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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**

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**FORM 10-Q**

**(Mark One)**

| **ý**                                                                                                                                                                                                                                                                                                                                    | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                          |                                                                                                |
| **For the quarterly period ended June 30, 2001**                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                          |
| **-OR-**                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                          |
| **o**                                                                                                                                                                                                                                                                                                                                         | **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 inits charter)

| **Delaware**                                                                   | **04-3271667**          |
|--------------------------------------------------------------------------------|-------------------------|
| (State  or other jurisdiction of                                               | (I.R.S.  Employer       |
| incorporation  or organization)                                                | Identification  Number) |
|                                                                           |                    |
| **790  Turnpike Street**                                                       |                    |
| **North  Andover, Massachusetts**                                              | **01845**               |
| (Address  of principal executive offices)                                      | (Zip  Code)             |
|                                                                           |                    |
| Registrant's  telephone number, including area code:   **(978) 689-0333** |

Indicateby check mark whether the registrant (1) has filed all reports required to befiled  by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ý No o

Indicatethe number of shares outstanding of each of the issuer's  classes of common stock, as of the latestpracticable date.

At August 2, 2001 there were 14,299,217shares of common stock, par value $.01 per share, of the registrantoutstanding.

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**ERGOSCIENCE CORPORATION**

**TABLEOF CONTENTS**

| **PART I.   FINANCIAL INFORMATION** |
|-----------------------------------------------|
|                                          |
|                                          | **ITEM 1.** | **Financial Statements** |
|                                          |   |   |
|                                          |   | Unaudited  Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 |
|                                          |   |   |
|                                          |   | Unaudited  Consolidated Statements of Operations for the three months and six months  ended June30,  2001 and June 30, 2000 |
|                                          |   |   |
|                                          |   | Unaudited  Consolidated Statements of Cash Flows for the six months ended June 30, 2001  and 2000 |
|                                          |   |   |
|                                          |   | Notes to  Consolidated Financial Statements |
|                                          |   |   |
|                                          | **ITEM  2.** | **Management's  Discussion and Analysis of Financial Condition and Results of Operations** |
|                                          |   |   |
|                                          | **ITEM  3.** | **Quantitative  and Qualitative Disclosures About Market Risk** |
|                                          |   |   |
| **PART II.   OTHER INFORMATION**    |
|                                          |
|                                          | **ITEM  6.** | **Exhibits  and Reports on Form 8K** |
|                                          |   |   |
| **SIGNATURES**                                |   |

 

ERGOSCIENCE CORPORATION

CONSOLIDATEDBALANCE SHEETS(Unaudited)

