<PAGE>
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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 March 31, 2000
-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)
43 HIGH STREET
NORTH ANDOVER, MASSACHUSETTS 01845
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 974-9474
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 April 27, 2000 there were 14,299,217 shares of common stock, par value $.01
per share, of the registrant outstanding.
================================================================================
<PAGE>
ERGO SCIENCE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 ....................................................3
Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999 .................................4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 ........................................5
Notes to Consolidated Financial Statements ..................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .........................................8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..................13
PART II. OTHER INFORMATION ....................................................................14
SIGNATURES ....................................................................................15
</TABLE>
2
<PAGE>
ERGO SCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................. $ 3,875,212 $ 4,292,631
Short-term investments ................................................ 17,807,675 17,722,798
Prepaid and other current assets ...................................... 19,485 27,069
------------- ------------
Total current assets ......................................... 21,702,372 22,042,498
Long-term investments .......................................................... 8,341,648 8,324,326
Equipment and leasehold improvements, net ...................................... 37,670 39,759
Other assets ................................................................... 3,318 3,318
------------- ------------
Total assets ................................................. $ 30,085,008 $ 30,409,901
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................. $ 4,222,442 $ 4,623,668
Total current liabilities .................................... 4,222,442 4,623,668
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
March 31, 2000 and December 31, 1999 (liquidation preference
of $9,232,022 at March 31, 2000) ................................. 6,357,352 6,222,250
Common stock, $.01 par value, authorized 50,000,000 at March 31, 2000
and December 31, 1999; issued and outstanding 14,299,217 and
14,269,467 shares at March 31, 2000 and December 31, 1999,
respectively ..................................................... 142,993 142,695
Additional paid-in capital ............................................ 111,808,824 111,785,322
Cumulative dividends on preferred stock................................ (4,347,785) (4,212,683)
Accumulated deficit ................................................... (88,098,818) (88,151,351)
------------- ------------
Total stockholders' equity.................................... 25,862,566 25,786,233
------------- ------------
Total liabilities and stockholders' equity............ $ 30,085,008 $ 30,409,901
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE>
ERGO SCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Operating expenses:
Research and development .............................................. 45,229 1,314,273
General and administrative ............................................ 334,140 1,181,456
------------ ------------
379,369 2,495,729
------------ ------------
Net operating loss ........................................... (379,369) (2,495,729)
Other income:
Interest .............................................................. 431,902 420,041
------------ ------------
Net income (loss) ..................................................... 52,533 (2,075,688)
Accretion of dividends on preferred stock....................................... (135,102) (127,347)
------------ ------------
Net loss to common stockholders ................................................ $(82,569) $(2,203,035)
============ ============
Loss per common share:
Basic ................................................................. $ (0.01) $ (0.15)
------------ ------------
Diluted ............................................................... $ (0.01) $ (0.15)
============ ============
Weighted average common shares outstanding:
Basic ............................................................... 14,271,871 14,254,467
----------- ------------
Diluted ............................................................... 14,271,871 14,254,467
============ ============
</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>
Three Months Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ 52,533 $ (2,075,688)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization ..................................... 7,534 5,843
Noncash compensation .............................................. -- 87,118
Accrued interest on long-term investments ......................... (17,322) --
Changes in operating assets and liabilities:
Prepaid and other current assets ............................. 7,584 283,911
Other assets ................................................. -- 48,593
Accounts payable and accrued expenses ........................ (401,226) (372,809)
------------ ------------
Net cash used in operating activities .......................................... (350,897) (2,023,032)
------------ ------------
Cash flows from investing activities:
Purchase of short-term investments .................................... (1,454,005) (19,102,173)
Proceeds from maturity of short-term investments ...................... 1,369,128 17,997,599
Purchase of equipment and leasehold improvements ...................... (5,445) (73,185)
------------ ------------
Net cash used in investing activities .......................................... (90,322) (1,177,759)
------------ ------------
Cash flows from financing activities:
Principal payments under capital lease obligations .................... -- (122,223)
Proceeds from stock options exercised ................................. 23,800 --
------------ ------------
Net cash provided by (used in) financing activities ............................ 23,800 (122,223)
------------ ------------
Net decrease in cash and cash equivalents ...................................... (417,419) (3,323,014)
Cash and cash equivalents at beginning of period ............................... 4,292,631 15,715,708
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 3,875,212 $ 12,392,694
============ ============
</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 March 31, 2000 and 1999.
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, 1999, which are
contained in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
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 March 31, 2000 and December 31, 1999, 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.
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>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Commercial paper................................................. $ 11,363,280 $ 12,330,312
Federal agency notes............................................. 6,444,395 5,392,486
-------------- -----------------
Total short-term investments............................ $ 17,807,675 $ 17,722,798
============== =================
</TABLE>
6
<PAGE>
Since 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. LONG-TERM INVESTMENTS
Long-term investments with maturity of more than twelve months when
purchased, consist of high-grade commercial paper ($6,576,236) and federal
agency notes ($1,765,412) at March 31, 2000. Long-term investments are stated at
amortized cost plus accrued interest, which approximates market value.
5. NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average
number of common shares outstanding. Potential common shares are not included in
the per share calculations where the effect of their inclusion would be
anti-dilutive. At March 31, 2000 and 1999 the Company had 563,475 and 1,559,457
options outstanding, respectively, which were not included in the computation of
diluted net loss per share since their inclusion would be antidilutive.
Basic loss per common share is the same as diluted loss per common share.
6. CONTINGENCIES
In 1998, the Company and LSU entered into dispute resolution under the
provisions of the LSU Agreement. The dispute related to the amount of payment
owed to LSU from various payments that the Company received from Johnson &
Johnson. LSU is seeking payment of $4,138,000. The Company believes that the
payment owed is significantly less than that amount. The dispute resolution
provisions of the agreement provides for a period of good faith negotiations
between the parties followed, if necessary, by mediation and binding
arbitration. Since mediation was completed without a resolution, the Company and
LSU are currently in arbitration.
In February 2000, the Company announced that a preliminary ruling has
been made, which relates to a payment received in March 1998 from Johnson &
Johnson for $10 million of the Company's common stock. The Company took the
position that this $10 million is not subject to a royalty to LSU under the LSU
Agreement. LSU had argued to the arbitrator that the Company owes a royalty on
this stock purchase. In the preliminary ruling, the arbitrator has ruled,
contrary to the Company's position, that a royalty is due to LSU on the $10
million received from Johnson & Johnson for the purchase of common stock. The
exact amount of the royalty due to LSU on this $10 million will be dependent on
several factual issues which are in dispute and will be settled by the
arbitrator at a later date.
7
<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,
- - AN "APPROVABLE" LETTER DOES NOT MEAN THAT A PRODUCT WILL BE APPROVED,
PARTICULARLY WHERE, AS HERE, IT IS NECESSARY TO SATISFY FDA (PRIOR TO
APPROVAL) THAT THERE IS NOT AN INCREASED RISK OF A SERIOUS ADVERSE
EVENT;
- - THE CLINICAL TRIAL TO ASSESS SAFETY RECOMMENDED BY FDA MAY INVOLVE A
RELATIVELY HIGH NUMBER OF PATIENTS AND MAY REQUIRE SUBSTANTIAL
RESOURCES AND TAKE YEARS TO COMPLETE;
- - UNTIL THE SIZE AND SCOPE OF THE SAFETY TRIAL ARE DETERMINED WITH FDA,
AN ASSESSMENT OF THE ADVISABILITY OF ANY SUCH TRIAL CANNOT BE MADE;
- - ERGO MAY NOT HAVE SUFFICIENT RESOURCES FOR SUCH A SAFETY TRIAL OR
DECIDE, BASED ON ITS BUSINESS JUDGMENT, AGAINST INVESTING IN SUCH A
TRIAL;
- - ERGO MAY NOT BE ABLE TO ATTRACT A PARTNER TO ASSIST IN UNDERTAKING SUCH
A SAFETY TRIAL;
- - DATA OBTAINED FROM CLINICAL TRIALS ARE SUBJECT TO VARYING
INTERPRETATIONS, AND FDA (OR AN FDA PANEL OF EXPERTS) MAY NOT AGREE
WITH ERGO'S ASSESSMENT OF ANY CURRENT OR FUTURE CLINICAL TRIAL RESULTS;
- - UNCERTAINTY RELATED TO THE SCIENTIFIC DEVELOPMENT OF A NEW MEDICAL
THERAPY;
- - COMPETITION IN THE ANTI-DIABETIC MARKET IS INTENSE; OTHER PRODUCTS HAVE
BEEN RECENTLY APPROVED FOR THIS INDICATION AND OTHER COMPANIES ARE
DEVELOPING COMPETING PRODUCTS;
- - THE NEED FOR ADDITIONAL FUNDING;
- - ERGO MAY NOT BE ABLE TO ESTABLISH CORPORATE ALLIANCES TO MARKET
ERGOSET-Registered Trademark- TABLETS, IF APPROVED FOR COMMERCIAL
MARKETING;
- - ERGOSET-Registered Trademark- TABLETS, IF APPROVED FOR COMMERCIAL
MARKETING, MAY NOT BE SUCCESSFUL IN THE MARKETPLACE, OR ERGO MAY NOT
RECEIVE ANY PROFITS FROM ITS SALE; AND
- - 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 THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING, WITHOUT LIMITATION, THE 1999 ANNUAL REPORT ON FORM 10-K,
GENERALLY UNDER THE SECTION ENTITLED "RISK FACTORS." ERGO SCIENCE DOES NOT
UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO
TIME BY OR ON BEHALF OF THE COMPANY.
