e10vqza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-17758
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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13-3306985 |
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(State or jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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240 Cedar Knolls Rd, Suite 200 |
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Cedar Knolls, NJ
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07927 |
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(Address of principal executive offices)
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(Zip Code) |
(Registrants telephone number, including area code)
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 Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.) Yes o No þ
The number of shares of the Registrants common stock, $.01 par value, outstanding as of
August 3, 2009 was 30,341,078.
EXPLANATORY NOTE
This Form 10-Q/A (the Amendment) is being filed by Emisphere Technologies, Inc. (the
Company) and amends the Companys unaudited financial statements for the three and six months
ended June 30, 2009. This Form 10-Q/A replaces in its entirety the Form 10-Q that was filed with
the Securities and Exchange Commission (the SEC) on August 10, 2009 (the Original Filing) and
reflects certain adjustments made in connection with the Companys adoption of EITF Issue No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entitys Own Stock
(EITF 07-5). Specifically, we determined that EITF 07-5 should have been adopted effective January
1, 2009 with regard to the conversion feature in our MHR convertible note and certain warrants
issued in 2005. As a result, our financial statements included in the original filing for the
three and six months ended June 30, 2009 did not reflect the fair value of 600,000 warrants as a
derivative liability and the bifurcation of the conversion feature embedded in the MHR Convertible
Note as a derivative liability. This resulted in an understatement of total current liabilities of
$0.3 million and an overstatement of total liabilities of $5.2 million as of June 30, 2009. For the
three months ended June 30, 2009, we understated the change in the fair value of the warrant
liability by $71 thousand and understated net loss by $483 thousand, which included the effects of
the accretion of debt discount associated with the embedded conversion feature in the MHR
Convertible Note in the amount of $412 thousand. For the six months ended June 30, 2009, we
understated the change in the fair value of the warrant liability by $13 thousand and understated
net loss by $807 thousand which included the effects of the accretion of debt discount associated
with the embedded conversion feature in the MHR Convertible Note in the amount of $794 thousand.
The application of EITF 07-5 has no impact on the Companys cash position, its cash flows or its
future cash requirements.
This Form 10-Q/A has revised Item 1 Financial Statements, Item 2 Managements Discussion
and Analysis of Financial Condition and Results of Operations, Item 3 Quantitative and
Qualitative Disclosures about Market Risk, Item 4 Controls and Procedures, and Part 2, Item 1(a)
Risk Factors.
In connection with the filing of this Form 10-Q/A and pursuant to Rules 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, the Company is including with this Form 10-Q/A certain
currently dated certifications.
This Form 10-Q/A speaks as of the original filing date of the Form 10-Q, except as noted.
2
EMISPHERE TECHNOLOGIES, INC.
Index
All other items called for by the instructions to Form 10-Q have been omitted because the
items are not applicable or the relevant information is not material.
3
PART I
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ITEM 1. |
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FINANCIAL STATEMENTS |
EMISPHERE TECHNOLOGIES INC.
BALANCE SHEETS
June 30, 2009 and December 31, 2008
(in thousands, except share and per share data)
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June 30, |
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2009 |
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December 31, |
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(unaudited) |
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2008 |
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(RESTATED) |
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Assets: |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,279 |
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$ |
7,214 |
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Accounts receivable, net of allowance of $9 in June 2009 and December 2008 |
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72 |
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232 |
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Prepaid expenses and other current assets |
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402 |
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273 |
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Total current assets |
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1,753 |
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7,719 |
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Equipment and leasehold improvements, net |
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244 |
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465 |
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Purchased technology, net |
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1,196 |
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1,316 |
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Restricted cash |
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255 |
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255 |
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Other assets |
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386 |
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421 |
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Total assets |
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$ |
3,834 |
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$ |
10,176 |
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Liabilities and Stockholders Deficit: |
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Current liabilities: |
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Notes payable, including accrued interest and net of related discount |
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$ |
12,283 |
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$ |
12,011 |
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Accounts payable and accrued expenses |
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3,403 |
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2,361 |
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Deferred revenue, current |
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87 |
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Derivative instruments |
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Related party |
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337 |
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153 |
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Others |
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557 |
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114 |
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Restructuring accrual, current |
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1,253 |
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927 |
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Other current liabilities |
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48 |
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20 |
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Total current liabilities |
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17,881 |
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15,673 |
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Notes payable, including accrued interest and net of related discount |
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10,753 |
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18,209 |
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Restructuring accrual |
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1,953 |
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Deferred revenue |
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11,460 |
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11,240 |
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Derivative instruments related party |
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3,224 |
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Deferred lease liability and other liabilities |
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96 |
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129 |
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Total liabilities |
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43,414 |
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47,204 |
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Stockholders deficit: |
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Preferred stock, $.01 par value; authorized 1,000,000 shares; none issued and outstanding |
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Common stock, $.01 par value; authorized 100,000,000 shares; issued 30,630,810 shares
(30,341,078 outstanding) as of June 30, 2009
and December 31, 2008 |
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306 |
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306 |
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Additional paid-in-capital |
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389,098 |
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400,306 |
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Accumulated deficit |
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(425,032 |
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(433,688 |
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Common stock held in treasury, at cost; 289,732 shares |
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(3,952 |
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(3,952 |
) |
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Total stockholders deficit |
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(39,580 |
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(37,028 |
) |
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Total liabilities and stockholders deficit |
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$ |
3,834 |
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$ |
10,176 |
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The accompanying notes are an integral part of the financial statements.