|                                           | June  30,                                                                                                                                                                                                                        |        | December  31, |        |
|------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|---------------|-------------|
|                                           | 2001                                                                                                                                                                                                                             |        | 2000          |        |
|                                           |                                                                                                                                                                                                                                  |             |               |        |
| **ASSETS**                                     |                                                                                                                                                                                                                             |        |          |        |
|                                           |                                                                                                                                                                                                                             |        |          |        |
| Current assets:                                |                                                                                                                                                                                                                             |        |          |        |
|                                           | Cash and cash  equivalents                                                                                                                                                                                                       | $           | 12,394,840    |        | $ | 10,130,599 |   |
|                                           | Short-term investments                                                                                                                                                                                                           | 14,195,264  |          | 16,958,488  |   |
|                                           | Prepaid and other  current assets                                                                                                                                                                                                | 16,282      |          | 18,739      |   |
|                                           |                                                                                                                                                                                                                             |             |          |             |   |
|                                           | Total  current assets                                                                                                                                                                                                            | 26,606,386  |          | 27,107,826  |   |
| Equipment and  leasehold improvements, net     | 14,610                                                                                                                                                                                                                           |        | 21,793        |        |
|                                           |                                                                                                                                                                                                                                  |        |               |        |
|                                           | Total assets                                                                                                                                                                                                                     | $           | 26,620,996    |        | $ | 27,129,619 | ** ** |
|                                           |                                                                                                                                                                                                                             |             |          |             |   |
|                                           |                                                                                                                                                                                                                             | ** **  |          | ** **  |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |                                                                                                                                                                                                                             |        |          |        |
|                                           |                                                                                                                                                                                                                             |        |          |        |
| Current liabilities:                           |                                                                                                                                                                                                                             |        |          |        |
|                                           | Accounts payable and  accrued expenses                                                                                                                                                                                           | $           | 983,342       |        | $ | 983,131 |   |
|                                           |                                                                                                                                                                                                                             |             |          |             |   |
|                                           | Total current  liabilities                                                                                                                                                                                                       | 983,342     |          | 983,131     |   |
|                                           |                                                                                                                                                                                                                             |        |          |        |
| Commitments and  contingencies                 | —                                                                                                                                                                                                                           |        | —        |        |
|                                           |                                                                                                                                                                                                                             |        |          |        |
| Stockholders’ equity:                     |                                                                                                                                                                                                                             |        |          |        |
|                                           | Preferred stock, $.01  par value, 10,000,000 shares authorized; 6,903 shares of Series D preferred  stock issued and outstanding at June 30, 2001 and December 31, 2000  (liquidation preference of $9,940,448 at June 30, 2001) | 7,065,778   |          | 6,776,250   |   |
|                                           | Common stock, $.01 par  value, 50,000,000 shares authorized; 14,299,217 shares issued and outstanding  at June 30, 2001 and December 31, 2000                                                                                    | 142,993     |          | 142,993     |   |
|                                           | Additional paid-in  capital                                                                                                                                                                                                      | 111,808,824 |          | 111,808,824 |   |
|                                           | Cumulative dividends  on preferred stock                                                                                                                                                                                         | (5,056,211  | )             | (4,766,683  | ) |
|                                           | Accumulated deficit                                                                                                                                                                                                              | (88,323,730 |  )       | (87,814,896 | ) |
|                                           |                                                                                                                                                                                                                             |             |          |             |   |
|                                           | Total stockholders’  equity                                                                                                                                                                                                 | 25,637,654  |          | 26,146,488  |   |
|                                           |                                                                                                                                                                                                                             |             |          |             |   |
|                                           | Total  liabilities and stockholders’ equity                                                                                                                                                                                 | $           | 26,620,996    |        | $ | 27,129,619 |   |
|                                           |                                                                                                                                                                                                                             |             |          |             |   |
|                                                |                                                                                                                                                                                                                                  |             |               |             |  |  |  |  |

Theaccompanying notes are an integral part of the consolidated financialstatements

CONSOLIDATEDSTATEMENTS OF OPERATIONS(Unaudited)

|                                         | Three  Months Ended June 30, |       | Six  Months Ended June 30, |       |
|----------------------------------------------|------------------------------|------------|----------------------------|------------|
|                                         |                              |            |                            |       |
|                                         | 2001                         |       | 2000                       |       | 2001 |   | 2000 |   |
|                                         |                              |       |                            |       |  |   |  |   |
| Operating expenses:                          |                         |       |                       |       |   |   |   |   |
|                                         | Research and  development    | $          | 34,547                     |       | $ | 34,305 |   | $ | 39,534 |   | $ | 79,534 |   |
|                                         | General and  administrative  | 684,030    |                       | 307,843    |   | 1,193,372 |   | 641,983 |   |
|                                         |                              |       |                            |       |  |   |  |   |
|                                         | 718,577                      |       | 342,148                    |       | 1,232,906 |   | 721,517 |   |
|                                         |                              |       |                            |       |  |   |  |   |
|                                         | Net operating loss           | (718,577   | )                          | (342,148   | ) | (1,232,906 | ) | (721,517 | ) |
|                                         |                         |       |                       |       |   |   |   |   |   |
| Other Income:                                |                         |       |                       |       |   |   |   |   |
|                                         | Interest                     | 325,216    |                       | 449,760    |   | 723,851 |   | 881,662 |   |
|                                         | Other income                 | 221        |                       | 44,174     |   | 221 |   | 44,174 |   |
|                                         |                              |       |                            |       |  |   |  |   |
|                                         | Net income (loss)            | (393,140   | )                          | 151,786    |   | (508,834 | ) | 204,319 |   |
|                                         |                         |       |                       |       |   |   |   |   |
| Accretion of dividends  on preferred stock   | (146,197                     | )          | (137,804                   | )          | (289,528 | ) | (272,906 | ) |
|                                         |                              |       |                            |       |  |   |  |   |
| Net income (loss) to  common stockholders    | $                            | (539,337   | )                          | $          | 13,982 |   | $ | (798,362 | ) | $ | (68,587 | ) |
|                                         |                              |       |                            |       |  |   |  |   |
|                                         |                         |       |                       |       |   |   |   |   |
| Net income (loss) per  common share:         |                         |       |                       |       |   |   |   |   |
|                                         | Basic                        | $          | (0.04                      | )          | $ | 0.00 |   | $ | (0.06 | ) | $ | (0.00 | ) |
|                                         |                         |            |                       |            |   |  |   |  |   |
|                                         | Diluted                      | $          | (0.04                      | )          | $ | 0.00 |   | $ | (0.06 | ) | $ | (0.00 | ) |
|                                         |                              |       |                            |       |  |   |  |   |
|                                         |                         |       |                       |       |   |   |   |   |
| Weighted average  common shares outstanding: |                         |       |                       |       |   |   |   |   |
|                                         | Basic                        | 14,299,217 |                       | 14,299,217 |   | 14,299,217 |   | 14,285,544 |   |
|                                         |                         |            |                       |            |   |  |   |  |   |
|                                         | Diluted                      | 14,299,217 |                       | 14,329,097 |   | 14,299,217 |   | 14,285,544 |   |
|                                         |                              |       |                            |       |  |   |  |   |
|                                              |                              |            |                            |            |  |  |  |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of the consolidated financialstatements

