<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 10, 1997
-------------
Ascent Pediatrics, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-22347 04-3047405
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
187 Ballardvale Street, Suite B125, Wilmington, Massachusetts 01887
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(508) 658-2500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 10, 1997, Ascent Pediatrics, Inc. (the "Company"), closed the
acquisition of the Feverall line of acetaminophen rectal suppositories from
Upsher-Smith Laboratories, Inc. ("Upsher-Smith"), pursuant to an Asset Purchase
Agreement dated as of March 25, 1997 (the "Asset Purchase Agreement") between
the Company and Upsher-Smith.
The purchase price was $11,721,265. The Company paid $6,221,265 of such
amount in cash (including a $250,000 deposit that the Company previously paid to
Upsher-Smith) and issued Upsher-Smith a promissory note for the balance. The
promissory note matures on February 28, 1998, does not bear interest and is
secured by all of the assets acquired by the Company from Upsher-Smith. The
assets acquired by the Company consist of the Feverall acetaminophen rectal
suppository product line and certain related assets, including the Feverall
trademark and the Feverall Sprinkle Caps powder and Acetaminophen Uniserts
suppository product lines. The purchase price was determined by arms' length
negotiations between the parties.
The source of the cash paid by the Company to Upsher-Smith was the net
proceeds of the Company's initial public offering of common stock, which was
completed in June 1997.
Pursuant to a separate Manufacturing Agreement dated as of July 10,
1997, Upsher-Smith has agreed to supply the Company with the Company's
requirements of Feverall acetaminophen rectal suppositories, and the Company has
agreed to purchase from Upsher-Smith all amounts of such product as it may
require, until July 10, 2002.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
The financial statements of A Product Line of Upsher-Smith
Laboratories, Inc. set forth at pages F-19 through F-23 of the Company's
Prospectus dated May 29, 1997 (the "Prospectus") filed as a part of the
Company's Registration Statement on Form S-1 (File No. 333-23319), which
Prospectus was filed with the Securities and Exchange Commission (the
"Commission") on May 30, 1997 pursuant to Rule 424(b)(3) under the Securities
Act of 1933, as amended (the "Securities Act"), are hereby incorporated by
reference herein and filed as an exhibit hereto (as Exhibit 99.1) pursuant to
Rule 12b-23(a)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
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<PAGE> 3
(b) PRO FORMA FINANCIAL INFORMATION:
The Unaudited Combined Pro Forma Financial Statements of the Company
and A Product Line of Upsher-Smith Laboratories, Inc. set forth at pages F-24
through F-31 of the Prospectus, are hereby incorporated by reference herein and
filed as an exhibit hereto (as Exhibit 99.2) pursuant to Rule 12b-23(a)(3) of
the Exchange Act of 1934.
(c) EXHIBITS:
See Exhibit Index attached hereto.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 25, 1997 ASCENT PEDIATRICS, INC.
(Registrant)
By: /s/ John G. Bernardi
-----------------------------
John G. Bernardi
Vice President, Finance and
Treasurer
-4-
<PAGE> 5
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1* Asset Purchase Agreement dated as of March 25, 1997, between the
Company and Upsher-Smith (the "Asset Purchase Agreement"), which
includes the form of Promissory Note of the Company in the face amount
of $5,500,000 as Exhibit A thereto and the form of Manufacturing
Agreement between the Company and Upsher-Smith as Exhibit E thereto
2.2** Addendum to Asset Purchase Agreement dated as of July 10, 1997, between
the Company and Upsher-Smith
23.1 Consent of KPMG Peat Marwick LLP, independent auditors
99.1 Financial Statements of A Product Line of Upsher-Smith
Laboratories, Inc.
99.2 Unaudited Combined Pro Forma Financial Statements of the Company and A
Product Line of Upsher-Smith Laboratories, Inc.
- --------------------
* Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-23319) of the Company. The
schedules to the Asset Purchase Agreement have been omitted pursuant to
Item 601(b)(2) of Regulation S-K of the Commission and will be
supplementally provided to the Commission upon request.
** Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.
-1-
<PAGE> 1
EXHIBIT 2.2
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ADDENDUM TO ASSET PURCHASE AGREEMENT
------------------------------------
Addendum made as of July 10, 1997 to Asset Purchase Agreement made as
of the 25th day of March, 1997 (the "Agreement") between Ascent Pediatrics,
Inc., a Delaware corporation with its principal office at 187 Ballardvale
Street, Suite B125, Wilmington, Massachusetts 01887 (the "Buyer"), and
Upsher-Smith Laboratories, Inc., a Minnesota corporation with its principal
office at 14905 23rd Avenue North, Minneapolis, Minnesota 55447 (the "Seller").