4
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
For the three and six months ended June 30, 2009 and 2008
(in thousands, except share and per share data)
(unaudited)
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For the three months ended |
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For the six months ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(RESTATED) |
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(RESTATED) |
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Revenue |
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$ |
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$ |
14 |
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$ |
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$ |
169 |
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Costs and expenses: |
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Research and development |
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748 |
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3,323 |
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2,670 |
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7,156 |
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General and administrative expenses |
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2,933 |
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2,363 |
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5,855 |
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5,057 |
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Restructuring costs |
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(353 |
) |
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Gain on disposal of fixed assets |
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(779 |
) |
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(822 |
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(135 |
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Depreciation and amortization |
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96 |
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223 |
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307 |
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449 |
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Total costs and expenses |
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2,998 |
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5,909 |
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7,657 |
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12,527 |
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Operating loss |
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(2,998 |
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(5,895 |
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(7,657 |
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(12,358 |
) |
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Other non-operating income (expense): |
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Other income (expense) |
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27 |
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81 |
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68 |
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224 |
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Sublease income |
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189 |
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232 |
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279 |
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Sale of patents |
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500 |
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500 |
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1,500 |
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Change in fair value of derivative instruments |
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Related party |
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(193 |
) |
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(618 |
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(80 |
) |
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106 |
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Other |
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(289 |
) |
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(673 |
) |
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(254 |
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96 |
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Interest expense |
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Related party |
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(1,097 |
) |
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(596 |
) |
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(2,140 |
) |
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(1,171 |
) |
Other |
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(137 |
) |
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(131 |
) |
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(273 |
) |
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(261 |
) |
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Total other non-operating income (expense) |
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(1,189 |
) |
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(1,748 |
) |
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(1,947 |
) |
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773 |
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Net loss |
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$ |
(4,187 |
) |
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$ |
(7,643 |
) |
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$ |
(9,604 |
) |
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$ |
(11,585 |
) |
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Net loss per share, basic and diluted |
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$ |
(0.14 |
) |
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$ |
(0.25 |
) |
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$ |
(0.32 |
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$ |
(0.38 |
) |
Weighted average shares outstanding, basic and diluted |
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30,341,078 |
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30,336,928 |
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30,341,078 |
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30,336,928 |
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The accompanying notes are an integral part of the financial statements.
5
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2009 and 2008
(in thousands)
(unaudited)
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For the six months ended |
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June 30, |
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2009 |
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2008 |
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(unaudited) |
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(unaudited) |
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(RESTATED) |
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Cash flows from operating activities: |
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Net loss |
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$ |
(9,604 |
) |
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$ |
(11,585 |
) |
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Adjustments to reconcile net loss to net cash (used in) provided
by operating activities: |
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Depreciation |
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187 |
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329 |
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Amortization |
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120 |
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120 |
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Change in fair value of derivative instruments |
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334 |
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(202 |
) |
Non-cash interest expense |
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2,413 |
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1,432 |
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Non-cash compensation expense |
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1,007 |
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|
654 |
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Gain on disposal of fixed assets |
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(822 |
) |
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(135 |
) |
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Changes in assets and liabilities excluding non-cash transactions: |
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Decrease in accounts receivable |
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160 |
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(26 |
) |
(Increase) decrease in prepaid expenses and other current assets |
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(129 |
) |
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|
422 |
|
Increase in deferred revenue |
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133 |
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|
10,369 |
|
Increase in accounts payable and accrued expenses |
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|
1,042 |
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|
38 |
|
Increase in other current liabilities |
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28 |
|
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|
5 |
|
(Decrease) increase in deferred lease liability |
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(33 |
) |
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|
8 |
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Restructuring |
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(1,627 |
) |
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Total adjustments |
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2,813 |
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|
13,014 |
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Net cash provided by (used in) operating activities |
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|
(6,791 |
) |
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|
1,429 |
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Cash flows from investing activities: |
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Proceeds from sale and maturity of investments |
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5,516 |
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Proceeds from sale of fixed assets |
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|
856 |
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|
138 |
|
Capital expenditures and other |
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(70 |
) |
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Net cash provided by investing activities |
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|
856 |
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|
5,584 |
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|
|
|
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Cash flows from financing activities: |
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Net cash provided by financing activities |
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|
|
|
|
|
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|
|
|
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|
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Net decrease in cash and cash equivalents |
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|
(5,935 |
) |
|
|
7,013 |
|
Cash and cash equivalents, beginning of period |
|
|
7,214 |
|
|
|
3,938 |
|
|
|
|
|
|
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|
Cash and cash equivalents, end of period |
|
$ |
1,279 |
|
|
$ |
10,951 |
|
|
|
|
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|
The accompanying notes are an integral part of the financial statements.
