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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 000-22347
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ASCENT PEDIATRICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3047405
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
187 Ballardvale Street, Suite B125, Wilmington, MA 01887
- -------------------------------------------------- ----------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 658-2500
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None
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(Former name, former address, and
former fiscal year if changed since last report)
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 number of shares outstanding of the registrant's Common Stock,
par value $.00004 per share, as of May 11, 1998: 6,921,074.
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ASCENT PEDIATRICS, INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1 - Condensed Financial Statements
Condensed Balance Sheets....................................... 1
Condensed Statements of Operations............................. 2
Condensed Statements of Cash Flows............................. 3
Notes to Condensed Financial Statements........................ 4-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8-11
Part II. Other Information
Item 2 - Changes in Securities and Use of Proceeds................ 12
Item 6 - Exhibits and Reports on Form 8-K......................... 13
Signature................................................................ 14
Exhibit Index............................................................ 15
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ASCENT PEDIATRICS, INC.
CONDENSED BALANCE SHEETS
(unaudited)
March 31, December 31,
1998 1997
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 642,292 $ 11,700,612
Current marketable securities ............................. 2,529,662 2,527,900
Accounts receivable, net .................................. 833,252 765,609
Inventory (Note 3) ........................................ 1,092,163 789,498
Other current assets ...................................... 466,186 124,874
------------ ------------
Total current assets ................................... 5,563,555 15,908,493
Fixed assets, net .............................................. 833,548 759,563
Debt issue costs, net .......................................... 369,526 436,515
Intangibles, net ............................................... 11,047,694 11,215,506
Other assets ................................................... 113,859 113,386
------------ ------------
Total assets ........................................... $ 17,928,182 $ 28,433,463
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .......................................... $ 1,472,365 $ 1,509,258
Accrued expenses .......................................... 1,118,012 1,157,379
Promissory note ........................................... -- 5,500,000
Subordinated secured notes, current portion ............... 3,500,000 3,500,000
------------ ------------
Total current liabilities .............................. 6,090,377 11,666,637
Subordinated secured notes ..................................... 702,548 1,252,068
------------ ------------
Total liabilities ...................................... 6,792,925 12,918,705
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding ................ -- --
Common stock, $.00004 par value; 60,000,000 shares
authorized; 6,910,414 and 6,893,332 shares issued
and outstanding at March 31, 1998 and
December 31, 1997, respectively ........................ 277 276
Additional paid-in capital ................................ 47,951,414 47,891,846
Accumulated deficit ....................................... (36,819,312) (32,378,480)
Unrealized gain on securities ............................. 2,878 1,116
------------ ------------
Total stockholders' equity ............................. 11,135,257 15,514,758
------------ ------------
Total liabilities and stockholders' equity ............. $ 17,928,182 $ 28,433,463
============ ============
See accompanying notes to condensed financial statements
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ASCENT PEDIATRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended March 31,
-----------------------------
1998 1997
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Product revenue, net .................................... $ 1,314,049 $ --
Costs of sales .......................................... 470,347 --
----------- -----------
Gross margin ............................................ 843,702 --
Costs and expenses:
Selling, general and administrative ............... 3,848,165 972,826
Research and development .......................... 1,123,878 1,528,114
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Total costs and expenses .......................... 4,972,043 2,500,940
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Loss from operations ........................... (4,128,341) (2,500,940)
Interest income ......................................... 158,822 72,745
Interest expense ........................................ (471,313) (19,916)
Other income ............................................ -- 9,242
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Net loss ....................................... (4,440,832) (2,438,869)
Accretion to redemption value of
preferred stock ................................... -- 219,626
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Net loss to common stockholders ................ $(4,440,832) $(2,658,495)
=========== ===========
Basic and diluted net loss per common share ............ $ (0.64) $ (13.42)
=========== ===========
Weighted average shares outstanding ..................... 6,910,414 198,155
=========== ===========
See accompanying notes to condensed financial statements.