Preliminary Statement
---------------------
The Seller has received from the United States Food and Drug
Administration ("FDA") deficiency letters dated ******************** to
********************** submitted related to ***** to ********** and to changes
being effected by ***** which extended the ********* ********* to *******
strength. The FDA has taken the positions that (i) the previously approved
************ for the ********* ******* would need to be revised to be **
********** with the ********* ***** ********* for *******************
****************************** ************ for ************************** as
proposed and existing as of ************ (the "*********"), (ii) ***************
matters for the ********* ************ would be determined after the FDA
completes its review of the ************** ********************* and (iii) the
******************* is subject to FDA review (collectively, the "FDA Issues").
Seller has taken the position with the FDA that ******** for the *********
************ has previously been approved and complies with FDA regulations,
that the ************ for the ********* ************ previously approved should
be permitted under FDA regulations, and that the ********* ********* is properly
being used by Seller.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. HANDLING OF FDA ISSUES.
The ******, as the ****** of the ********* ********* and certain Assets
of Seller relating thereto pursuant to the Agreement, shall have *******
**************, for a period of ********* from the Closing Date (the "******
******* Period"), for the ******** to ****** the FDA Issues and **************
with the FDA relating thereto, and ***** shall have ******************** with
respect to the development of such ******** and ************** with the FDA.
Specifically, the ******** for ******** the FDA Issues shall be developed
******* by the **************** of the ********************, with the
participation of ****************************** of
-1-
<PAGE> 2
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Washington D.C., who shall be retained as *************** for the *************
****** in connection with the FDA Issues. All written communications with
respect to the FDA Issues shall be subject to ********************* by the *****
**************, and the ****** shall permit the ***** to ************** any
other communications and meetings with the FDA with respect to the FDA issues.
In addition, the ****** undertakes to keep ***** informed on a prompt and timely
basis of any communications or other developments relating to the FDA Issues. In
the event of a ********** between the ***** and the ****** with respect to any
aspect of such ************************************, such ********** shall be
resolved by reference to the recommendation of ******************** of ******
*********************** in the matter. ********* the ************** Period,
***** shall have ******************* with respect to such matters.
2. INDEMNIFICATION.
Buyer agrees that it will not seek indemnification from Seller pursuant
to Section 9 of the Agreement for any Losses incurred by Buyer resulting from
requirements that the *************** for the ********* ************ comply with
the ********* (whether as a result of acceptance by Buyer and Seller of FDA
requirements in such respect, or by order of the FDA or otherwise) or resulting
from any resolution of the FDA Issues specified in clauses (i) and (ii) of the
second sentence of the Preliminary Statement, which is more favorable than the
FDA's present position regarding compliance with the *********. Except as
provided in the immediately preceding sentence, Seller shall indemnify Buyer
pursuant to Section 9 of the Agreement, subject to all of the terms and
conditions thereto, with respect to any Loss incurred by the Buyer arising out
of or in connection with the FDA Issues including, without limitation, Losses
resulting from removal of the *************************** ******* from the
market as a consequence of FDA regulatory action taken in connection with the
FDA Issues. Nothing in this Addendum shall be deemed to expand the Seller's
obligation to indemnify the Buyer beyond such obligation otherwise required by
Section 9 of the Agreement, or except as specifically provided, to limit the
Buyer's rights to indemnification pursuant to Section 9 of the Agreement.
3. EXPENSES.
Notwithstanding the provisions of paragraph 2 above, the fees and
expenses of ****************************** and of any other consultants or
experts retained by agreement of the Seller and the Buyer in connection with the
FDA Issues shall be shared equally by the Buyer and the Seller.
Except as specifically amended herein, the Agreement shall remain in
full force and effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, this Addendum has been duly executed by the parties
hereto as of and on the date first above written.
UPSHER-SMITH LABORATORIES, INC.
By: /s/ JOHN A. TROUP
--------------------------------------------
Title: President and Chief Operating Officer
ASCENT PEDIATRICS, INC.
By: /s/ ALAN R. FOX
--------------------------------------------
Title: President and Chief Executive Officer
-3-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Current Report on
Form 8-K of Ascent Pediatrics, Inc. of our report dated February 21, 1997 with
respect to the financial statements of A Product Line of Upsher-Smith
Laboratories, Inc. included in the Registration Statement on Form S-1 (File No.
333-23319) of Ascent Pediatrics, Inc.