OVERVIEW
Since 1990, Ergo Science Corporation ("Ergo" or the "Company") has been
developing ERGOSET-Registered Trademark- tablets for the treatment of metabolic
disorders. In the fourth quarter of 1999, the U.S. Food & Drug Administration
("FDA") issued a letter stating that the Company's New Drug Application ("NDA")
for ERGOSET-Registered Trademark- tablets for the treatment of type 2 diabetes
was "approvable." However, before ERGOSET-Registered Trademark- tablets can be
approved by FDA for marketing, it will be necessary for Ergo to address FDA
concerns relating to the clinical safety of ERGOSET-Registered Trademark-
tablets and other issues, including biopharmaceutics, pharmacology and
toxicology. In its letter, FDA stated that ERGOSET-Registered Trademark- tablets
are effective in the treatment of type 2 diabetes as
8
<PAGE>
adjunctive therapy with sulfonylureas. The letter also stated, however, that
data submitted by the Company, including epidemiology data recently developed by
the Company, did not adequately overcome FDA's concerns about the possible
increased risk of a serious adverse event with the use of ERGOSET-Registered
Trademark- tablets in type 2 diabetes patients. To address this outstanding
safety concern, the FDA has recommended that a "large, simple"
placebo-controlled study be undertaken to evaluate whether treatment with
ERGOSET-Registered Trademark- tablets is associated with an increase in the
specified serious adverse event. In the letter, FDA does not provide specifics
about the size and scope of such a clinical trial. The resolution of this safety
concern must be sufficient to support approval in light of a treatment effect,
which FDA characterized as small.
From inception through 1999, the Company has been unprofitable.
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. On November 20, 1998, the Company received a letter from the
Division of Metabolic and Endocrine Drug Products at the FDA that its New Drug
Application for ERGOSET-Registered Trademark- tablets for the treatment of
type 2 diabetes is not approvable, citing the overall benefit to risk ratio.
Subsequently in January 1999, Johnson & Johnson terminated the worldwide the
Joint Collaboration Agreement, which had been signed on February 23, 1998. As a
result of these events, the Company further reduced its work-force by
approximately 50% and discontinued funding of all its pre-clinical development
programs. In February 1999 the Company decided to appeal the not-approvable
letter. The Company has begun the appeal process within the FDA of the
not-approvable letter for ERGOSET-Registered Trademark- tables sent to the
Company by the Division of Metabolic and Endocrine Drug Products of FDA. The
Company is also considering other strategic alternatives.
In the fourth quarter of 1999, the Company announced that it received a
letter from the Office of Drug Evaluation II, Center for Drug Evaluation and
Research at the FDA, stating that its NDA for ERGOSET-Registered Trademark-
tablets to treat type 2 diabetes is approvable. However, before
ERGOSET-Registered Trademark- tablets can be approved by FDA for marketing, it
will be necessary for Ergo Science to address FDA concerns relating to the
clinical safety of ERGOSET-Registered Trademark- tablets and other issues,
including biopharmaceutics, pharmacology and toxicology. In its letter, FDA
stated that ERGOSET-Registered Trademark- tablets are effective in the treatment
of Type 2 diabetes as adjunctive therapy with sulfonylureas. The letter also
stated, however, that data submitted by the Company, including epidemiology data
recently developed by the Company, did not adequately overcome FDA's concerns
about the possible increased risk of a serious adverse event with the use of
ERGOSET-Registered Trademark- tablets in Type 2 diabetes patients. To address
this outstanding safety concern, the FDA has recommended that a "large, simple"
placebo-controlled study be undertaken to evaluate whether treatment with
ERGOSET-Registered Trademark- tablets is associated with an increase in the
specified serious adverse event. In the letter, FDA does not provide specifics
about the size and scope of such a clinical trial. The resolution of this safety
concern must be sufficient to support approval in light of a treatment effect
which FDA characterized as small.
After the Company finalizes with FDA the requirements for the safety
study, the Company will determine how to proceed with its ERGOSET-Registered
Trademark- program. Some of the options at FDA include, without limitation,
appealing the FDA letter with respect to the request for an additional safety
trial, requesting a rehearing before an advisory panel on this issue of whether
the additional safety trial is needed, or considering moving ahead with the
requested safety trial.
9
<PAGE>
The Company has also been considering its strategic options for its
ERGOSET-Registered Trademark- program. Some of the possible options include,
without limitation: selling the Company's rights to EROGSET-Registered
Trademark- tablets, licensing the rights to ERGOSET-Registered Trademark-
tablets to another pharmaceutical or biotechnology company, continuing
ERGOSET-Registered Trademark- development on its own, or halting development
of EROGSET-Registered Trademark- tablets.
