adversely affect our ability to complete the necessary clinical trials, which could significantly harm our prospects.
The development of new pharmaceutical products is highly uncertain and subject to a number of risks. The FDA approval process generally takes years and consumes substantial capital resources with no assurance of ultimate success. We cannot apply for FDA approval to market ENT-103 until the product successfully completes all of the required preclinical studies and clinical trials. Several factors may prevent our successful completion of the clinical trials, including negative or inconclusive preclinical results, failure or delays in the FDA approval process, insufficient capital resources, inability to properly design and complete clinical trials, or insufficient proof that ENT-103 is safe and effective.
In addition, interim results do not necessarily predict final results, as was the case with our Esterom clinical trials. Negative or inconclusive results generated during preclinical or toxicology studies, or any future clinical studies, will have an immediate negative impact on our operations and future prospects.
There can be no assurance that development of ENT-103 will be completed successfully, that we will not encounter problems in preclinical studies or clinical trials that will cause the delay or suspension of such trials, that current or future testing will show ENT-103 to be effective or that ENT-103 will receive regulatory approval.
Moreover, even if ENT-103 does receive regulatory approval, there can be no assurance that ENT-103 will be commercially successful, or that we will be able to secure all of the patent and other regulatory protections necessary to prevent competitors from producing similar products. The failure of ENT-103 to receive timely regulatory approval and achieve commercial success will negatively impact our business and results of operations. In addition, as a controlled substance, ENT-103 will be subject to expensive and burdensome administrative requirements that will increase our costs.
We rely on third parties to test, research, develop and manufacture ENT-103 and those third parties may not perform successfully, which could harm our business, financial condition and results of operations.
We depend on contractual arrangements with third parties for the provision of services and expertise in selected areas. Under these contractual arrangements, third parties are responsible for:
| • | conducting preclinical research and toxicology studies; |
| • | conducting clinical trials and obtaining regulatory approvals; |
| • | process and analytical methods development; |
| • | clinical supply and commercial manufacturing; |
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| • | product packaging; |
| • | research; and |
| • | enhanced drug formulation(s). |
Our existing contractual relationships place substantial responsibility on these third parties, which could result in delays or termination if they fail to perform as predicted. Although we believe that we could replace these contractual relationships if necessary, we may not be able to do so in a timely manner or on favorable terms, if at all. If these third parties fail to perform their contractual obligations, it could have a negative impact on our business and results of operations.
The securities lawsuits filed against the Company and two of its directors are diverting the Company’s resources and attention, and if the Company is required to continue to defend against these lawsuits, its business and financial condition will continue to be harmed.
We are currently a named defendant in three securities lawsuits. The first lawsuit was filed in the Superior Court of the State of California (hereinafter, the “State Action”). The second lawsuit was filed in the U.S. District Court for the Central District of California (hereinafter, the “Federal Action”). The third lawsuit was filed in the District Court for the City and County of Denver, Colorado (hereinafter, the “Colorado Action”). The allegations in each of the three actions—e.g., the State Action, the Federal Action and the Colorado Action, are virtually identical. Essentially, we are accused of making false and misleading statements regarding the clinical development of its developmental drug Esterom®.
The Superior Court formally dismissed the State Action and entered judgment in favor of the Company and its two directors on August 13, 2004. The plaintiffs, however, filed a notice of appeal with the Superior Court on August 24, 2004. The plaintiffs in the State Action have filed their opening appellate brief and the Company is currently preparing its response.
In the Federal Action, our summary judgment motion was denied on April 11, 2005. In denying our motion, the court commented that the legal arguments we raised were inappropriate for resolution at this early stage of the litigation. The parties are scheduled to appear before the court on May 23, 2005. At this court appearance, the court is likely to establish mandatory mediation procedures, a discovery schedule and a trial date.
There has been little activity with respect to the Colorado Action, which was filed on March 11, 2005. On May 2, 2005 we accepted service of the complaint in this action. The parties are currently in negotiations regarding the execution of an agreement that would temporarily stay all proceedings in the Colorado Action.
We feel that we have strong defenses in each of the pending actions. However, there is no guarantee that we will be successful in defending against the plaintiffs’ claims. If we are unsuccessful in any one of the three actions, we will need to continue to divert resources and attention away from the development of ENT-103 and the other operations of the Company. Moreover, the existence of the lawsuits, irrespective of the merits, makes it more difficult for us to raise the additional funds needed to support its continued operations. As of the date of this report, we are not party to any other material legal proceedings.