Our report dated February 21, 1997, contains an explanatory paragraph
that states that the financial statements were prepared to present the assets
related to the product line to be sold by Upsher-Smith Laboratories, Inc. and
the net sales and the identified costs and expenses and that they are not
intended to be a complete presentation of the product line's financial position,
results of operations or cash flows.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 24, 1997
-1-
<PAGE> 1
Exhibit 99.1
------- ----
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
UPSHER-SMITH LABORATORIES, INC.:
We have audited the accompanying statement of assets related to the product
line to be acquired by Ascent Pediatrics, Inc. as of December 29, 1996 and the
related statements of net sales and identified costs and expenses for each of
the years in the two-year period then ended. These financial statements are the
responsibility of Upsher-Smith Laboratories, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The product line to be acquired by Ascent Pediatrics, Inc. has been
operated as an integral part of Upsher-Smith Laboratories, Inc. and has no
separate legal existence. The basis of preparation of these financial statements
is described in note 1 to the financial statements.
In our opinion, the aforementioned financial statements present fairly the
assets related to the product line of Upsher-Smith Laboratories, Inc. at
December 29, 1996 to be acquired by Ascent Pediatrics, Inc. and the net sales in
excess of identified costs and expenses for each of the years in the two-year
period then ended on the basis of accounting described in the preceding
paragraph and in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 21, 1997
F-19
<PAGE> 2
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENT OF ASSETS RELATED TO THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
<TABLE>
<CAPTION>
DECEMBER 29, MARCH 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Inventories, net.................................................... $122,235 $235,696
-------- --------
Assets of the product line to be acquired........................... $122,235 $253,696
======== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 3
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENTS OF NET SALES AND IDENTIFIED COSTS AND EXPENSES OF
THE PRODUCT LINE TO BE ACQUIRED BY ASCENT PEDIATRICS, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------- -------------------------
1995 1996 1996 1997
---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $3,563,761 $3,877,199 $1,231,057 $795,222
Identified costs and expenses:
Cost of sales.......................... 1,229,848 1,303,336 350,226 323,665
Advertising and promotion expense...... 657,655 669,456 281,001 176,851
Allocated selling expense.............. 480,700 571,167 188,160 182,734
---------- ---------- ---------- --------
Total identified costs and
expenses..................... 2,368,203 2,543,959 819,387 683,250
---------- ---------- ---------- --------
Net sales in excess of
identified costs and
expenses..................... $1,195,558 $1,333,240 $ 411,670 $111,972
---------- ---------- ---------- --------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 4
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
DECEMBER 31, 1995 AND DECEMBER 29, 1996
(UNAUDITED AS TO MARCH 31, 1996 AND 1997 DATA)
(1) BASIS OF PRESENTATION
The accompanying financial statements present the assets related to the
Feverall product line of Upsher-Smith Laboratories, Inc. (Upsher-Smith), and the
net sales and the identified costs and expenses of the Feverall product line to
be acquired by Ascent Pediatrics, Inc. (Ascent), as provided in a non-binding
letter of intent dated November 13, 1996. The Feverall product line to be
acquired by Ascent has been operated as an integral part of Upsher-Smith and has
no separate legal existence.
The assets related to the Feverall product line as presented in the
accompanying statement of assets to be acquired include the historical balances
at December 29, 1996, of work-in-process and finished goods inventory together
with related samples of the Feverall product line. This product line has never
been operated as a separate business entity but rather has been an integral part
of the drug manufacturing and distribution business of Upsher-Smith.
The statements of net sales and identified costs and expenses of the
Feverall product line includes the net sales, cost of sales, and advertising and
promotion expense, that substantially relate directly to the product line to be
acquired by Ascent. Selling expense items are allocated based on estimates and
assumptions and primarily reflect an estimate of activity attributable to
selling the Feverall product line relative to the total selling activity of
Upsher-Smith. Management of Upsher-Smith cannot estimate what selling expenses
would have been if the Feverall product line had been operated on a stand alone
basis.
The above allocations are believed by management to be reasonable
allocations under the circumstances. However, there can be no assurance that
such allocations will be indicative of future results of operations. In
addition, the carrying value of inventories, as reflected in the accompanying
statement of assets to be acquired, does not include any adjustments which may
result at the date of acquisition.
General and administrative expenses of Upsher-Smith were not dedicated
specifically to the product line to be acquired for the periods presented and
because Ascent is not acquiring any of the general and administrative cost
structure of Upsher-Smith, general and administrative expenses were excluded
from the accompanying financial statements. Research and development expenses of
Upsher-Smith did not specifically relate to the product line to be acquired for
the periods presented and as a result were excluded from the accompanying
financial statements.
Upsher-Smith is a pharmaceutical manufacturer and distributor that
concentrates on developing cardiovascular products. The company markets its
products to retail, chain, and hospital pharmacies primarily by means of
wholesale and drug chain distribution channels throughout the United States. The
accompanying financial statements are not intended to present all the assets or
operations of Upsher-Smith.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method. Samples and display inventory are charged to
advertising and promotion expense when used.