6
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
1. Nature of Operations and Liquidity
Nature of Operations. Emisphere Technologies, Inc. (Emisphere, our, us, the company or
we) is a biopharmaceutical company focused on a unique and improved delivery of therapeutic
molecules or nutritional supplements using its Eligen® Technology. These therapeutic molecules or
nutritional supplements could be currently available or under development.
Our core business strategy is to develop oral forms of drugs or nutrients that are not
currently available or have poor bioavailability in oral form, either alone or with corporate
partners, by applying the Eligen® Technology to those drugs or nutrients. Typically, the drugs that
we target have received regulatory approval, have demonstrated safety and efficacy, and are
currently available on the market. Since inception, we have no product sales from these candidates.
The Company restated its financial statements for the three and six months periods ended June
30, 2009 due to the misapplication of EITF 07-5 (refer to Note 17 for more details). The
restatement did not affect the Companys cash position, its cash flows or its future cash
requirements.
Liquidity. As of June 30, 2009, we had approximately $1.5 million in cash and restricted cash,
approximately $16.1 million in working capital deficiency, a stockholders deficit of approximately
$39.6 million and an accumulated deficit of approximately $425.0 million. Our net loss and
operating loss for the three months ended June 30, 2009 were approximately $4.2 million and $3.0
million, respectively and $9.6 million and $7.7 million, respectively for the six months ended June
30, 2009. We anticipate that we will continue to generate significant losses from operations for
the foreseeable future, and that our business will require substantial additional investment that
we have not yet secured. As such, we anticipate that our existing cash resources will enable us to
continue operations only through approximately August 2009. Further, we have significant future
commitments and obligations. These conditions raise substantial doubt about our ability to continue
as a going concern. Consequently, the audit opinion issued by our independent registered public
accounting firm relating to our financial statements for the year ended December 31, 2008 contained
a going concern explanatory paragraph. We are pursuing new as well as enhanced collaborations and
exploring other financing options, with the objective of minimizing dilution and disruption.
Our plan is to raise capital and to pursue product partnering opportunities. Subject to
raising adequate capital, we expect to continue to spend substantial amounts on research and
development, including amounts spent on conducting clinical trials for our product candidates.
Expenses will be partially offset with income-generating license agreements, if possible. Further,
we will not have sufficient resources to develop fully any new products or technologies unless we
are able to raise substantial additional financing on acceptable terms or secure funds from new or
existing partners. We cannot assure that financing will be available when needed, or on favorable
terms or at all. If additional capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities would result in dilution to our existing stockholders.
Our failure to raise capital will have a serious adverse affect on our business, financial
condition and results of operations, and would force us to cease operations. Upon ceasing
operations we would be unable to pay in full our liabilities, would be in default of our notes
payable and would likely seek bankruptcy protection. No adjustment has been made in the
accompanying financial statements to the carrying amount and classification of recorded assets and
liabilities should we be unable to continue operations.
2. Basis of Presentation
The condensed balance sheet at December 31, 2008 was derived from audited financial statements
but does not include all disclosures required by accounting principles generally accepted in the
United States of America. The other information in these condensed financial statements is
unaudited but, in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments are of a normal recurring
nature unless disclosed otherwise. These condensed financial statements, including notes, have been
prepared in accordance with the applicable rules of the Securities and Exchange Commission and do
not include all of the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. These condensed
financial statements should be read in conjunction with the financial statements and additional
information as contained in our Annual Report on Form 10-K and Form 10-K/A for the year ended
December 31, 2008.