In addition to ERGOSET-Registered Trademark- tablets, the Company is
analyzing its other strategic alternatives. The Company is reviewing various
alternatives to determine the best uses of its assets including its cash, its
status as a public company, its financial attributes (including tax attributes),
and its intellectual property assets other than ERGOSET-Registered Trademark-
tablets. No decisions have been made with respect to any of the possible
alternatives.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
Research and development expenses decreased from $1,314,273 to $45,229
for the three month period ended March 31, 1999 and 2000, respectively. This
decrease was mainly due to the reduction of the Company's workforce and the
discontinued funding of all its pre-clinical development programs.
General and administrative expenses decreased from $1,181,456 to
$334,140 for the three month period ended March 31, 1999 and 2000, respectively.
The decrease was mostly attributable to the reduction of the Company's
workforce.
Interest income increased from $420,041 to $431,902 for the three month
period ended March 31, 1999 and 2000, respectively. The increase is due to
allocating more cash to long-term investments, which have higher yields.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's primary source of cash has been
financing activities, which have consisted of private placements of equity
securities, two public offerings, and the sale of common stock in conjunction
with the Joint Collaboration Agreement. Private placements of equity securities
provided the Company with aggregate proceeds of $42,999,000 through 1998. On
December 19, 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 had committed to provide Ergo with significant, additional
financial support in the form of milestone payments upon achievement of other
specified development, regulatory and
10
<PAGE>
commercial objectives and reimbursement of certain development expenses subject
to the terms of the Joint Collaboration Agreement. The Joint Collaboration
Agreement was terminated on January 3, 1999; therefore there will be no further
financial support from this arrangement.
Cash, cash equivalents, short-term investments and long-term
investments were $30,024,535 and $30,339,755 at March 31, 2000 and December 31,
1999, respectively. The overall decrease in cash, cash equivalents, short-term
investments and long-term investments at March 31, 2000, was due primarily to
the funding of the operating activities of the Company.
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. On November 20, 1998, the Company received a letter from the
FDA that its NDA for ERGOSET-Registered Trademark- tablets for the treatment of
type 2 diabetes is not approvable, citing the overall benefit to risk ratio. The
Company appealed this decision within the FDA. In the fourth quarter of 1999,
the Company announced receipt of a letter from the Office of Drug Evaluation II,
Center for Drug Evaluation and Research at the FDA stating that its NDA for
ERGOSET-Registered Trademark- tablets is approvable. However, before
ERGOSET-Registered Trademark- tablets can be approved by FDA for marketing, it
will be necessary for Ergo to address FDA concerns relating to the clinical
safety of ERGOSET-Registered Trademark- tablets and other issues, including
biopharmaceutics, pharmacology and toxicology. In its letter, FDA stated that
ERGOSET-Registered Trademark- tablets are effective in the treatment of type 2
diabetes as adjunctive therapy with sulfonylureas. The letter also stated,
however, that data submitted by the Company, including epidemiology data
recently developed by the Company, did not adequately overcome FDA's concerns
about the possible increased risk of a serious adverse event. In the letter, FDA
does not provide specifics about the size and scope of such a clinical trial.
The resolution of this safety concern must be sufficient to support approval in
light of a treatment effect on Hb(Alc) (blood sugar) which FDA characterized as
small.
The Company believes its current cash, cash equivalents, short-term and
long-term investments will fund its operations at least through mid-2001.
As of March 31, 2000, the Company's net investment in equipment and
leasehold improvements was approximately $38,000.
The terms of the Company's Series D Preferred Stock prohibit the
Company from paying dividends on the common stock.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Company has determined that the
adoption of SFAS 133, which is effective for all fiscal quarters for all fiscal
years beginning after June 15, 2000, will have no impact on its consolidated
financial statements.
11
<PAGE>
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," which is effective no later than
the quarter ending March 31, 2000. SAB 101 clarifies the SEC's views related to
revenue recognition and disclosure. We will adopt SAB 101 effective in the first
quarter of 2000, and management does not believe the effect will be material.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCOLSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market risk
from December 31, 1999.
13
<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.
14
<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/ J. RICHARD CROWLEY
___________________________________
J. Richard Crowley
Controller (principal accounting
officer)
Date: May 12, 2000
___________________________________
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,875,212
<SECURITIES> 26,149,323
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,702,372
<PP&E> 73,141
<DEPRECIATION> 35,471
<TOTAL-ASSETS> 30,085,008
<CURRENT-LIABILITIES> 4,222,442
<BONDS> 0
142,993
0
<COMMON> 6,357,352
<OTHER-SE> 19,362,221
<TOTAL-LIABILITY-AND-EQUITY> 30,085,008
<SALES> 0
<TOTAL-REVENUES> 431,902
<CGS> 0
<TOTAL-COSTS> 379,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 52,533
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,533
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
