<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-OR-
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from...to...
Commission File No. 0-24936
ERGO SCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3271667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Charlestown Navy Yard
100 First Avenue, Fourth Floor
Charlestown, Massachusetts 02129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 241-6800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 /_ /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At July 30, 1998 there were 14,253,267 shares of common stock, par value $.01
per share, of the registrant outstanding.
- --------------------------------------------------------------------------------
<PAGE>
ERGO SCIENCE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997......................................... 3
Consolidated Statements of Operations for the three
months and six months ended June 30, 1998
and June 30, 1997........................................ 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and June 30, 1997.................... 5
Notes to Consolidated Financial Statements..................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
PART II. OTHER INFORMATION.................................................. 13
SIGNATURES.................................................................. 14
2
<PAGE>
ERGO SCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents ............................................. $ 18,980,487 $ 13,923,115
Short-term investments ................................................ 20,767,141 9,536,995
Inventory ............................................................. -- 424,320
Prepaid and other current assets ...................................... 327,047 260,608
------------- -------------
Total current assets ......................................... 40,074,675 24,145,038
Equipment and leasehold improvements, net ...................................... 1,833,163 1,970,328
Deferred charges ............................................................... -- 2,499,000
Other assets ................................................................... 68,759 50,300
------------- -------------
Total assets .......................................................... $ 41,976,597 $ 28,664,666
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................. $ 3,364,151 $ 2,921,538
Deferred revenue ...................................................... 151,435 --
Current portion of capital lease obligations .......................... 327,237 280,305
----------- -------------
Total current liabilities .................................... 3,842,823 3,201,843
Long-term portion of capital lease obligations ................................. 285,692 327,442
Commitments and contingencies .................................................. -- --
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; 6,903
shares of Series D preferred stock issued and outstanding at June 30,
1998 and December 31, 1997 (liquidation preferences were $8,324,968
and $8,082,490 at June 30, 1998 and
December 31, 1997, respectively) .................................... 5,450,298 5,207,820
Common stock, $.01 par value, authorized 50,000,000 at June 30, 1998
and December 31, 1997; issued and outstanding 14,253,267 shares at
June 30, 1998 and 13,493,262 shares at December 31, 1997 ............ 142,533 134,933
Additional paid-in capital ............................................ 112,006,918 101,469,182
Cumulative dividends on preferred stock ............................... (3,440,731) (3,198,253)
Deferred compensation ................................................. (624,977) (874,473)
Accumulated deficit ................................................... (75,685,959) (77,603,828)
------------- -------------
Total stockholders' equity ................................... 37,848,082 25,135,381
------------- -------------
Total liabilities and stockholders' equity ........... $ 41,976,597 $ 28,664,666
------------- -------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3
<PAGE>
ERGO SCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>F
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Product revenue .................... -- -- $ 2,488,520 --
Sponsored research revenue ......... $ 1,972,465 -- 4,728,465 --
License fees ....................... -- -- 10,000,000 --
------------ ------------ ------------ -----------
1,972,465 -- 17,216,985 --
Operating expenses:
Cost of product revenue -- -- 2,488,520 --
Research and development ........... 3,662,634 $ 2,899,048 7,361,885 $ 6,244,289
Write-off related to renegotiated
Supply agreement ................... 2,499,000 -- 2,499,000 --
General and administrative 1,622,111 1,778,914 3,812,027 3,904,256
------------ ------------ ------------ ------------
7,783,745 4,677,962 16,161,432 10,148,545
------------ ------------ ------------ ------------
Net operating income (loss) (5,811,280) (4,677,962) 1,055,553 (10,148,545)
Other Income:
Interest ........................... 564,465 438,646 862,316 919,666
------------ ------------ ------------ -----------
Net income (loss) ......... (5,246,815) (4,239,316) 1,917,869 (9,228,879)
Accretion of dividends on preferred stock ... (122,439) (115,409) (242,478) (228,554)
------------ ------------ ------------ -----------
Net income (loss) to common stockholders .... $ (5,369,254) $ (4,354,725) $ 1,675,391 $ (9,457,433)
------------ ------------ ------------ -----------
Earnings (loss) per common share:
Basic.............................. $ (0.38) $ (0.33) $ 0.12 $ (0.72)
------------ ------------ ------------ ------------
Diluted............................ $ (0.38) $ (0.33) $ 0.12 $ (0.72)
------------ ------------ ------------ ------------
Weighted average common shares outstanding:
Basic .............................. 14,222,585 13,179,781 13,919,654 13,149,907
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted ............................ 14,222,585 13,179,781 14,251,367 13,149,907
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4
<PAGE>
ERGO SCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1998 1997
---- -----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) ........................................................................ $ 1,917,869 $ (9,228,879)