We are dependent on contract manufacturers for the production of ENT-103 and our failure to obtain or retain these contract manufacturers would negatively impact our business and results of operations.
We have utilized, and intend to continue utilizing, third party manufacturers to produce the supplies of ENT-103 needed for our preclinical studies. We have no experience in manufacturing and do not have any manufacturing facilities. Consequently, we are solely dependent on Macfarlan Smith, our contract manufacturer, for all production of ENT-103 for development and commercialization purposes. Although there are several other contract manufacturers with whom we could contract for the supply of ENT-103, any disruption of our supply through Macfarlan Smith could result in delays and additional costs that could harm our operations.
We depend on key personnel who would be difficult to replace and our business will likely be harmed if we lose their services.
We have only two full-time executive employees, Thomas Tachovsky and Patricia Kriss, our Chief Executive Officer and Chief Financial Officer, respectively. Although we have an employment agreement with Mr. Tachovsky, his employment relationship is at-will, which means that either party can terminate the employment relationship at any time and for any reason.
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We do not have an employment contract with Ms. Kriss and her employment relationship is also at-will. Although we maintain key person life insurance for both of our executive employees, the loss of either person would materially harm our operations. In addition, we rely on the members of the Scientific Committee of the Board of Directors, our Scientific and Medical Advisory Board and a number of other specialty consultants to assist in formulating our research and development strategy. The loss of either of our key executives or primary consultants could impede the achievement of our objectives and our business would likely be harmed.
The scope and validity of patents and proprietary rights is particularly important in our industry and the loss of any such rights could harm our business and prospects.
Patents, trademarks and other intellectual property rights are important in our industry and important to our success. Others may challenge, seek to invalidate, infringe or circumvent any patents we own, and the rights we have under those patents may not provide competitive advantages to us. If we are unable to successfully prosecute our patent applications, defend our existing patents or if others develop similar products beyond the protection of our existing patents, our business could be impaired. In addition, the manufacture, use or sale of our products may infringe on the patent rights of others. Competitors and other third parties may initiate patent litigation against us in the United States or in foreign countries based on existing patents or patents that may be granted in the future. Many of our competitors have obtained patents covering competing products and processes and they may assert these patents against us. Patent litigation can be extremely expensive and time consuming.
We may also need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others’ rights. Any such litigation could result in substantial costs and diversion of resources, regardless of the outcome. In addition, a court may find our patents invalid or may find that we have infringed on a competitor’s rights. If any claims or actions are asserted against us, we may be required to participate in expensive interference proceedings to determine who has the right to a patent for the technology.
Pharmaceutical companies may be exposed to significant product liability claims that can be very costly. Given our limited financial resources, any such claims could harm our business.
The clinical testing of products containing ENT-103 entails risk of product liability claims. Medical testing has historically been litigious and we face financial exposure to product liability claims in the event that use of our products results in personal injury. We also face the possibility that defects in the manufacture of ENT-103 based products might necessitate a product recall. There can be no assurance that we will not experience losses due to product liability claims or recalls in the future. We currently have no product liability insurance and very limited financial resources that could be used to satisfy any such claims, although we anticipate purchasing product liability insurance in reasonable and customary amounts prior to our sale of ENT-103 based products. Such insurance can be expensive, difficult to obtain and may not be available in the future at reasonable cost or in sufficient amounts to protect us against losses. An inability to maintain insurance or to otherwise protect against potential product liability could prevent or inhibit the commercialization of ENT-103 products. Moreover, a product liability claim in excess of our insurance coverage limits or product recall could significantly diminish our limited financial resources and harm our business and results of operations.
The pharmaceutical industry is highly competitive and most of our competitors are larger and have more experience, as well as greater technical and financial resources. As a result, we face significant competitive hurdles.
The pharmaceutical industry is characterized by intense competition and is subject to rapid and significant technological change. There are currently many successful products marketed for the treatment of pain and our competitors have new products and product candidates in all stages of development that will compete with ENT-103 if it is commercialized. Our competitors include major pharmaceutical companies, biotechnology firms, universities and other research institutions, both in the United States and abroad. Most of our competitors have substantially greater financial, technical, manufacturing, marketing and human resource capabilities than us. In addition, many of our competitors have significantly greater experience in testing new or improved therapeutic products and obtaining regulatory approval of products. Accordingly, our competitors may obtain regulatory approval for their products more rapidly than we are able to. If we commence commercial sales of our products, we will also be competing with respect to manufacturing efficiencies and marketing capabilities, areas in which we have no prior experience.