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ASCENT PEDIATRICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31,
------------------------------
1998 1997
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Cash flows for operating activities:
Net loss ...................................................... $ (4,440,832) $(2,438,869)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization ............................. 293,365 22,098
Non-cash interest expense ................................. 325,480 19,916
Gain on sales of fixed assets ............................. -- (9,242)
Changes in operating assets and liabilities:
Accounts receivable .................................... (67,643) --
Inventory .............................................. (302,665) --
Other assets ........................................... (341,785) (496,116)
Accounts payable ....................................... (36,893) 274,148
Accrued expenses ....................................... (39,367) 231,307
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Net cash used for operating activities .............. (4,610,340) (2,396,758)
Cash flows used for investing activities:
Purchase of property and equipment ............................ (132,548) (174,757)
Proceeds from sale of fixed assets ............................ -- 38,069
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Net cash used for investing activities .............. (132,548) (136,688)
Cash flows from financing activities:
Proceeds from sale of common stock, net of issuance costs ..... 59,568 --
Proceeds from sale of preferred stock, net of issuance costs .. -- 6,957,861
Proceeds from issuance of debt and related warrants ........... -- 2,000,000
Repayment of subordinated secured notes ....................... (875,000) --
Payment of promissory note .................................... (5,500,000) --
Debt issue costs related to subordinated secured note ......... -- (210,304)
------------ -----------
Net cash used for financing activities .............. (6,315,432) 8,747,557
Net (decrease) increase in cash and cash equivalents ............... (11,058,320) 6,214,111
Cash and cash equivalents, beginning of period ..................... 11,700,612 2,085,743
------------ -----------
Cash and cash equivalents, end of period ........................... $ 642,292 $ 8,299,854
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .................................................... $ 153,125 $ --
============ ===========
See accompanying notes to condensed financial statements.
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ASCENT PEDIATRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS
Ascent Pediatrics, Inc. (the "Company") is a drug development and marketing
company focused exclusively on the pediatric market. Since its inception,
until July 9, 1997, the Company had operated as a development stage
enterprise devoting substantially all of its efforts to establishing a new
business and to carrying on development activities. On July 10, 1997, 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 and
commenced sales of the Feverall line of products. The Company also
commenced sales of Pediamist nasal saline spray during the quarter ended
December 31, 1997. On February 6, 1998, the Company entered into a
four-year co-promotion agreement with Bristol-Myers Squibb U.S.
Pharmaceuticals Group ("Bristol-Myers Squibb") to exclusively promote
Duricef(R) oral suspension to pediatricians in the United States.
The Company has incurred net losses since inception and expects to incur
additional operating losses in the future as the Company continues its
product development programs, maintains its sales and marketing
organization and introduces its products to the market. The Company is
subject to a number of risks similar to other companies in the industry,
including rapid technological change, uncertainty of market acceptance of
products, uncertainty of regulatory approval, limited sales and marketing
experience, competition from substitute products and larger companies,
customers' reliance on third-party reimbursement, the need to obtain
additional financing, compliance with government regulations, protection of
proprietary technology, dependence on third-party manufacturers,
distributors, collaborators and limited suppliers, product liability, and
dependence on key individuals. These risks are set forth in more detail in
"Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors That May Affect Future Results" of
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, which are expressly incorporated by reference herein.
2. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been prepared
by the Company in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The interim
financial statements include, in the opinion of management, all adjustments
(consisting of normal and recurring adjustments) that are necessary for a
fair presentation of the results for the interim periods ended March 31,
1998 and 1997. The results for the interim periods presented are not
necessarily indicative of results to be expected in the full fiscal year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
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3. INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first out (FIFO) method and consist of the following:
March 31, December 31,
1998 1997
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Raw materials........................ $ 548,821 $455,663
Work in process...................... -- 35,110
Finished goods....................... 543,342 298,725
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Total................................ $1,092,163 $789,498
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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Common Share
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings Per Share," which specifies the computation,
presentation and disclosure requirements for net income (loss) per common
share. Basic net income (loss) per common share is computed based on the
weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share gives effect to all dilutive
potential common shares outstanding during the period. Under SFAS No. 128,
the computation of diluted earnings per share does not assume the issuance
of common shares that have an antidilutive effect on net income per common
share. In accordance with Staff Accounting Bulletin 98 issued by the
Securities and Exchange Commission in February 1998, the Company restated
loss per share for prior periods without including certain awards of stock
and warrants issued within a one-year period prior to the initial filing of
an Initial Public Offering of common stock.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components. Components of comprehensive income
are net income and all other non-owner changes in equity such as the change
in the cumulative translation adjustment. SFAS 130 requires that an
enterprise: (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a balance sheet. SFAS 130 is
effective for financial statements issued for periods beginning after
December 15, 1997 which for the Company is the first quarter of 1998.