Revenue Recognition
Revenue is recognized upon shipment of the product. Allowances for sales
returns, discounts and rebates are provided for based on the volume of sales and
actual experience.
F-22
<PAGE> 5
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC. -- (CONTINUED)
(3) INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 29, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Work in process...................................... $ 10,864 $ --
Samples and displays................................. 42,486 44,613
Finished goods....................................... 68,885 191,083
-------- --------
$122,235 $ 235,696
======== ========
</TABLE>
(4) NET SALES
Net sales consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
--------------------------- -----------------------
DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 31,
1995 1996 1996 1997
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gross sales............................ $4,677,134 $5,281,399 $1,598,375 $1,223,906
Less sales returns, discounts and
rebates.............................. 1,113,373 1,404,200 367,318 428,684
---------- ---------- ---------- ----------
Net sales......................... $3,563,761 $3,877,199 $1,231,057 $ 795,222
========== ========== ========== ==========
</TABLE>
For the year ended December 31, 1995, two customers accounted for 22% of
sales of the Feverall product line. For the year ended December 29, 1996 three
customers accounted for 33% of sales of the Feverall product line.
(5) INCOME TAXES
Upsher-Smith has elected to be treated as a small business corporation (S
corporation) under provisions of the Internal Revenue Code of 1986, whereby
profits and losses are passed directly to the stockholders for inclusion in
their personal tax returns. Accordingly, no liability or provision for federal
and state income taxes is included in the accompanying financial statements.
(6) SUBSEQUENT EVENT (UNAUDITED)
On March 25, 1997, Upsher-Smith entered into a definitive agreement
relating to the sale of the Feverall product line to Ascent. Under the terms of
this agreement, Upsher-Smith has agreed to sell the Feverall product line,
including certain intellectual property, technical information, product
formulations and regulatory approvals and registrations.
F-23
<PAGE> 1
Exhibit 99.2
------- ----
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INTRODUCTION TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997
In March 1997 Ascent Pediatrics, Inc. ("Ascent" or the "Company") signed an
asset purchase agreement to acquire a product line of Upsher-Smith. Accordingly,
these accompanying unaudited combined pro forma financial statements reflect the
following:
- The issuance of $5,000,000 of convertible subordinated secured notes (the
"Notes") no later than the closing of this offering presented as if this
transaction occurred on January 1, 1996 with respect to the Unaudited
Combined Pro Forma Statements of Operations and on March 31, 1997 with
respect to Unaudited Combined Pro Forma Balance Sheet.
- The conversion of Series A and B convertible preferred stock, and Series
D, E and F redeemable convertible preferred stock, as if the conversion
took place at March 31, 1997, which mandatorily convert upon closing of
an initial public offering.
- The warrant obligation pertaining to the warrants issued or issuable in
connection with the Notes would be transferred to additional paid in
capital since the put feature on those warrants would cease to exist in
the event of a public offering.
The Ascent Pro Forma Subtotal March 31, 1997 column represents Ascent's
March 31, 1997 historical financial statements adjusted for the issuance of an
additional $5,000,000 of Notes no later than the closing of this offering, the
Preferred Stock conversions and reclassification of the warrant obligation to
additional paid in capital as described above and prior to adjustments related
to the acquisition described below.
In addition, the accompanying unaudited combined pro forma financial
statements reflect the acquisition of the Feverall acetaminophen suppository
line ("Product Line") from Upsher-Smith for a purchase price equal to $11.5
million plus the cost of inventories. Under the terms of the agreement, Ascent
has agreed to purchase the Product Line, including certain intellectual
property, technical information, product formulations and regulatory approvals
and registrations. Ascent will not purchase any accounts receivable and will not
assume any liabilities of Upsher-Smith. For purposes of the combined pro forma
financial statements, this acquisition has been accounted for using the purchase
method of accounting.
Pursuant to this agreement, the Company paid a non-refundable deposit of
$250,000 in 1996. Upon the closing, the Company is required to make a cash
payment to Upsher-Smith of approximately $5.75 million plus the cost of the
inventory ($235,696 at March 31, 1997) and to sign a promissory note in the
amount of approximately $5.5 million. This note will be payable 225 days
following the closing. Ascent has also agreed to purchase from Upsher-Smith,
Ascent's requirements for products in the Product Line for a period of five
years.
The Unaudited Combined Pro Forma Financial Statements combine Ascent's Pro
forma Balance Sheet with the Statement of Assets Related to the Product Line to
be Acquired as if the transaction occurred on March 31, 1997 and Ascent's
Statements of Operations for the year ended December 31, 1996 and for the three
months ended March 31, 1997 with the related Statement of Net Sales and
Identified Costs and Expenses of the Product Line to be Acquired as if the
transaction had occurred on January 1, 1996. The Statements of Net Sales and
Identified Costs and Expenses includes advertising and promotion expense that
substantially relate directly to the Product Line to be acquired by Ascent.