Rapid technological change could make our products obsolete.
Pharmaceutical technologies have undergone rapid and significant change. We expect that pharmaceutical technologies will continue to develop rapidly. Our future will depend in large part on our ability to maintain a competitive position with respect
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to these technologies. Even if ENT-103 is approved for marketing, rapid technological development in our industry may render it obsolete before we can recoup all or any portion of our development expenses. If this were to happen, we may be forced to write off development costs, abandon ENT-103 or other drug candidates and seek new drug candidates for regulatory approval and commercialization, all of which could materially adversely affect our business, financial condition and results of operations.
The existing trading market for our securities is limited, which affects the price and liquidity of our securities.
On June 26, 2003, our common stock was delisted from the Nasdaq SmallCap Market and now trades on the OTC Bulletin Board. Securities trading on the OTC Bulletin Board typically suffer from lower liquidity, which may lead to depressed trading prices, greater price volatility and difficultly in buying or selling shares, particularly in large quantities. Currently, there is a limited trading market for our common stock and we cannot predict when, if ever, a fully developed public market for the common stock will occur. If a developed public trading market for the common stock does develop at a future time, there are no assurances that it will be sustained for any period of time. Any sales of shares by stockholders in substantial amounts in the public market could adversely affect the prevailing market price and could impair our future ability to raise capital through the sale of equity securities.
In addition, the SEC has adopted regulations which generally define “penny stock” to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect the ability of purchasers in this offering to sell our securities in the secondary market.
We may sell additional shares of capital stock in the future, which could dilute your investment.
Our Board of Directors approved an amendment to the Company’s Certificate of Incorporation on August 31, 2004, to increase the number of authorized shares of common stock from 50,000,000 shares to 200,000,000 shares. Our stockholders approved the proposal to increase the number authorized shares of common stock at a special meeting held on November 19, 2004. The approval of this proposal by the Company’s stockholders provides the Board of Directors with a significant number of additional shares of common stock to issue in fund raising activities and for other corporate purposes. Our Certificate of Incorporation also provides for the issuance of up to 10,000,000 shares of preferred stock. The issuance of these additional shares of common stock and/or preferred stock will have a dilutive effect on the equity and voting power of the existing holders of our common stock. It may also adversely affect the market price of our common stock. As of March 31, 2005, there were 30,645,341 shares of common stock issued and outstanding and 3,210,487 shares of Series A’ preferred stock.
The price of common stock has fluctuated greatly over the past several years and we expect this volatility to continue.
The market prices and trading volumes for the securities of development stage companies in general, and for our securities in particular, have historically been highly volatile and have experienced significant price and volume fluctuations. These fluctuations may or may not be related to our operating performance, and the announcement of developments regarding our products, regulatory approval status, competition, government regulation or other matters that are material to our business or prospects may cause significant swings in our stock prices.
| Item 3. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, our Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods.
Internal Control over Financial Reporting
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II.
OTHER INFORMATION
| Item 1. | Legal Proceedings |
We are currently a named defendant in three securities lawsuits. The first lawsuit was filed in the Superior Court of the State of California (hereinafter, the “State Action”). The second lawsuit was filed in the U.S. District Court for the Central District of California (hereinafter, the “Federal Action”). The third lawsuit was filed in the District Court for the City and County of Denver, Colorado (hereinafter, the “Colorado Action”). The allegations in each of the three actions—e.g., the State Action, the Federal Action and the Colorado Action, are virtually identical. Essentially, we are accused of making false and misleading statements regarding the clinical development of its developmental drug Esterom®.
The Superior Court formally dismissed the State Action and entered judgment in favor of the Company and its two directors on August 13, 2004. The plaintiffs, however, filed a notice of appeal with the Superior Court on August 24, 2004. The plaintiffs in the State Action have filed their opening appellate brief and the Company is currently preparing its response.
In the Federal Action, our summary judgment motion was denied on April 11, 2005. In denying our motion, the court commented that the legal arguments we raised were inappropriate for resolution at this early stage of the litigation. The parties are scheduled to appear before the court on May 23, 2005. At this court appearance, the court is likely to establish mandatory mediation procedures, a discovery schedule and a trial date.
There has been little activity with respect to the Colorado Action, which was filed on March 11, 2005. On May 2, 2005 we accepted service of the complaint in this action. The parties are currently in negotiations regarding the execution of an agreement that would temporarily stay all proceedings in the Colorado Action.