Presentation of comprehensive income for earlier periods provided for
comparative purposes is required. Comprehensive income for the three months
ended March 31, 1998 and 1997, is as follows:
Three Months Ended March 31,
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1998 1997
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Net loss to common stockholders............... $(4,440,832) $(2,658,495)
Unrealized gain on securities................. 1,762 --
------------ -----------
Total......................................... $(4,439,070) $(2,658,495)
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Recent Pronouncement
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5
"Accounting for the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. The Company has not assessed the impact of SOP 98-5
on its financial statement disclosures.
5. CO-PROMOTION AGREEMENT
On February 6, 1998, the Company entered into a four-year co-promotion
agreement with Bristol-Myers Squibb to exclusively promote Duricef(R)
(cefadroxil monohydrate) oral suspension to pediatricians in the United
States. As compensation for the Company's co-promotional efforts,
Bristol-Myers Squibb has agreed to pay the Company a specified percentage
of net sales of the product attributed to pediatricians (as defined in the
agreement) on sales above a specified number of prescriptions for the
product. In addition, Bristol-Myers Squibb has agreed to reimburse the
Company for a specified amount of the Company's marketing costs during each
year of the agreement.
6. SUBSEQUENT EVENTS
1998 Financing
On May 13, 1998, the Company entered into a definitive agreement with funds
affiliated with Furman Selz Investments and BancBoston Ventures, pursuant
to which the investors will purchase at closing $7 million of Series G
convertible exchangeable preferred stock (the "Preferred Stock"), $9
million of 8% seven-year subordinated notes (the "Subordinated Notes") and
seven-year warrants to purchase 2,116,958 shares of common stock of the
Company (the "Common Stock"). The Preferred Stock is convertible into
Common Stock at a price of $4.75 per share, and the warrants are
exercisable at a price of $4.75 per share. The Preferred Stock will
automatically convert into Common Stock under specified circumstances based
on the fair market value of the Company's Common Stock. The Preferred Stock
is entitled to cumulative annual dividends equal to 8% (subject to
adjustment) of the liquidation preference of such stock ($1,000), payable
semiannually in June and December of each year, commencing December 1998,
and may be exchanged for 8% seven-year convertible subordinated notes
having an aggregate principal amount equal to the aggregate liquidation
preference of the Preferred Stock (the "Convertible Notes") at the option
of the Company any time within seven years of issuance of the Preferred
Stock.
The Subordinated Notes and the Convertible Notes (when issued upon exchange
of the Preferred Stock) (collectively, the "1998 Notes") bear interest at a
rate of 8% per annum, payable semiannually in June and December of each
year, commencing December 1998. Forty percent of the interest due on the
Subordinated Notes and fifty percent of the dividends due on the Preferred
Stock (or the interest due on the Convertible Notes if issued upon exchange
of the Preferred Stock) in each of December 1998, June 1999, December 1999
and June 2000 may be deferred by the Company for a period of three years.
The Company may also redeem the Preferred Stock (or the Convertible Notes
issued upon exchange of the Preferred Stock) at a price equal to the
liquidation preference on such stock ($1,000) plus accrued and unpaid
dividends in the event of a change of control or unaffiliated merger of the
Company, although the Company will be required to issue new Common Stock
purchase warrants in connection with such redemption. In addition, in the
event of a change of control or unaffiliated merger of the Company (as such
terms are defined in the agreement), the holders of the 1998 Notes may
require the Company to redeem the 1998 Notes at a price equal to the unpaid
principal plus accrued and unpaid interest on such notes. In connection
with the investment, a representative of Furman Selz Investments will be
added to the Company's Board of Directors.