CONSOLIDATEDSTATEMENTS OF CASH FLOWS(Unaudited)

|                                              | Six  Months Ended June 30,                                                        |        |
|---------------------------------------------------|-----------------------------------------------------------------------------------|-------------|
|                                              |                                                                                   |        |
|                                              | 2001                                                                              |        | 2000 |   |
|                                              |                                                                                   |        |  |   |
| Cash flows from  operating activities:            |                                                                              |        |   |   |
|                                              | Net (loss) income                                                                 | $           | (508,834 | ) | $ | 204,319 |   |
|                                              | Adjustments to  reconcile net income (loss) to cash used in operating activities: |        |   |   |   |
|                                              | Depreciation and  amortization                                                    | 6,443       |   | 15,622 |   |
|                                              | Loss on disposal of  equipment                                                    | 620         |   | — |   |
|                                              | Accrued interest on  long-term investments                                        | —      |   | (30,799 | ) |
|                                              | Changes in operating  assets and liabilities:                                     |        |   |   |   |
|                                              | Prepaid and other  current assets                                                 | 2,457       |   | 8,159 |   |
|                                              | Other assets                                                                      | —      |   | (1,510 | ) |
|                                              | Accounts payable and  accrued expenses                                            | 211         |   | (437,417 | ) |
|                                              |                                                                              |             |   |  |   |
| Net cash used in  operating activities            | (499,103                                                                          | )           | (241,626 | ) |
|                                              |                                                                                   |        |  |   |
| Cash flows from  investing activities:            |                                                                              |        |   |   |
|                                              | Purchase of short-term  investments                                               | (19,591,534 | ) | (6,220,108 | ) |
|                                              | Proceeds from maturity  of short-term investments                                 | 22,354,758  |   | 11,923,328 |   |
|                                              | Proceeds from sale of  equipment                                                  | 120         |   | — |   |
|                                              | Purchase of equipment  and leasehold improvements                                 | —      |   | (7,265 | ) |
|                                              |                                                                              |             |   |  |   |
| Net cash provided by  investing activities        | 2,763,344                                                                         |        | 5,695,955 |   |
|                                              |                                                                                   |        |  |   |
| Cash flows from  financing activities:            |                                                                              |        |   |   |
|                                              | Proceeds from stock  options exercised                                            | —      |   | 23,800 |   |
|                                              |                                                                              |             |   |  |   |
| Net increase in cash  and cash equivalents        | 2,264,241                                                                         |        | 5,478,129 |   |
|                                              |                                                                              |        |   |   |
| Cash and cash  equivalents at beginning of period | 10,130,599                                                                        |        | 4,292,631 |   |
|                                              |                                                                                   |        |  |   |
| Cash and cash equivalents  at end of period       | $                                                                                 | 12,394,840  |   | $ | 9,770,760 |   |
|                                              |                                                                                   |        |  |   |
|                                                   |                                                                                   |             |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of the consolidated financialstatements

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

**1.**          **Basis of Presentation**

             Theaccompanying financial statements are unaudited and have been prepared by ErgoScience Corporation (“Ergo” or the “Company”) in accordance with generallyaccepted accounting principles.