Adjustments to reconcile net income (loss) to cash used by operating activities:
Depreciation and amortization ........................................................ 454,680 700,433
Noncash compensation ................................................................. 224,338 766,663
Loss on sale of equipment ............................................................ -- 6,917
Noncash charge for write-off related to renegotiated supply agreement ................ 2,499,000 --
Changes in operating assets and liabilities:
Inventory ....................................................................... 424,320 --
Prepaid and other current assets ................................................ (66,440) (306,552)
Other assets .................................................................... (18,465) (27,898)
Accounts payable and accrued expenses ........................................... 442,613 239,213
Deferred revenue ................................................................ 151,435 --
------------ -------------
Net cash provided by (used in) operating activities ............................................... 6,029,350 (7,850,103)
------------ -------------
Cash flows from investing activities:
Purchase of short-term investments ....................................................... (32,342,900) (23,224,472)
Proceeds from maturity of short-term investments ......................................... 21,112,759 33,366,787
Purchase of equipment and leasehold improvements ......................................... (145,818) (457,905)
Proceeds received on sale of equipment ................................................... -- 6,000
------------ -------------
Net cash (used in) provided by investing activities ............................................... (11,375,959) 9,690,410
------------ -------------
Cash flows from financing activities:
Principal payments under capital lease obligations ....................................... (166,513) (109,276)
Proceeds from issuance of common stock ................................................... 10,000,000 --
Proceeds from stock options exercised .................................................... 570,494 146,965
------------ -------------
Net cash provided by financing activities ......................................................... 10,403,981 37,689
------------ -------------
Net increase in cash and cash equivalents ......................................................... 5,057,372 1,877,996
Cash and cash equivalents at beginning of period .................................................. 13,923,115 18,066,884
------------ -------------
Cash and cash equivalents at end of period ........................................................ $ 18,980,487 $ 19,944,880
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5
<PAGE>
ERGO SCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Ergo Science Corporation ("Ergo" or the "Company") in accordance with
generally accepted accounting principles.
Certain information and footnote disclosure normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair statement
of the results for the interim periods ended June 30, 1998 and 1997.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1997, which are
contained in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1997.
Prior to January 1, 1998, the Company was a development stage enterprise as
defined in Statement of Financial Accounting Standards No. 7 ("SFAS 7"). As a
result of the collaboration agreement entered into with Johnson & Johnson in the
first quarter of 1998, the Company is no longer considered a development stage
enterprise as defined in SFAS 7.
Reclassification
Certain amounts from prior years have been reclassified to conform to
the current year presentation.
2. Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90
days or less at the date of purchase to be cash equivalents.
Debt securities are classified as held-to-maturity when the Company has
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost.
At June 30, 1998 and December 31, 1997, cash equivalents were composed
primarily of investments in money market funds, United States government
obligations and high grade commercial paper that mature within 90 days of
purchase.
6
<PAGE>
3. Short-term Investments
The following is a summary of securities with maturities greater than 90
days not classified as cash and cash equivalents. All short-term investments are
classified as held-to-maturity.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------- -----------------
<S> <C> <C>
Commercial paper ........................ $ 7,985,165 $ 6,461,033
Federal agency notes .................... 12,781,976 3,075,962
----------- -----------
Total short-term investments..... $20,767,141 $ 9,536,995
----------- -----------
----------- -----------
</TABLE>
The held-to-maturity securities are short-term in nature. Changes in market
interest rates would not have a significant effect on the fair value of these
securities. These securities are carried at amortized cost, which approximates
fair value.
4. Inventory
Pursuant to a supply agreement, the Company was responsible for the
purchase and supply of all active ingredient required for the manufacturing of
ERGOSET-Registered Trademark- tablets. In the fourth quarter of 1997, the
Company purchased $424,320 of active ingredient to be used in the manufacturing
of ERGOSET-Registered Trademark- tablets, all of which was held as raw material
at December 31, 1997. The inventory was sold to Johnson & Johnson in the
first quarter of 1998.
5. Deferred Charges
The deferred charges balance at December 31, 1997 represented the
capitalized fair value of stock issued in 1997 to the Company's drug supplier
in exchange for an improvement in the terms of the supply agreement. As a
result of the unfavorable recommendation given by the Endocrinologic and
Metabolic Drugs Advisory Committee of the FDA on May 14, 1998, the Company
determined that the value of this asset had been materially impaired due to
the uncertainty that the improved supply terms would be realized. As a
result, the Company wrote-off the balance of this asset in the second quarter
of 1998.