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Primsol
On May 1, 1998, the United States Food and Drug Administration notified the
Company that, in connection with its New Drug Application for the 50mg/5ml
formulation of Primsol trimethoprim solution, the Company will be required
to conduct a pre-approval clinical use study to determine the adverse event
profile of Primsol in children. The Company is currently discussing the
form of this study with the FDA.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a drug development and marketing company focused exclusively on
the pediatric market. The Company commenced operations in March 1989 and prior
to the quarter ended September 30, 1997 had been engaged primarily in developing
its products and product candidates and in organizational efforts, including
recruiting scientific and management personnel and raising capital. The Company
introduced its first product, Feverall, during the quarter ended September 30,
1997 and its second product, Pediamist, during the quarter ended December 31,
1997. During the quarter ended March 31, 1998, the Company began marketing
Duricef(R) (cefadroxil monohydrate) oral suspension to pediatricians in the
United States pursuant to a four-year co-promotion agreement with Bristol-Myers
Squibb.
The Company has incurred net losses since its inception and expects to incur
additional operating losses at least through the current fiscal year as it
continues its product development programs, maintains its sales and marketing
organization and introduces products to the market. The Company expects
cumulative losses to increase over this period. The Company has incurred a
deficit accumulated since inception through March 31, 1998 of $36,819,312.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997
Revenue and Cost of Sales. The Company had revenue of $1,314,000 for the three
months ended March 31, 1998, compared with no revenue in the comparable prior
year period due primarily to revenues from the sales of its Feverall products,
which product line was acquired in July 1997 and, to a lesser extent, revenue
from the Pediamist product. Cost of sales was $470,000 for the three months
ended March 31, 1998 and was primarily attributable to the manufacturing cost
associated with the marketing of the Feverall and Pediamist products.
Selling, General and Administrative Expenses. The Company incurred selling,
general and administrative expenses for the three months ended March 31, 1998 of
$3,848,000, which was an increase of $2,875,000 over the comparable prior year
period. Selling expenses increased in the three months ended March 31, 1998 by
$2,330,000 over the comparable prior year period primarily as a result of (i)
increased personnel expenses related to the Company's sales and marketing
personnel hired in the second half on 1997 and (ii) increased advertising and
promotional activities relating to the marketing of Feverall and Pediamist.
General and administrative expenses increased in the three months ended March
31, 1998 by $545,000 which was primarily a result of additional staffing
expenses and amortization expenses of intangible assets related to the Feverall
acquisition.
Research and Development. The Company incurred research and development
expenses for the three months ended March 31, 1998 of $1,124,000, a decrease of
$404,000 from the comparable prior year period. This decrease primarily reflects
increased product development charges in the prior year period for the Company's
Pediavent albuterol controlled-release suspension product and increased clinical
trial expenditures for the Company's Feverall ER acetaminophen beaded product.
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Interest. The Company had interest income of $159,000 for the three months
ended March 31, 1998, an increase of $86,000 over the comparable prior year
period. This increase was primarily attributable to an increase in funds
available for investment by the Company as a result of the Company's initial
public offering and issuance of subordinated secured notes in the first half of
1997. The Company had interest expense of $471,000 for the three months ended
March 31, 1998, an increase of $451,000 over the comparable prior year period.
The interest expense includes the accretion of the subordinated secured notes
and related cash interest payments.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily from
private sales of capital stock, subordinated secured notes and related Common
Stock purchase warrants and an initial public offering of shares of Common
Stock. In addition, in the second half of 1997, the Company began shipping its
first two products, Feverall acetaminophen suppositories and Pediamist nasal
saline spray. As of March 31, 1998, the Company had raised approximately
$27,123,000 (net of issuance costs) from the sales of preferred stock,
approximately $6,404,000 (net of issuance costs) from the issuance of
subordinated secured notes and related warrants and approximately $17,529,000
(net of issuance costs) from the initial public offering of 2,240,000 shares of
Common Stock.
On July 10, 1997, the Company closed the acquisition of the Feverall line of
acetaminophen rectal suppositories from Upsher-Smith for a purchase price of
$11,905,000. The Company issued a promissory note for $5.5 million as partial
payment for the purchase price, which promissory note was paid in full on
February 20, 1998.
In January and May 1997, the Company issued an aggregate of $7 million of
subordinated secured notes, resulting in net proceeds to the Company of
$6,404,000, which was recorded as a liability of $4,494,000 with $2,506,000 to
be accreted as interest expense over the term of the notes. The notes amortize
in eight equal quarterly principal installments and require quarterly interest
payments on the unpaid balance. The notes mature on September 2, 1999. The notes
are collateralized by a lien on all of the Company's assets, prohibit the
payment of dividends by the Company and, subject to certain exceptions
(including for up to $6 million of senior secured bank financing), prohibit the
incurrence of additional indebtedness. On March 3, 1998, the Company made its
second quarterly payment of principal and interest, $875,000 and $153,125
respectively, that was due on the subordinated secured notes.