             Certaininformation and footnote disclosure normally included in the Company's annualfinancial statements have been condensed or omitted.  The interim financial statements, in the opinion of management,reflect all adjustments (including normal recurring accruals) necessary for afair statement of the results for the interim periods ended June 30, 2001 and2000.

             Theresults of operations for the interim periods are not necessarily indicative ofthe results of operations to be expected for the fiscal year.  These interim financial statements should beread in conjunction with the audited financial statements for the year endedDecember 31, 2000, which are contained in the Company’s Annual Report on Form10-K filed with the Securities and Exchange Commission.

**2.**          **Cash Equivalents**

             TheCompany considers all highly liquid investments with a maturity of 90 days orless at the date of purchase to be cash equivalents.

             Debtsecurities are classified as held-to-maturity when the Company has positiveintent and ability to hold the securities to maturity.  Held-to-maturity securities are stated atamortized cost.

             AtJune 30, 2001 and December 31, 2000, cash equivalents were composed primarilyof investments in money market funds, United States government obligations andhigh-grade commercial paper that mature within 90 days of purchase.

**3.          Short-termInvestments**

             Thefollowing is a summary of securities with maturities greater than 90 days notclassified as cash and cash equivalents. All short-term investments are classified as held-to-maturity.

|                 | June  30, 2001                |      | December  31, 2000 |   |
|----------------------|-------------------------------|-----------|--------------------|--------|
|                 |                               |      |                    |   |
|                 |                          |      |               |   |
| Commercial paper     | $                             | 8,979,867 |               | $      | 9,504,011 |   |
| Federal agency notes | 5,215,397                     |      | 7,454,477          |   |
|                 |                               |      |                    |   |
|                 | Total short-term  investments | $         | 14,195,264         |   | $ | 16,958,488 |   |
|                 |                          |           |               |        |   |

             Sincethese held-to-maturity securities are short-term in nature, changes in marketinterest rates would not have a significant effect on the fair value of thesesecurities.  These securities arecarried at amortized cost, which approximates fair value.

**4.**       **Net Loss Per Common Share**

             Basicearnings/loss per common share is computed by dividing net income/loss by theweighted average number of common shares outstanding for the period.  Diluted earnings per common share iscomputed by dividing net income by the sum of the weighted average number ofcommon shares outstanding for the period plus all potentially dilutivesecurities, such as stock options.

          Diluted net loss per share for thethree month period ended June 30, 2001 and the six month periods ended June 30,2001 and 2000 does not differ from basic net loss per share since potentialcommon shares from conversion of preferred stock and exercise of stock optionsare anti-dilutive and are therefore excluded from the calculation. During thethree month period ended June 30, 2001 and the six month periods ended June 30,2001 and 2000, options to purchase 373,750, 373,750 and 293,750 shares ofcommon stock were not included in the computation of diluted net loss per sharesince their inclusion would be anti-dilutive.

          Preferred shares, which areconvertible into 10,354,633 and 15,441,472 shares of common stock at June 30,2001 and December 31, 2000 respectively, are not included in the computation ofEPS because they are convertible only at the Company’s election following theCompany’s receipt of FDA approval to market ERGOSET® or another drug product.