6. Earnings/Loss Per Common Share
Basic earnings/loss per common share is computed by dividing net
income/loss by the weighted average number of common shares outstanding for
the period. Diluted earnings per common share is computed by dividing net
income by the sum of the weighted average number of common shares outstanding
for the period plus the assumed exercise of all dilutive securities, such as
stock options. The following is a calculation of earnings/loss per common
share:
<TABLE>
<CAPTION>
Basic earnings/loss per common share computation
Three Months Ended June 30 Six Months Ended June 30
----------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income/(loss) $ (5,369,254) $ (4,354,725) $ 1,675,391 $ (9,457,433)
Denominator:
Weighted average common shares
outstanding 14,222,585 13,179,781 13,919,654 13,149,907
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings/loss per common share $ (0.38) $ (0.33) $ 0.12 $ (0.72)
------------ ------------ ------------ ------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Diluted earnings/loss per common Three Months Ended June 30 Six Months Ended June 30
share computation ----------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income/(loss) $ (5,369,254) $ (4,354,725) $ 1,675,391 $ (9,457,433)
Denominator:
Weighted average common shares 14,222,585 13,179,781 13,919,654 13,149,907
outstanding
Dilutive effect of stock options -- -- 331,713 --
------------ ------------ ------------ ------------
Total shares 14,222,585 13,179,781 14,251,367 13,149,907
------------ ------------ ------------ ------------
Diluted earnings/loss per common
share $ (0.38) $ (0.33) $ 0.12 $ (0.72)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The diluted loss per common share calculated for the three and six month
periods ended June 30, 1997 excludes the effects of 1,664,200 options
outstanding at January 1, 1997, and the diluted loss per common share calculated
for the three months ended June 30, 1998 excludes the effects of 1,828,894
options outstanding at January 1, 1998. These amounts are excluded, as their
inclusion would be anti-dilutive.
7. Contingencies
On April 29, 1998, the Company and the Board of Supervisors of Louisiana
State University and Agriculture and Mechanical College ("LSU") entered into
dispute resolution under the provisions of the parties' Novated License and
Royalty Agreement ("License Agreement") dated May 1, 1995. The dispute relates
to the amount of payment owed to LSU arising from various payments received by
the Company from Johnson & Johnson. LSU is seeking payment of $4,138,000. The
Company believes that the payment owed to LSU is significantly less than this
amount.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements. Forward-looking
statements reflect Ergo's current views with respect to future events. Actual
results may vary materially and adversely from those anticipated, believed,
assumed, estimated or otherwise indicated. Important factors that could cause
actual results to differ materially include, without limitation, (1) there can
be no assurance that Ergo will be able to submit clinical trial results in the
future that will produce an approval by the FDA of ERGOSET-Registered Trademark-
tablets for the treatment of Type 2 diabetes or obesity, (2) there can be no
assurance that Ergo will have sufficient capital to complete any additional
trials undertaken, (3) data obtained from clinical trials are subject to varying
interpretations, and there can be no assurance that the FDA (or an FDA panel of
experts) will agree with Ergo's assessment of future clinical trial results, (4)
uncertainty related to the scientific development of a new medical therapy, (5)
competition in the anti-diabetic and anti-obesity markets is intense; other
products have been recently approved for these indications and other companies
are developing competing products, (6) the need for additional funding, (7)
there can be no assurance that ERGOSET-Registered Trademark- tablets, if
approved for commercial marketing, will be successful in the marketplace, or
that Ergo will receive any profits from its sale, (8) if approved for commercial
marketing, Johnson & Johnson, and not Ergo, is responsible for manufacturing and
the timing and implementation of marketing ERGOSET-Registered Trademark-
tablets, (9) there can be no assurance that Ergo will achieve any of the
objectives required for milestone payments by Johnson & Johnson, (10) Johnson &
Johnson has the right to terminate the collaboration at any time subject to the
possibility of paying penalties in certain circumstances, and (11) the
uncertainty relating to patent protection in the pharmaceutical and
biotechnology industries. Further information and additional important factors
are set forth in reports and other filings of Ergo with the Securities and
Exchange Commission, including, without limitation, the 1997 Annual Report on
Form 10-K, generally under the section entitled "Risk Factors." Ergo does not
undertake to update any forward-looking statement that may be made from time to
time by or on behalf of Ergo.