Selling expense items are allocated based on estimates and assumptions and
primarily reflect an estimate of activity attributable to the Product Line
relative to the total selling activity of Upsher-Smith. General and
administrative and research and development expenses of Upsher-Smith were not
dedicated specifically to the Product Line to be acquired and, because Ascent
would not acquire any of such cost structure of Upsher-Smith, these costs were
excluded from the Statements of Net Sales and Identified Costs and Expenses. Pro
forma adjustments have been made to reflect Ascent's estimate of the incremental
expense that would have been incurred if the acquisition had occurred on January
1, 1996. The unaudited combined pro forma statements do not purport to be
indicative of
F-24
<PAGE> 2
the financial position or the results of operations had the probable acquisition
actually occurred at this time or what results in the future may be.
The Statement of Assets Related to the Product Lines to be Acquired and the
Statements of Net Sales and Identified Costs and Expenses of the Product Lines
to be Acquired have been derived from their respective historical financial
statements. The Unaudited Combined Pro Forma Financial Statements should be read
in conjunction with the accompanying notes thereto and with the historical
financial statements and related notes thereto of Ascent and the historical
financial statements and related notes thereto of the Upsher-Smith Product Line
to be Acquired.
F-25
<PAGE> 3
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
ASSUMED
CONVERSION
ASCENT ISSUANCE OF OF PREFERRED
HISTORICAL ADDITIONAL NOTE STOCK INTO NOTE
MARCH 31, 1997 NOTES REF. COMMON STOCK REF.
----------------- ----------- ---- ------------- ----
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 8,299,854 $ 4,840,000 A $
Other current assets.......................... 209,954
Inventories, net.............................. --
-----------
Total current assets.................... 8,509,808
Fixed assets, net............................. 294,316
Deposits related to acquisition............... 250,000
Deferred charges and other deposits........... 403,007
Debt issue costs, net......................... 203,294 160,000 A
Other assets, net............................. 11,562
-----------
Total assets............................ $ 9,671,987
===========
Liabilities and stockholders' equity:
Accounts payable.............................. $ 770,803
Accrued expenses.............................. 1,307,863
Note payable -- Feverall Acquisition.......... --
-----------
Total current liabilities............... 2,078,666
Convertible subordinated secured notes.......... 1,182,922 3,331,254 A
Warrant obligation.............................. 836,994 1,668,746 A (2,505,740) B
-----------
Total liabilities....................... 4,098,582
Series D redeemable convertible preferred stock... 8,157,132 (8,157,132) B
Series E redeemable convertible preferred
stock......................................... 4,400,226 (4,400,226) B
Series F redeemable convertible preferred
stock......................................... 12,452,471 (12,452,471) B
Stockholders' equity (deficit):
Series A convertible preferred................ 280,110 (280,110) B
Series B convertible preferred................ 2,574,993 (2,574,993) B
Common stock.................................. 8 177 B
Additional paid-in capital.................... -- 30,370,495 B
Deficit accumulated during the development
stage....................................... (22,291,535)
-----------
Total stockholders' equity (deficit).... (19,436,424)
-----------
Total liabilities and stockholders'
equity (deficit)...................... $ 9,671,987
===========
<CAPTION>
A PRODUCT LINE
ASCENT OF UPSHER-SMITH PURCHASE
PRO FORMA HISTORICAL NOTE PRICE NOTE
MARCH 31, 1997 MARCH 31, 1997 REF. ADJUSTMENTS REF.