Through March 31, 1998, the Company applied the proceeds from the sales of
preferred stock, subordinated notes, its initial public offering and product and
other revenues to fund the purchase of the Feverall product line, partial
payment of the subordinated secured notes and interest, and general corporate
purposes. As of March 31, 1998, the Company had cash, cash equivalents and
current marketable securities of $3,172,000.
On May 13, 1998, the Company entered into a definitive agreement (the "1998
Financing Agreement") with funds affiliated with Furman Selz Investments and
BancBoston Ventures, pursuant to which the Company will issue and sell at the
closing $7 million of Series G convertible exchangeable preferred stock, $9
million of 8% seven-year subordinated notes and seven-year warrants to purchase
2,116,958 shares of Common Stock (collectively the "1998 Financing"). The
Preferred Stock is convertible into Common Stock at a price of $4.75 per share,
and the warrants are exercisable at a price of $4.75 per share. The Preferred
Stock will automatically convert into Common Stock under specified circumstances
based on the fair market value of the Company's Common Stock. The Preferred
Stock is entitled to cumulative annual dividends equal to 8% (subject to
adjustment) of the liquidation preference of such stock ($1,000), payable
semiannually in June and December of each year, commencing December 1998, and
may be exchanged for 8% seven-year convertible subordinated notes having an
aggregate principal amount equal to the aggregate liquidation
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preference of the Preferred Stock at the option of the Company any time within
seven years of issuance of the Preferred Stock. The Company intends to use the
net proceeds, after fees and expenses, of $14.7 million to repay the outstanding
$5.3 million in subordinated secured notes and the balance for working capital.
The Subordinated Notes and Convertible Notes (when issued upon exchange of the
Preferred Stock) bear interest at a rate of 8% per annum, payable semiannually
in June and December of each year, commencing December 1998. Forty percent of
the interest due on the Subordinated Notes and fifty percent of the dividends
due on the Preferred Stock (or the interest due on the Convertible Notes if
issued upon exchange of the Preferred Stock) in each of December 1998, June
1999, December 1999 and June 2000 may be deferred by the Company for a period of
three years. The Company may redeem the Subordinated Notes in whole or in part
at any time by paying the outstanding principal plus accrued and unpaid interest
on such notes. The Company may also redeem the Preferred Stock (or the
Convertible Notes issued upon exchange of the Preferred Stock) at a price equal
to the liquidation preference on such stock ($1,000) plus accrued and unpaid
dividends in the event of a change of control or unaffiliated merger of the
Company, although the Company will be required to issue new Common Stock
purchase warrants in connection with such redemption. In addition, in the event
of a change of control or unaffiliated merger of the Company (as such terms are
defined in the agreement), the holders of the 1998 Notes may require the Company
to redeem the 1998 Notes at a price equal to the unpaid principal plus accrued
and unpaid interest on such notes. In connection with the investment, a
representative of Furman Selz Investments will be added to the Company's Board
of Directors.
The Company has no committed external sources of capital. The Company expects,
based on its current operating plan, that its existing capital resources, taken
together with the proceeds of the 1998 Financing and internally generated funds,
should be adequate to satisfy its capital requirements for at least the next 12
months. However, the Company's future capital requirements will depend on many
factors, including continued progress in its product development programs, the
magnitude of these programs, the results of preclinical studies and clinical
trials, the time and cost involved in obtaining regulatory approvals, the cost
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market developments, the ability of the Company to
maintain and, in the future, expand its sales and marketing capability and
product development, manufacturing and marketing relationships, and the costs
and success of commercialization activities and arrangements, particularly the
level of product sales. The Company's business strategy requires a significant
commitment of funds to conduct clinical testing of potential products, to pursue
regulatory approval of such products and maintain sales and marketing
capabilities and manufacturing relationships necessary to bring such products to
market.