 

| **ITEM 2.** | **MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|--------------------------------------------------------------------------------------------|

             *Thisdiscussion contains forward–looking statements.  Forward-looking statements reflect Ergo's current views withrespect to future events.  Actualresults may vary materially and adversely from those anticipated, believed,assumed, estimated or otherwise indicated. Important factors that could cause actual results to differ materiallyinclude, without limitation,*

| • | *Ergo is a Company in transition;*                                                                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | *Ergo is subject to rules relating to low-priced or penny  stock;*                                                                                                                                                      |
| • | *the Company is taking steps which could lead to the sale  or license of its interests (including its intellectual property rights) in  ERGOSET® and its other human drug related assets;*                         |
| • | *the Company may elect to use all of its cash and other  assets, and may need significant additional funding to acquire and operate  one or more income-producing businesses;*                                          |
| • | *the Company may raise capital by selling common stock and  other securities;*                                                                                                                                          |
| • | *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;* |
| • | *competition in the anti-diabetic market is intense; other  products have been recently approved for this indication and other companies  are developing competing products; and*                                       |
| • | *the need for additional funding to support implementation  of an alternative strategic direction.*                                                                                                                     |

             *Furtherinformation and additional important factors are set forth in reports and otherfilings of the Company with the Securities and Exchange Commission, including,without limitation, the 2000 Annual Report on Form 10-K, generally under thesection entitled “Risk Factors.” Ergo does not undertake to update any forward–lookingstatement that may be made from time to time by or on behalf of the Company.*

**Overview**

             ErgoScience Corporation ("Ergo" or the "Company") is a companyin transition. Since 1990, the Company has been engaged in developing ERGOSET®tablets for the treatment of type 2 diabetes and other metabolic disorders.Over the last several years, however, the Company has been unable to persuadethe U.S. Food and Drug Administration (the "FDA") to approve ERGOSET®for marketing. Although ERGOSET® is considered "approvable" by theFDA, the FDA has required, prior to granting approval, an additional clinicaltrial to rule out a possible increased risk of a serious adverse event with theuse of ERGOSET®. After discussions with the FDA and its own consultantsregarding the scope and complexity of the additional clinical trial, the Boardof Directors of the Company believes that the next phase of the development ofERGOSET® will be better undertaken by a company that has more experience withhuman drug development and more resources for regulatory approval and marketingthan Ergo. Accordingly, the Company has begun the process of attempting to sellor license its interests in ERGOSET® (including its intellectual propertyrights) and its other human drug related assets (collectively, the"Science Assets").

             TheCompany’s Board of Directors is also taking additional steps to try to enhanceshareholder value. One alternative that the Company is considering is thepurchase of an income-producing business. In order to purchase an income-producing business, the Company may needto raise additional equity capital by selling common stock, including thepotential sale of common stock to Court Square Capital Limited, the Company'slargest stockholder.

             Inaddition to the capital it may raise from selling common stock and othersecurities, in order to complete any such acquisition and to operatethereafter, the Company may require additional debt and/or equity financingwhich, if available on acceptable terms, may involve leveraging the Company'sassets and granting rights to lender(s) superior to those of existingshareholders, issuing preferred stock or other securities with rights superiorto those of existing shareholders and/or issuing additional common stock thatwould dilute existing shareholders.  TheCompany may also implement restrictions on the transfer of its Common Stock tohelp to protect its net operating losses. During this transition period, the Company intends to continue toconserve its cash and other assets.

                From inception through 2000, theCompany has been unprofitable.****Results of Operations**

*ThreeMonths and Six Months Ended June 30, 2000 and 2001*

          Research and development expensesincreased from $34,305 to $34,547 and decreased from $79,534 to $39,534 for thethree and six month periods ended June 30, 2000 and 2001, respectively.  The increase for the three month period wasinsignificant. The decrease for the six month period was primarily a result ofa reduction in FDA approval related activity. Research and development expensesdecreased from $449,616 to ($218,834) for the twelve-month periods ended June30, 2000 and 2001.  In addition to theeffect of the discontinuation of pre-clinical programs, this decrease waspositively affected by the reversal of accrued ERGOSET® related developmentcosts of $2,230,000 in the third quarter of 2000.  These development costs were originally accrued in 1998 and werereversed in 2000 because the Company no longer believed it would have to paythem.  Research and development expenseswere negatively affected by a $2 million charge recorded in the third quarterof 2000 as part of the settlement with LSU.

          General and administrative expensesincreased from $307,843 to $699,030 and from $641,983 to $1,208,372 for thethree and six month periods ended June 30, 2000 and 2001, respectively. Theseincreases were attributable to legal costs and professional fees incurred bythe Company in evaluating its strategic alternatives and the process ofattempting to sell or license its interest in ERGOSET® and its other human drugrelated assets.