We feel that we have strong defenses in each of the pending actions. However, there is no guarantee that we will be successful in defending against the plaintiffs’ claims. If we are unsuccessful in any one of the three actions, we will need to continue to divert resources and attention away from the development of ENT-103 and the other operations of the Company. Moreover, the existence of the lawsuits, irrespective of the merits, makes it more difficult for us to raise the additional funds needed to support its continued operations. As of the date of this report, we are not party to any other material legal proceedings.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Submission of Matters to a Vote of Security Holders |
There have been no matters submitted to a vote of security holders during the quarterly period ended March 31, 2005 through the solicitation of proxies or otherwise.
| Item 5. | Other Information |
None.
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| Item 6. | Exhibits |
Exhibits
| Exhibit Number | Description | |
| 2.1 | Agreement of Plan of Merger, dated May 2, 2002, by and between Entropin, Inc., a Delaware Corporation and Entropin, Inc., a Colorado corporation (1) | |
| 3.1 | Certificate of Incorporation of Entropin, Inc., a Delaware corporation (2) | |
| 3.2 | Bylaws of Entropin, Inc., a Delaware corporation (2) | |
| 3.3 | Certificate of Designations of Series A’ Preferred Stock of Entropin, Inc. (3) | |
| 3.4 | Certificate of Amendment to Certificate of Incorporation (4) | |
| 4.1 | Form of Common Stock Purchase Warrant (5) | |
| 4.2 | Warrant for Common Stock issued to Navidec Financial Services, Inc. (6) | |
| 10.1 | Agreement and Plan of Merger, dated December 9, 1997 between Vanden Capital Group, Inc. and Entropin, Inc. (7) | |
| 10.2 | Lease Agreement, dated February 1, 1998, between the Registrant and Thomas T. Anderson (8) | |
| 10.3 | 1998 Compensatory Stock Plan (9) | |
| 10.4 | Employment Agreement, dated December 1, 1999, between Entropin, Inc. and Thomas Tachovsky. (10) | |
| 10.5 | Amended and Restated Investment Banking Agreement, dated December 11, 2003, between Entropin, Inc. and InvestLinc Securities, LLC. (10) | |
| 10.6 | Form of Indemnification Agreement for the officers and directors (11) | |
| 31.1 | Certification of President and Chief Executive Officer | |
| 31.2 | Certification of Chief Financing Officer | |
| 32.1 | Certification of President and Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. | |
| (1) | Incorporated by reference to the like numbered exhibit filed with the Registrant’s quarterly report on Form 10-QSB on August 14, 2002. |
| (2) | Incorporated by reference from the like numbered exhibits as filed with the Registrant’s Current Report on Form 8-K on June 26, 2002. |
| (3) | Incorporated by reference from the like numbered exhibit as filed with the Registrant’s annual report on Form 10-KSB/A on April 30, 2003. |
| (4) | Incorporated by reference from Exhibit A filed with the Registrant’s Proxy Statement on October 1, 2004. |
| (5) | Incorporated by reference to the exhibit filed with the Registrant’s Registration Statement on Form SB-2/A, No. 333-11308, on March 15, 2000. |
| (6) | Incorporated by reference from the exhibit as filed with the Registrant’s annual report on Form 10-KSB on March 30, 2004. |
| (7) | Incorporated by reference from the exhibit filed with the Registrant’s Current Report on Form 8-K, as amended, on January 15, 1998. |
| (8) | Incorporated by reference from the exhibit filed with the Registrant’s Annual Report on Form 10-KSB, on April 15, 1998, as amended. |
| (9) | Incorporated by reference from exhibit filed with the Registrant’s Registration Statement on Form S-8 on December 30, 1998. |
| (10) | Incorporated by reference to the exhibit filed with the Registrant’s Registration Statement on Form SB-2/A, No. 333-110159, on December 17, 2003. |
| (11) | Incorporated by reference from Exhibit 10.1 as filed with the Registrant’s Current Report on Form 8-K filed on September 17, 2004. |
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In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENTROPIN, INC., a Delaware corporation | ||||||||
Date: May 12,2005 | By: | /s/ Thomas G. Tachovsky, Ph.D. | ||||||
Thomas G. Tachovsky, Ph.D. | ||||||||
President and Chief Executive Officer | ||||||||
Date: May 12, 2005 | By: | /s/ Patricia G. Kriss | ||||||
Patricia G. Kriss | ||||||||
| Chief Financial Officer | ||||||||
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