Although the Company has entered into a binding agreement with respect to the
1998 Financing, the closing of such financing is subject to a number of
different conditions and is not scheduled to occur until June 1998. In the event
that the Company does not complete the 1998 Financing by such date or at all,
the Company will be required to significantly curtail one or more of its product
development programs or product commercialization efforts, obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products which the Company would otherwise pursue on its own or significantly
scale back or terminate operations.
The Company is aware of the issues that many computer systems will face as the
millenium ("Year 2000") approaches. The Company does not expect the cost of the
effort to install Year 2000 compliant software to be material. In addition, the
Company believes that the Year 2000 issue will not pose significant operational
problems. However, Year 2000 issues could have a significant impact on the
Company's business, financial condition and results of operations if
modifications cannot be completed on a timely basis, unforeseen needs or
problems arise, or if the systems operated by suppliers, collaborative partners
or licensees are not Year 2000 compliant.
RECENT PRONOUNCEMENT
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5
"Accounting for the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. The Company has not assessed the impact of SOP 98-5 on its
financial statement disclosures.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report on Form 10-Q contains certain forward-looking statements.
For this purpose, any statements herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth in "Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors That May Affect Future Results" of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 as filed
with the Securities and Exchange Commission, which are expressly incorporated by
reference herein.
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PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the initial public offering (the "Offering") of shares of
Common Stock of the Company, the Company's Registration Statement on Form S-1,
Commission File No. 333-23319 (the "Registration Statement"), was declared
effective by the Securities and Exchange Commission on May 29, 1997. In the
Offering, the Company issued and sold an aggregate of 2,240,000 shares of Common
Stock, with an aggregate offering price of $20,160,000, and paid an aggregate of
$2,630,661 in total expenses, which consisted of $1,411,200 in underwriting
discounts and commissions, $3,492 in expenses paid to or for the underwriters
and an aggregate of $1,216,059 in accounting, legal, printing and other
expenses. None of these expenses was paid, directly or indirectly, to directors,
officers, general partners of the Company or their associates, persons owning
ten percent or more of any class of equity securities of the Company or
affiliates of the Company. The net Offering proceeds to the Company, after
deducting total expenses of the Offering, was $17,529,339.
From May 29, 1997 through March 31, 1998, the Company used the net Offering
proceeds in the following manner:
- -----------------------------------------------------------------------------------------------------------
Direct or indirect payments to
directors, officers, general partners
of the Company or their associates;
to persons owning ten percent or
more of any class of equity
securities of the Company, and Direct or indirect payments to
to affiliates of the Company Others
- -----------------------------------------------------------------------------------------------------------
Construction of a plant, building
or facilities $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------
Purchase and installation of
- -----------------------------------------------------------------------------------------------------------
Machinery and equipment $ 0 $ 660,540
- -----------------------------------------------------------------------------------------------------------
Purchase of real estate $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------
Acquisition of other business(es) $ 0 $11,471,000
- -----------------------------------------------------------------------------------------------------------
Repayment of debt $1,768,250 $ 309,875
- -----------------------------------------------------------------------------------------------------------
Working capital $ 0 $ 3,319,674
- -----------------------------------------------------------------------------------------------------------
Temporary investment (specify) $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------
Other purposes (specify) $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------
In March 1998, the Company paid an aggregate of $1,050,000 (representing the
second of eight equal quarterly payments of principal under the subordinated
secured notes and interest on the outstanding principal amount of such notes as
of such date) to the holders of the subordinated secured notes of the Company,
including a profit sharing plan for the benefit of Thomas W. Janes, a director
of the Company, and Triumph-Connecticut Limited Partnership, and affiliated
entity. In all other respects, the Company's use of the net Offering proceeds in
the period from January 1, 1998 through March 31, 1998 does not represent a
material change in the use of proceeds described in the Registration Statement.
12
15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits See exhibit index on page 15 for a list
of the exhibits filed as part of this
Quarterly Report on Form 10-Q, which
exhibit index is incorporated herein by
reference.
(b) Reports on Form 8-K None.
13
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASCENT PEDIATRICS, INC.
Date: May 14, 1998 By: /s/ JOHN G. BERNARDI
-------------------------------------------
John G. Bernardi, Vice-President-Finance
and Treasurer (Principal Financial Officer)
14
17
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
99 Pages 28 through 35 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997
as filed with the SEC (which is not deemed filed
except to the extent that portions thereof are
expressly incorporated by reference herein).
15