----------------- ----------------- ---- ----------- ----
<S> <C<C>
Current assets:
Cash and cash equivalents..................... $ 13,139,854 $ $(5,985,696) D
Other current assets.......................... 209,954
Inventories, net.............................. -- 235,696 C 14,304 J
------------
Total current assets.................... 13,349,808
Fixed assets, net............................. 294,316
Deposits related to acquisition............... 250,000 (250,000) E
Deferred charges and other deposits........... 403,007
Debt issue costs, net......................... 363,294
Other assets, net............................. 11,562 11,485,696 F
------------
Total assets............................ $ 14,671,987
============
Liabilities and stockholders' equity:
Accounts payable.............................. $ 770,803
Accrued expenses.............................. 1,307,863
Note payable -- Feverall Acquisition.......... -- 5,500,000 G
------------
Total current liabilities............... 2,078,666
Convertible subordinated secured notes.......... 4,514,176
Warrant obligation.............................. --
------------
Total liabilities....................... 6,592,842
Series D redeemable convertible preferred stock. --
Series E redeemable convertible preferred
stock......................................... --
Series F redeemable convertible preferred
stock......................................... --
Stockholders' equity (deficit):
Series A convertible preferred................ --
Series B convertible preferred................ --
Common stock.................................. 185
Additional paid-in capital.................... 30,370,495
Deficit accumulated during the development
stage....................................... (22,291,535)
------------
Total stockholders' equity (deficit).... 8,079,145
------------
Total liabilities and stockholders'
equity (deficit)...................... $ 14,671,987
============
<CAPTION>
COMBINED PRO FORMA
MARCH 31, 1997
------------------
Current assets:
Cash and cash equivalents..................... $ 7,154,158
Other current assets.......................... 209,954
Inventories, net.............................. 250,000
---------
Total current assets.................... 7,614,112
Fixed assets, net............................. 294,316
Deposits related to acquisition............... --
Deferred charges and other deposits........... 403,007
Debt issue costs, net......................... 363,294
Other assets, net............................. 11,497,258
---------
Total assets............................ $ 20,171,987
=========
Liabilities and stockholders' equity:
Accounts payable.............................. $ 770,803
Accrued expenses.............................. 1,307,863
Note payable -- Feverall Acquisition.......... 5,500,000
---------
Total current liabilities............... 7,578,666
Convertible subordinated secured notes.......... 4,514,176
Warrant obligation.............................. --
---------
Total liabilities....................... 12,092,842
Series D redeemable convertible preferred stock. --
Series E redeemable convertible preferred
stock......................................... --
Series F redeemable convertible preferred
stock......................................... --
Stockholders' equity (deficit):
Series A convertible preferred................ --
Series B convertible preferred................ --
Common stock.................................. 185
Additional paid-in capital.................... 30,370,495
Deficit accumulated during the development
stage....................................... (22,291,535)
---------
Total stockholders' equity (deficit).... 8,079,145
---------
Total liabilities and stockholders'
equity (deficit)...................... $ 20,171,987
=========
</TABLE>
F-26
<PAGE> 4
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSUMED
CONVERSION ASCENT
ASCENT ISSUANCE OF OF PREFERRED PRO FORMA
HISTORICAL ADDITIONAL NOTE STOCK INTO NOTE SUBTOTAL
DECEMBER 31, 1996 NOTES REF. COMMON STOCK REF. DECEMBER 31, 1996
----------------- ----------- ---- ------------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... $ -- $ $ --
----------- ----------
Costs and expenses:
Cost of sales............................. -- --
Research and development.................. 3,760,948 3,760,948
Selling, general and administrative....... 2,805,352 32,000 M 2,837,352
Advertising and promotion................. -- --
Allocated selling......................... -- --
----------- ----------
Total expenses:....................... 6,566,300 6,598,300
Income (loss) from operations............... (6,566,300) (6,598,300)
Interest income............................. 79,084 79,084
Interest expense............................ -- (468,556) N (468,556)
----------- ----------
Net income (loss)........................... $(6,487,216) $ (6,987,572)
=========== ==========
Net income (loss) per share................. $ (1.70) $ (1.84)
=========== ==========
Weighted average number of common and common
stock equivalent shares outstanding....... 3,806,011 3,806,011
<CAPTION>
A PRODUCT
LINE OF
UPSHER-SMITH PURCHASE
HISTORICAL NOTE PRICE NOTE OTHER NOTE COMBINED PRO FORMA
DECEMBER 29, 1996 REF. ADJUSTMENTS REF. ADJUSTMENTS REF. DECEMBER 31, 1996
----------------- ---- ----------- ---- ----------- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... $ 3,877,199 C $ $ $ 3,877,199
----------- ------------
Costs and expenses:
Cost of sales............................. 1,303,336 C 130,333 I 1,433,669
Research and development.................. -- 3,760,948
Selling, general and administrative....... -- 574,285 H 490,000 L 5,142,260
1,240,623 K
Advertising and promotion................. 669,456 C (669,456) K --
Allocated selling......................... 571,167 C (571,167) K --
----------- ------------