Overview
Since inception, Ergo has developed novel treatments for metabolic
disorders, including Type 2 diabetes and obesity, immune system disorders and
various forms of cancer based on its core technology, Neuroendocrine
Resetting Therapy-Registered Trademark- ("NRT-TM-"). NRT-TM- is based on the
role of neurotransmitters in regulating metabolism. The Company has dedicated
most of its financial resources to research and development of
ERGOSET-Registered Trademark- tablets, the Company's lead product candidate,
general and administrative expenses and the prosecution of patents and patent
applications. To date, the Company has not received any revenues from the
sale of products and its ability to receive any revenues from product sales
is dependent upon receiving market clearance from the FDA.
From inception through 1997, the Company had been unprofitable. On
February 23, 1998, Ergo and Johnson & Johnson entered into a worldwide Joint
Collaboration and License Agreement to develop and commercialize
ERGOSET-Registered Trademark- tablets as well as other potential
collaboration products for the treatment of Type 2 diabetes and obesity (the
"Joint Collaboration Agreement"). In conjunction with the Joint Collaboration
Agreement, Ergo received a $10 million license fee and approximately $4.7
million in sponsored research revenue. As a result, the Company generated net
income of approximately $1.9 million for the first half of 1998.
On May 14, 1998, the Endocrinologic and Metabolic Drugs Advisory
Committee of the FDA found that there was not sufficient evidence to
recommend for approval the Company's
9
<PAGE>
NDA for ERGOSET-Registered Trademark- tablets for Type 2 diabetes. The Company
has been meeting with the FDA to review the committee's recommendation and to
consider appropriate next steps.
Results of Operations
Three Months and Six Months Ended June 30, 1997 and 1998
Total revenues were $1,972,465 and $17,216,985 for the three and six month
periods ended June 30, 1998, respectively. Revenues for the second quarter of
1998 consisted of sponsored research payments. Total revenues for the first six
months of 1998 consisted of a $10 million license fee, approximately $4.7
million in sponsored research revenue and approximately $2.5 million of product
revenue from raw material inventory sold at cost. All revenues in 1998 were
derived from the Joint Collaboration Agreement. In 1997, the Company did not
generate revenues.
Research and development expenses increased from $2,899,048 to
$3,662,634 and from $6,244,289 to $7,361,885 for the three and six month
periods ended June 30, 1997 and 1998, respectively. These increases were
mainly due to expenses related to the New Drug Application (NDA) for
ERGOSET-Registered Trademark-(bromocriptine mesylate) tablets, Ergo's lead
candidate for Type 2 diabetes, and costs associated with the ongoing Phase II
weight-loss study in obese subjects.
The write-off related to renegotiated supply agreement charge of
$2,499,000 relates to the write-off of the capitalized fair value of stock
issued in the fourth quarter of 1997 to the Company's drug supplier. See
"Liquidity and Capital Resources" for further discussion.
General and administrative expenses decreased from $1,778,914 to $1,622,111
for the three month periods ended June 30, 1997 and 1998, respectively. The
decrease resulted from a reduction in legal and consulting fees, which were
largely offset by the addition of commercialization costs associated with the
Joint Collaboration Agreement. For the six month periods ended June 30, 1997 and
1998, costs were generally consistent totaling $3,904,256 and $3,812,027,
respectively.
For the three month periods ended June 30, 1997 and 1998, other income
increased from $438,646 to $564,465, respectively, while for the six month
periods ended June 30, 1997 and 1998, other income decreased from $919,666 to
$862,316, respectively. Other income was derived from interest income earned on
cash, cash equivalents and short-term investments. The increase and decrease in
interest income is attributable to a change in the average amounts of cash, cash
equivalents and short-term investments during the comparable periods in 1997 and
1998. Cash, cash equivalents and short-term investment increases were
attributable to payments received in conjunction with the Joint Collaboration
Agreement, while decreases were the result of cash used to fund the Company's
operations.
Liquidity and Capital Resources
Since its inception, the Company's primary source of cash has been from
financing activities, which have consisted of private placements of equity
securities, two public offerings and the Joint Collaboration Agreement.
Private placements of equity securities provided the Company with aggregate
proceeds of $42,999,000. On December 19,
10
<PAGE>
1995, the Company raised $23,030,476 from the sale of stock in an initial public
offering, net of commissions and offering costs. Subsequently, on August 14,
1996, the Company raised an additional $32,218,487, net of commissions and
offering costs, from the sale of stock in a second public offering.