As explained in Note 17 contained herein, the Company adopted EITF 07-5 effective January 1,
2009. For comparative purposes, the impact of the adoption increased interest expense for the three
and six months ended June 30, 2009 by $412 thousand and $794
7
thousand,
respectively, or $0.01 and $0.03 per basic and diluted share, respectively. The adoption
also increased the expense from the change in fair value of derivative instruments for the three
and six month period ended June 30, 2009 by $71 thousand and $13 thousand, respectively, and the
effect on earnings per share was not material.
Certain reclassifications have been made to prior year amounts to conform to current period
presentation.
8
3. Stock-Based Compensation Plans
On April 20, 2007, the stockholders of the Company approved the 2007 Stock Award and Incentive
Plan (the 2007 Plan). The 2007 Plan provides for grants of options, stock appreciation rights,
restricted stock, deferred stock, bonus stock and awards in lieu of obligations, dividend
equivalents, other stock-based awards and performance awards to executive officers and other
employees of the Company, and non-employee directors, consultants and others who provide
substantial service to us. The 2007 Plan provides for the issuance of an aggregate 3,275,334 shares
as follows: 2,500,000 new shares, 374,264 shares remaining and transferred from the Companys 2000
Stock Option Plan (the 2000 Plan) (which was then replaced by the 2007 Plan) and 401,070 shares
remaining and transferred from the Companys Stock Option Plan for Outside Directors (the
Directors Stock Plan). In addition, shares canceled, expired, forfeited, settled in cash, settled
by delivery of fewer shares than the number underlying the award, or otherwise terminated under the
2000 Plan will become available for issuance under the 2007 Plan.
Prior to the adoption of the 2007 Plan, the Company granted stock-based compensation to
employees under the 2000 Plan and the 2002 Broad Based Plan (the 2002 Plan), and to non-employee
directors under the Directors Stock Plan. The Company also has grants outstanding under various
expired and terminated stock plans, including the 1991 Stock Option Plan, the 1995 Non-Qualified
Stock Option Plan, the Deferred Directors Compensation Stock Plan and Non-Plan Options. In January
2007, the Directors Stock Plan expired.
As of June 30, 2009, shares available for future grants under the 2007 Plan and the 2002 Plan
amounted to 1,936,779 and 109,644, respectively.
The table below summarizes compensation expense from share-based payment awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(in thousands) |
Research and development |
|
|
29 |
|
|
|
140 |
|
|
|
59 |
|
|
|
289 |
|
General and administrative |
|
|
741 |
|
|
|
175 |
|
|
|
949 |
|
|
|
365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock compensation expense recognized |
|
|
770 |
|
|
|
315 |
|
|
|
1008 |
|
|
|
654 |
|
|
|
|
a. |
|
Total stock compensation expense recognized for the three and six months ended June 30, 2009
includes a $0.4 million adjustment in the Companys estimate of costs to settle the
arbitration with Dr. Goldberg. Please refer to Footnote 10 for more information on this
subject. |
At June 30, 2009, total unrecognized estimated compensation expense related to non-vested
stock options granted prior to that date was $1.5 million, which is expected to be recognized over
a weighted-average period of approximately two years. No options were exercised in the six months
ended June 30, 2009 or 2008. No tax benefit was realized due to a continued pattern of operating
losses.
During the six months ended June 30, 2009, the Company granted options for 824,500 shares with
a weighted average exercise price of $0.87. For the six months ended June 30, 2008, the Company
granted options for 7,400 shares with a weighted average exercise price of $1.63.
4. Fixed Assets
Tarrytown Facility. On December 8, 2008, as part of our efforts to improve operational
efficiency we decided to close our research and development facilities in Tarrytown to reduce costs
and improve operating efficiency. As of December 8, 2008 we terminated all research and development
staff and ceased using approximately 85% of the facilities which resulted in a restructuring charge
of approximately $3.8 million in the fourth quarter, 2008. As part of the restructuring charge, we
wrote down the value of our leasehold improvements in Tarrytown by approximately $1.0 million
(net); additionally, the useful life of leasehold improvements in portions of the facility that
were still in use as of December 31, 2008 was recalculated, resulting in an accelerated charge to
amortization expense of approximately $0.1 million during the three months ended March 31, 2009.