Total expenses:....................... 2,543,959 C 10,336,877
Income (loss) from operations............... (6,459,678)
Interest income............................. -- 79,084
Interest expense............................ -- (468,556)
------------
Net income (loss)........................... $ 1,333,240 C $ (6,849,150)
=========== ============
Net income (loss) per share................. $ (1.80)
============
Weighted average number of common and common
stock equivalent shares outstanding....... 3,806,011
</TABLE>
F-27
<PAGE> 5
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
ASSUMED
CONVERSION ASCENT
ASCENT ISSUANCE OF OF PREFERRED PRO FORMA
HISTORICAL ADDITIONAL NOTE STOCK INTO NOTE SUBTOTAL
MARCH 31, 1997 NOTES REF. COMMON STOCK REF. MARCH 31, 1997
----------------- ----------- ---- ------------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ -- $ $ --
-
----------
Costs and expenses:
Cost of sales.................. -- --
Research and development....... 1,528,114 1,528,114
Selling, general and
administrative............... 972,826 8,000 M 980,826
Advertising and promotion...... -- --
Allocated selling.............. -- --
----------
Total expenses:............ 2,500,940 2,508,940
Income (loss) from operations.... (2,500,940) (2,508,940)
Interest income.................. 72,745 72,745
Interest expense................. (19,916) (127,095) N (147,011)
Gain on sale of fixed assets..... 9,242 9,242
-
----------
Net income (loss)................ $(2,438,869) $ (2,573,964)
========== =
Net income (loss) per share...... $ (0.64) $ (0.68)
========== =
Weighted average number of common
and common stock equivalent
shares outstanding............. 3,806,075 3,806,075
<CAPTION>
A PRODUCT
LINE OF
UPSHER-SMITH PURCHASE
HISTORICAL NOTE PRICE NOTE OTHER NOTE COMBINED PRO FORMA
MARCH 31, 1997 REF. ADJUSTMENTS REF. ADJUSTMENTS REF. MARCH 31, 1997
----------------- ---- ----------- ---- ----------- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 795,222 C $ $ $ 795,222
----------- ------------
Costs and expenses:
Cost of sales.................. 323,665 C 32,367 I 356,032
Research and development....... -- 1,528,114
Selling, general and
administrative............... -- 143,571 H 122,500 L 1,606,482
359,585 K
Advertising and promotion...... 176,851 C (176,851) K --
Allocated selling.............. 182,734 C (182,734) K --
----------- ------------
Total expenses:............ 683,250 C 3,490,628
Income (loss) from operations.... (2,695,406)
Interest income.................. -- 72,745
Interest expense................. (147,011)
Gain on sale of fixed assets..... 9,242
----------- ------------
Net income (loss)................ $ 111,972 C $ (2,760,430)
=========== ============
Net income (loss) per share...... $ (0.73)
============
Weighted average number of common
and common stock equivalent
shares outstanding............. 3,806,075
</TABLE>
F-28
<PAGE> 6
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997
The accompanying unaudited combined pro forma financial statements reflect
the impact of the following adjustments:
A. ISSUANCE OF ADDITIONAL NOTES
Records the issuance of $5,000,000 of the Notes net of estimated issuance
costs of $160,000 with proceeds of $4,840,000 no later than the closing of this
offering presented as if the issuance occurred on March 31, 1997. The Notes have
been recorded at $3,331,254 net of $1,668,746, the fair market value of Series A
and Series B warrants to purchase 336,644 and 218,195 shares, respectively, of
Common Stock issued in connection with the Notes. Accordingly the liability of
$3,331,254 (after allocating $1,668,746 as value attributable to warrants) will
be accreted up to $5,000,000 over the term of the Notes and such accretion in
the amount of $1,668,746 will be recorded as interest expense in addition to the
stated interest rate. The Notes bear no interest through January 31, 1999 after
which the interest rates are 7% through January 31, 2000, 8% through January 31,
2001 and 9% through January 31, 2002, payable every quarter commencing on March
31, 1999. Upon completion of an initial public offering of shares of its Common
Stock, the Company may either redeem all of the outstanding Notes for their
stated principal amount or all of such Notes will amortize in eight equal
quarterly principal payments and require quarterly interest payments on the
unpaid principal balance, at a rate equal to the lesser of 10% or 3.5% over the
prime rate, with the first quarterly payment of principal and interest due six
months after the closing of such an offering. In addition, for a period of two
years following the closing of any such offering, the holders of the Notes will
have the right to convert the Notes into such number of shares of Common Stock
as is equal to the outstanding principal of such Notes divided by the per share
Price to Public in the offering (subject to certain requirements as to the
minimum amount to be so converted as provided in the Agreement).
B. CONVERSION OF PREFERRED STOCK AND WARRANT OBLIGATION
Records the following:
- The conversion of 800,000 shares of Series A convertible preferred stock,
$.00004 par value, into 680,000 shares of common stock, $.00004 par
value.
- The conversion of 399,999 shares of Series B convertible preferred stock,
$.00004 par value, into 353,227 shares of common stock, $.00004 par
value.
- The conversion of 1,359,522 shares of Series D redeemable convertible
preferred stock, $.00004 par value, into 1,155,589 shares of common
stock, $.00004 par value.
- The conversion of 733,371 shares of Series E redeemable convertible
preferred stock, $.00004 par value, into 623,358 shares of common stock,
$.00004 par value.
- The conversion of 1,915,765 shares of Series F redeemable convertible
preferred stock, $.00004 par value, into 1,628,390 shares of common
stock, $.00004 par value.