On February 23, 1998, Ergo and Johnson & Johnson entered into the Joint
Collaboration Agreement to develop and commercialize ERGOSET-Registered
Trademark- tablets as well as other potential collaboration products for the
treatment of Type 2 diabetes and obesity. In March 1998, Johnson & Johnson made
payments to Ergo totaling $20 million, including payment of a $10 million
license fee and the purchase of $10 million of Ergo common stock. In addition,
Johnson & Johnson has committed to provide Ergo with significant, additional
financial support in the form of milestone payments upon achievement of other
specified development, regulatory and commercial objectives subject to the terms
of the Joint Collaboration Agreement.
Cash and cash equivalents were $18,980,487 and $13,923,115, while
short-term investments were $20,767,141 and $9,536,995, at June 30, 1998 and
December 31, 1997, respectively. The overall increase in cash, cash equivalents
and short-term investments at June 30, 1998, was due primarily to payments
received in connection with the Joint Collaboration Agreement.
The Company's primary use of cash to date has been in operating activities
to fund research and development, including preclinical studies and clinical
trials, and general and administrative expenses.
In 1997, the Company initiated a Phase II clinical study to evaluate the
safety and efficacy of ERGOSET-Registered Trademark- tablets to treat
clinical obesity. This study is being conducted at approximately 14 clinical
sites across the United States in approximately 300 clinically obese
subjects. In July 1998, enrollment for this study was completed. The Company
is incurring and will continue to incur additional research and development
expenses associated with its various clinical trials.
In 1997, the Company filed with the FDA an NDA for ERGOSET-Registered
Trademark- tablets to treat Type 2 diabetes and the FDA accepted the NDA for
filing. On May 14, 1998, the Endocrinologic and Metabolic Drugs Advisory
Committee of the FDA found that there was not sufficient evidence to recommend
for approval the Company's NDA for ERGOSET-Registered Trademark- tablets for
Type 2 diabetes. The Company has been meeting with the FDA to review the
committee's recommendation and to consider appropriate next steps. During 1998,
the Company incurred and will continue to incur costs associated with the NDA
review process.
As a result of the unfavorable recommendation given by the
Endocrinologic and Metabolic Drugs Advisory Committee of the FDA, the Company
recorded a noncash charge of $2,499,000 for the write-off of a deferred
asset. This asset represented the capitalized fair value of stock issued in
1997 to the Company's drug supplier in exchange for an improvement in the
terms of the supply agreement. The Company had determined that the value of
this asset had been materially impaired due to the uncertainty that the
improved supply terms would be realized by the Company and thus, fully
expensed the amount in the second quarter of 1998. (See Note 9 of the audited
financial statements for the year ended December 31, 1997, which are
contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1997).
11
<PAGE>
As of June 30, 1998, the Company's net investment in equipment and
leasehold improvements was $1,833,163. The Company expects that additional
equipment and facilities will be needed to the extent it increases its
research and development activities.
Based on the decision of the Endocrinologic and Metabolic Drugs Advisory
Committee of the FDA, discussed above, the Company is currently reevaluating
its development programs. However, the Company currently plans to manage any
changes to such programs so that the Company's available cash, cash
equivalents, short-term investments, and expected interest income will fund
its operations through 1999. In the event that the costs of such development
programs are higher than expected, the Company may need additional capital
prior to 2000. There can be no assurance that the Company will be able to
complete the development and initial commercial launch of any product with
such capital resources and additional capital resources that may become
available under the terms of the Joint Collaboration Agreement. To the
extent the Company raises additional capital by issuing equity
securities,ownership dilution to existing stockholders will result, and
future investors may be granted rights superior to those of existing
stockholders. There can be no assurance, however, that additional financing
will be available from any source or, if available, will be available on
acceptable terms.
The terms of the Company's Series D Preferred Stock prohibit the Company
from paying dividends on the common stock.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
27 - Financial Data Schedule
Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ERGO SCIENCE CORPORATION
By: /s/ Francis M. Ferrara, Jr.
-----------------------------------------
Francis M. Ferrara, Jr.
Controller (principal accounting officer)
Date: July 31, 1998
---------------------------------------
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 18980487
<SECURITIES> 20767141
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40074675
<PP&E> 6246720
<DEPRECIATION> 4413557
<TOTAL-ASSETS> 41976597
<CURRENT-LIABILITIES> 3842823
<BONDS> 0
0
5450298
<COMMON> 142533
<OTHER-SE> 32255251
<TOTAL-LIABILITY-AND-EQUITY> 41976597
<SALES> 0
<TOTAL-REVENUES> 18079301
<CGS> 0
<TOTAL-COSTS> 16161432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1917869
<INCOME-TAX> 0
<INCOME-CONTINUING> 1917869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1917869
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