During March 2009 we began selling our laboratory equipment in connection with closing laboratory
facilities in Tarrytown. Consequently we recognized a gain on disposal of fixed assets of $779
thousand during the three months ended June 30, 2009 and $822 thousand for the six months ended
June 30, 2009 and adjusted the net book value of equipment accordingly. The net book value of fixed
assets held for sale was not material at June 30, 2009. Please refer to Footnote 10 for more
information on this subject.
9
Fixed Assets. Equipment and leasehold improvements, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives |
|
|
June 30, |
|
|
December 31, |
|
|
|
in Years |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Equipment |
|
|
3-7 |
|
|
$ |
6,041 |
|
|
$ |
9,080 |
|
Leasehold improvements |
|
Life of lease |
|
|
77 |
|
|
|
3,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,118 |
|
|
|
12,093 |
|
Less, accumulated depreciation and amortization |
|
|
|
|
|
|
5,874 |
|
|
|
11,628 |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net |
|
|
|
|
|
$ |
244 |
|
|
$ |
465 |
|
|
|
|
|
|
|
|
|
|
|
|
5. Purchased Technology
Purchased technology represents the value assigned to patents and the rights to utilize, sell
or license certain technology in conjunction with our proprietary carrier technology. These assets
are utilized in various research and development projects. Purchased technology is amortized over a
period of 15 years, which represents the average life of the patents.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Gross carrying amount |
|
$ |
4,533 |
|
|
$ |
4,533 |
|
Less, accumulated amortization |
|
|
3,337 |
|
|
|
3,217 |
|
|
|
|
|
|
|
|
Net book value |
|
$ |
1,196 |
|
|
$ |
1,316 |
|
|
|
|
|
|
|
|
Amortization expense for the purchased technology is approximately $60 thousand per quarter in
2009 and in the remaining years through 2014.
6. Notes Payable
The Company adopted the provisions of EITF 07-5 effective January 1, 2009. Under EITF 07-5,
the conversion feature embedded in the MHR Note has been bifurcated from the host contract and
accounted for separately as a derivative. The adoption of EITF 07-5 requires recognition of the
cumulative effect of a change in accounting principle to the opening balance of our accumulated
deficit, additional paid in capital, liability for derivative financial instruments and debt
discount. The bifurcation of the embedded derivative increased the amount of debt discount at June
30, 2009 by $8.8 million thereby reducing the book value of the MHR Note and increasing
prospectively the amount of interest expense to be recognized over the life of the MHR Note. As a
result of the adoption of EITF 07-5, additional interest expense recognized for the accretion of
the debt discount for the three and six months ended June 30, 2009 was $0.4 million and $0.8
million, respectively.
Notes payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
|
(RESTATED) |
|
|
|
|
|
MHR Convertible Notes |
|
$ |
10,753 |
|
|
$ |
18,209 |
|
Novartis Note |
|
|
12,283 |
|
|
|
12,011 |
|
|
|
|
|
|
|
|
|
|
$ |
23,036 |
|
|
$ |
30,220 |
|
|
|
|
|
|
|
|
MHR Convertible Notes. The Convertible Notes are due on September 26, 2012, bear interest at 11%
and are secured by a first priority lien in favor of MHR Institutional Partners IIA L.P. (together
with its affiliates, MHR) on substantially all of our assets. Interest is payable in the form of
additional Convertible Notes issued monthly through March 31, 2007 and then semi-annually beginning
June 30, 2008, rather than in cash and we have the right to call the Convertible Notes after
September 26, 2010 if certain conditions are satisfied. Further the Convertible Notes provide MHR
with the right to require redemption in the event of a change in control, as defined, prior to
September 26, 2009. Such required redemption would be at 102% and 101% of the then outstanding
principal and interest in the years through September 26, 2008 and 2009, respectively. The
Convertible Notes are convertible, at the sole discretion of MHR or any assignee thereof through
September 25, 2010, into shares of our common stock at a price per share of $3.78. At June 30,
2009, the Convertible Notes were convertible into 5,664,381 shares of our common stock.
10
In connection with the convertible note transaction, we amended MHRs then existing warrants
to purchase 387,374 shares of our common stock to provide for additional anti-dilution protection.
MHR was also granted the option to purchase warrants for up to an additional 617,211 shares of our
common stock (the Warrant Purchase Option) at a price per warrant equal to $0.01 per warrant for
each of the first 67,084 warrants and $1.00 per warrant for each additional warrant. This option
was exercised by MHR in April 2006. See Note 7 for a further discussion of the liability related to
these warrants.