- The reclassification of warrant obligations of $2,505,740 to additional
paid in capital.
F-29
<PAGE> 7
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SERIES D SERIES E SERIES F
SERIES A SERIES B REDEEMABLE REDEEMABLE REDEEMABLE
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED WARRANT
STOCK STOCK STOCK STOCK STOCK OBLIGATION TOTALS
----------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Warrant obligation............ $ $ $ $ $ $(2,505,740) $ (2,505,740)
Series A convertible preferred
stock........................ (280,110) (280,110)
Series B convertible preferred
stock........................ (2,574,993) (2,574,993)
Series D redeemable
convertible preferred
stock........................ (8,157,132) (8,157,132)
Series E redeemable
convertible preferred
stock........................ (4,400,226) (4,400,226)
Series F redeemable
convertible preferred
stock........................ (12,452,471) (12,452,471)
Common stock.................. 27 14 46 24 66 177
Additional paid-in capital.... 280,083 2,574,979 8,157,086 4,400,202 12,452,405 2,505,740 30,370,495
--------- ----------- ----------- ----------- ------------ ------- ------------
Totals................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= =========== =========== =========== ============ ======= ============
</TABLE>
C. A PRODUCT LINE OF UPSHER-SMITH
The historical results of A Product Line of Upsher-Smith exclude allocated
general and administrative and research and development expenses which are not
directly attributable to the product lines to be sold.
D. CASH PAYMENT
Records the cash payment of $5,985,696 for the probable acquisition of the
Product Line which includes a $5,750,000 million required payment at closing and
$235,696 of inventory costs.
E. DEPOSIT
Records the application of the deposit of $250,000 related to the probable
acquisition of the Product Line to the purchase price.
F. INTANGIBLE ASSETS
Records intangible assets, net of amortization and deposits, resulting from
the probable acquisition of the Feverall product line as if the probable
acquisition had occurred on March 31, 1997:
<TABLE>
<S> <C>
Purchase price.................................. $11,735,696
Less inventory acquired at fair value........... 250,000
-----------
Intangible assets............................... $11,485,696
===========
</TABLE>
G. NOTE PAYABLE
Records note payable to Upsher-Smith related to the probable acquisition of
the Feverall product line. The note is payable 225 days from closing and does
not bear interest.
<TABLE>
<S> <C>
Purchase price.................................. $11,735,696
Less deposit.................................... 250,000
-----------
Subtotal........................................ 11,485,696
Less cash payment............................... 5,985,696
-----------
Note payable.................................... $ 5,500,000
===========
</TABLE>
F-30
<PAGE> 8
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
H. AMORTIZATION EXPENSE
Records amortization expense of $574,285 ($143,571 a quarter) related to
the intangible assets of $11,485,696 over the estimated life of 20 years. At the
time the acquisition is consummated, the amount of the purchase price that
exceeds the fair value of the tangible assets will be allocated to specific
intangible assets (expected to be primarily intellectual property, know-how,
customer lists, etc.) and any remainder will be classified as goodwill.
Accordingly, the amortization periods for the assets will correspond to their
useful lives. The 20 years is an estimate by management for pro forma purposes
and, in the opinion of management, will not materially differ from actual
results.
I. COST OF GOODS SOLD
Adjusts cost of goods sold for the manufacture of the products to be
acquired in excess of Upsher-Smith's fully allocated costs of manufacturing such
products as per the manufacturing agreement.
J. INVENTORY
Records adjustment to increase inventory to be purchased to fair market
value.
K. RECLASSIFICATION
Records reclassification of Upsher-Smith advertising and promotion expenses
of $669,456 and allocated selling expenses of $571,167 totalling $1,240,623 for
the year ended December 31, 1996 and advertising and promotion expenses of
$176,851 and allocated selling expenses of $182,734 totalling $359,585 for the
three months ended March 31, 1997 to conform with Ascent's financial statement
presentation.
L. INCREMENTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Records an estimate of the incremental selling, general and administrative
expenses, in addition to the Upsher-Smith product line's identified costs and
expenses, expected to be incurred by Ascent primarily for distribution costs
(including billing and collection efforts), advertising, promotion and sales
force of $490,000 for a year or $122,500 for a quarter. Selling, general and
administrative expenses are expected to increase as the product line revenue
increases.
M. AMORTIZATION OF DEBT ISSUE COSTS
Records amortization of issuance costs of $160,000 related to the
additional Notes. Amortization for one year is $32,000 or $8,000 per quarter.
N. INTEREST EXPENSES PERTAINING TO THE ADDITIONAL NOTES
Records accretion of notes to maturity amount and treated as interest
expense. Interest expenses for the year ended December 31, 1996 and for the
three months ended March 31, 1997 are $468,556 and $127,095, respectively.
F-31