          Interest income decreased from$449,760 to $325,216 and from $881,662 to $723,851 for the three and six monthperiods ended June 30, 2000 and 2001, respectively. These decreases were primarilydue to the Company’s use of cash to fund operations resulting in a decrease ofcash available for investment.

**Liquidityand Capital Resources**

             Sinceits inception, the Company's primary source of cash has been financingactivities, which have consisted of private placements of equity securities,two public offerings, and the sale of common stock in conjunction with theJoint Collaboration Agreement. Private placements of equity securities providedthe 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 ofcommissions 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 asecond public offering.

             OnFebruary 23, 1998, Ergo and Johnson & Johnson entered into the JointCollaboration Agreement to develop and commercialize ERGOSET® tablets as wellas other potential collaboration products for the treatment of type 2 diabetesand obesity.  In March 1998, Johnson& Johnson made payments to Ergo totaling $20 million, including payment ofa $10 million license fee and the purchase of $10 million of Ergo commonstock.  In addition, Johnson &Johnson had committed to provide Ergo with significant, additional financialsupport in the form of milestone payments upon achievement of other specifieddevelopment, regulatory and commercial objectives and reimbursement of certaindevelopment expenses subject to the terms of the Joint CollaborationAgreement.  The Joint CollaborationAgreement was terminated on January 3, 1999; therefore there will be no furtherfinancial support from this arrangement.

             OnMay 23, 2001, the Company entered into a common stock purchase agreement withCourt Square Capital Limited, the Company's largest stockholder, to provide theCompany with additional capital for general corporate purposes, including theacquisition of one or more new lines of business. Subject to certainconditions, including stockholder approval, the agreement provides for theCompany to issue and sell to Court Square and its affiliates up to 7,500,000shares of the Company's common stock at a per share price of $1.15, subject toadjustment. The agreement expires on May 23, 2003.

             Cash,cash equivalents and short-term investments were $26,590,104 and $27,089,087 atJune 30, 2001 and December 31, 2000, respectively.  The overall decrease in cash, cash equivalents and short-terminvestments at June 30, 2001, was due primarily to evaluating new strategicdirections for the Company.

          The Company believes its current cash,cash equivalents and short-term investments will fund its current operations atleast through 2002. In the event that the Company purchases an income-producingbusiness, the Company may require additional capital.

          The terms of the Company's Series DPreferred Stock prohibit the Company from paying dividends on the common stock.

**NewAccounting Pronouncements**

             InJuly 2001, the FASB issued SFAS No. 141, "Business Combinations" andSFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141requires that all business combinations be accounted for under the purchasemethod only and that certain acquired intangible assets in a businesscombination be recognized as assets apart from goodwill. SFAS No. 142 requiresthat ratable amortization of goodwill be replaced with periodic tests of thegoodwill's impairment and that intangible assets other than goodwill beamortized over their useful lives.  SFASNo. 141 is effective for all business combinations initiated after June 30,2001 and for all business combinations accounted for by the purchase method forwhich the date of acquisition is after June 30, 2001. The provisions of SFASNo. 142 will be effective for fiscal years beginning after December 15, 2001,and will thus be adopted by the Company, as required, in fiscal year 2003. SFASNo. 141 and 142 did not effect the Company's financial position or results ofoperations.
**ITEM 3.****QUANTITATIVE  AND QUALITATIVE DISCOLSURES ABOUT MARKET RISK**
             Therewere no material changes in the Company’s exposure to market risk from December31, 2000.

**PART II**

**OTHERINFORMATION**

** **
**ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K**   (a)  Exhibits:   **Exhibit  Number** **Document Description** **** **** 10.1 Common  Stock Purchase Agreement, dated May 23, 2001, with Court Square Capital  Limited. Portions of this exhibit were omitted and filed separately with the  Securities and Exchange Commission, pursuant to an application for  confidential treatment.     (b)  Reports on Form 8-K:     - On  May 23, 2001 stating that the Company’s common stock would be delisted from  the NASDAQ Stock Market effective with the open of business on May 24, 2001.
**SIGNATURES**

          Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant hasduly 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:  August 14, 2001    
 **