11
The book value of the MHR Notes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
|
(RESTATED) |
|
|
|
|
|
Face Value of the notes |
|
$ |
21,411 |
|
|
$ |
20,270 |
|
Discount (related to the warrant purchase option and embedded conversion feature) |
|
|
(9,654 |
) |
|
|
(966 |
) |
Lenders financing costs |
|
|
(1,004 |
) |
|
|
(1,095 |
) |
|
|
|
|
|
|
|
|
|
$ |
10,753 |
|
|
$ |
18,209 |
|
|
|
|
|
|
|
|
The debt discount, lenders finance costs, deferred financing costs and amounts attributed to
derivative instruments are being amortized to interest expense over the life of the Convertible
Notes using an interest method to yield an effective interest rate of 41.6%.
In connection with the MHR financing, the Company agreed to appoint a representative of MHR
(the MHR Nominee) and another person (the Mutual Director) to its Board of Directors. Further,
the Company amended its certificate of incorporation to provide for continuity of the MHR Nominee
and the Mutual Nominee on the Board, as described therein, so long as MHR holds at least 2% of the
outstanding common stock of the Company.
The Convertible Notes provide for various events of default. On May 5, 2006, we received an
executed waiver from MHR providing for a temporary waiver of defaults, which were not
payment-related, under the Loan Agreement. We have received extensions of such waiver from time to
time, the latest being received August 7, 2009 and is in effect for a period greater than one year;
as such the Convertible Notes have been classified as long-term.
Novartis Note. The Novartis Note currently bears interest at a rate of 7%. We have the option
to pay interest in cash on a current basis or accrue the periodic interest as an addition to the
principal amount of the Novartis Note. We may convert the Novartis Note at any time prior to
maturity into a number of shares of our common stock equal to the principal and accrued and unpaid
interest to be converted divided by the then market price of our common stock, provided certain
conditions are met. Those conditions include that the number of shares issued to Novartis does not
exceed 19.9% of the total shares of our common stock outstanding at the time of such conversion. On
June 30, 2009, a portion of the Novartis Note was convertible into 7,537,921 shares of our common
stock and the balance of the Note would still be due and payable in cash.
7. Derivative Instruments
Derivative instruments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(in thousands) |
|
|
(RESTATED) |
|
|
|
|
Elan Warrant |
|
$ |
249 |
|
|
$ |
|
|
Embedded Conversion Feature of the
MHR Convertible Note |
|
|
3,224 |
|
|
|
|
|
March 2005 Equity financing warrants |
|
|
271 |
|
|
|
31 |
|
MHR warrants |
|
|
216 |
|
|
|
115 |
|
August 2007 Equity financing warrants |
|
|
158 |
|
|
|
121 |
|
|
|
|
|
|
$ |
4,118 |
|
|
$ |
267 |
|
|
|
|
Elan Warrant. In connection with a restructuring of debt in March 2005, we issued
to Elan a warrant to purchase up to 600,000 shares of our common stock at an exercise price of
$3.88. The warrant provides for adjustment of the exercise price upon the occurrence of certain
events, including the issuance by Emisphere of common stock or common stock equivalents that have
an effective price that is less than the exercise price of the warrant. The anti-dilution feature
of the warrant was triggered in connection with the August 2007 financing, resulting in an
adjustment to the exercise price to $3.76. The anti-dilution feature of the warrant was
triggered again in connection with the August 2009 financing, resulting in an adjustment to the
exercise price to $0.4635. As of June 30, 2009 the warrant remains outstanding and expires on
September 30, 2010. The Company adopted the provisions of EITF 07-5 effective January 1, 2009.
Under EITF 07-5, the warrant is not considered indexed to the Companys own stock and, therefore, does
12
not meet the scope exception in paragraph 11(a) of FASB 133 and thus needs to be accounted for
as a derivative liability. The adoption of EITF 07-5 requires recognition of the cumulative effect
of a change in accounting principle to the opening balance of our accumulated deficit, additional
paid in capital, and liability for derivative financial instruments. The fair value of the warrant
is estimated at the end of each quarterly reporting period, using the Black-Scholes option pricing
model. The assumptions used in computing the fair value as of June 30, 2009 are a closing stock
price of $1.02, expected volatility 127.3% over the remaining term of one year and three months and
a risk-free rate of 0.56%. The fair value of the warrant increased by $0.12 million and $0.14
million during the three and six month period ended June 30, 2009, respectively, which has been
recognized in the accompanying statements of operations. The warrant will be adjusted to fair value
for each future period it remains outstanding.
Embedded Conversion Feature of MHR Convertible Note. The Companys convertible notes due to
MHR contain a provision whereby, the conversion price is adjustable upon the occurrence of certain
events, including the issuance by Emisphere of common stock or common stock equivalents at a price
which is lower than the current conversion price of the convertible note and lower than the current
market price. However, the adjustment provision does not become effective until after the Company
raises $10 million through the issuance of common stock or common stock equivalents at a price
which is lower than the current conversion price of the convertible note and lower than the current
market price during any consecutive 24 month period. The Company adopted the provisions of EITF
07-5 effective January 1, 2009. Under EITF 07-5, the embedded conversion feature is not considered
indexed to the Companys own stock and, therefore, does not meet the scope exception in paragraph
11(a) of FASB 133 and thus needs to be accounted for as a derivative liability. The adoption of
EITF 07-5 requires recognition of the cumulative effect of a change in accounting principle to the
opening balance of our accumulated deficit, additional paid in capital, and liability for
derivative financial instruments. The liability has been presented as a non-current liability to
correspond with its host contract, the MHR convertible note. The fair value of the embedded
conversion feature is estimated, at the end of each quarterly reporting period, using the
Black-Scholes option pricing model. The assumptions used in computing the fair value as of June
30, 2009 are a closing stock price of $1.02, expected volatility 96.5% over the remaining term of
three years and three months and a risk-free rate of 1.64%. The fair value of the embedded
conversion feature increased by $0.03 million and decreased by $0.04 million during the three and
six month period ended June 30, 2009, respectively, which has been recognized in the accompanying
statements of operations. The embedded conversion feature will be adjusted to fair value for each
future period it remains outstanding.
March 2005 Equity Financing Warrants. In connection with the March 2005 offering, Emisphere
sold warrants to purchase 1.5 million shares of common stock to MHR and other unrelated investors.
The warrants were originally issued with an exercise price of $4.00 and expire on March 31, 2010.
The warrants provide for certain anti-dilution protection. Warrants to purchase up to 967,464
shares of common stock provide that under no circumstances will the adjusted exercise price be less
than $3.81. The remaining warrants do not limit adjustments to the exercise price. The
anti-dilution feature of the warrants was triggered in connection with the August 2007 financing,
resulting in an increase to the warrant shares of 4,838, as well as an adjustment to the exercise
price. At June 30, 2009, there are outstanding warrants to purchase up to 1,354,838 shares of
common stock. The adjusted exercise price for 967,464 of the warrants is $3.98 and for the 387,374
warrants held by MHR (MHR 2005 Warrants) is $3.76. Under the terms of the warrants, we have an
obligation to make a cash payment to the holders of the warrants for any gain that could have been
realized if the holders exercise the warrants and we subsequently fail to deliver a certificate
representing the shares to be issued upon such exercise by the third trading day after such
warrants have been exercised. Accordingly, the warrants have been accounted for as a liability. The
fair value of the warrants is estimated, at the end of each quarterly reporting period, using the
Black-Scholes option pricing model. The assumptions used in computing the fair value as of June 30,
2009 are a closing stock price of $1.02, expected volatility of 146.87% over the remaining term of
nine months and a risk-free rate of 0.56%. The fair value of the warrants increased by $0.16
million during the three months ended June 30, 2009 which has been recognized in the accompanying
statements of operations. The warrants will be adjusted to estimated fair value for each future
period they remain outstanding.
13
MHR Warrants. In connection with the exercise in April 2006 of the MHR Purchase Option
discussed in Note 6 above, the Company issued warrants for 617,211 shares to MHR for proceeds of
$0.6 million. The MHR 2006 Warrants have an original exercise price of $4.00 and are exercisable
through September 26, 2011. The MHR 2006 Warrants have the same terms as the August 2007 equity
financing warrants (see below), with no limit upon adjustments to the exercise price. The
anti-dilution feature of the MHR 2006 Warrants was triggered in connection with the August 2007
equity financing, resulting in an adjusted exercise price of $3.76. Based on the provisions of SFAS
133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), the MHR 2006
Warrants have been determined to be an embedded derivative instrument which must be separated from
the host contract. The MHR 2006 Warrants contain the same potential cash settlement provisions as
the August 2007 equity financing warrants and therefore they have been accounted for as a separate
liability. The fair value of the warrants is estimated, at the end of each quarterly period, using
the Black-Scholes option pricing model. The assumptions used in computing the fair value as of June
30, 2009 are a closing stock price of $1.02, expected volatility of 109.07% over the remaining term
of two years and three months and a risk-free rate of 1.11%. The fair value of the MHR warrants
increased by $0.11 million during the three months ended June 30, 2009 which has been recognized in
the accompanying statements of operations. The MHR warrants will be adjusted to estimated fair
value for each future period they remain outstanding. See Note 6 for a further discussion of the
MHR Note.
August 2007 Equity Financing Warrants. In connection with the August 2007 offering, Emisphere
sold warrants to purchase up to 400,000 shares of common stock. Of these 400,000 warrants, 91,073
were sold to MHR. Each of the warrants were issued with an exercise price of $3.948 and expire on
August 21, 2012. The warrants provide for certain anti-dilution protection as provided therein.
Under the terms of the warrants, we have an obligation to make a cash payment to the holders of the
warrants for any gain that could have been realized if the holders exercise the warrants and we
subsequently fail to deliver a certificate representing the shares to be issued upon such exercise
by the third trading day after such warrants have been exercised. Accordingly, the warrants have
been accounted for as a liability. The fair value of the warrants is estimated, at the end of each
quarterly reporting period, using the Black-Scholes option pricing model. The warrants were
accounted for with an initial value of $1.0 million on August 22, 2007. The assumptions used in
computing the fair value as of June 30, 2009 are a closing stock price of $1.02, expected
volatility of 102.66% over the remaining term of three years and two months and a risk-free rate of
1.64%. The fair value of the warrants increased by $0.07 million during the three months ended June
30, 2009 and the fluctuations have been recorded in the statements of operations. The warrants will
be adjusted to estimated fair value for each future period they remain outstanding.
8. Net loss per share
The following table sets forth the information needed to compute basic and diluted net loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(in thousands except per share data) |
|
(in thousands except per share data) |
|
|
(RESTATED) |
|
(RESTATED) |
Basic and Diluted net loss |
|
$ |
(4,187 |
) |
|
$ |
(7,643 |
) |
|
$ |
(9,604 |
) |
|
$ |
(11,585 |
) |
Basic and Diluted weighted average
common shares outstanding |
|
|
30,341,078 |
|
|
|
30,336,928 |
|
|
|
30,341,078 |
|
|
|
30,336,928 |
|
Basic and Diluted net loss per share |
|
$ |
(0.14 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.38 |
) |
For the three and six months ended June 30, 2009 and 2008, certain potential shares of common
stock have been excluded from diluted loss per share because the exercise price was greater than
the average market price of our common stock, and therefore, the effect on diluted loss per share
would have been anti-dilutive. The following table sets forth the number of potential shares of
common stock that have been excluded from diluted net loss per share because their effect was
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
2009 |
|
2008 |
Options to purchase common shares a |
|
|
3,962,139 |
|
|
|
2,753,600 |
|
Outstanding warrants |
|
|
2,972,049 |
|
|
|
2,972,049 |
|
Novartis convertible note payable |
|
|
7,537,921 |
|
|
|
5,546,331 |
|
MHR note payable |
|
|
5,664,381 |
|
|
|
5,076,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20,136,490 |
|
|
|
16,348,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
a. |
|
Options to purchase common shares for the three months ended June 30, 2009 includes options
to purchase 1,060,000 shares with a weighted average exercise price of $26.79 previously
granted to Dr. Goldberg. On July 7, 2009, the Company received an interim decision and award
in the arbitration brought by Dr. Goldberg against the Company which found that Dr. Goldbergs
termination in 2007 was not for cause under the terms of his employment agreement and
dismissed the Companys counterclaims and affirmative defenses. The arbitrators interim
ruling reserved decision on remedies pending further briefing and continued the proceedings.
The |
14
|
|
|
|
|
Company is analyzing the ruling and considering its options. It is the Companys current
intention to continue to vigorously defend its position. Without including options previously
granted to Dr. Goldberg, outstanding options to purchase common shares would be 2,902,139 and the
total potential common shares that have been excluded from diluted loss per share, because the
exercise price was greater than the average market price of our common stock, and therefore, the
effect on diluted loss per share would have been anti-dilutive, would have been 19,076,490. |
9. Comprehensive Income and Loss
Our comprehensive income and loss was comprised of net income or loss adjusted for the change
in net unrealized gain or loss on investments. Comprehensive loss was $4.2 million and $7.6 million
for the three months and $9.6 million and $11.6 million for the six months ended June 30, 2009 and
June 30, 2008, respectively.
10. Commitments and Contingencies
Commitments. Through March 31, 2009 we leased office and laboratory space located at 765 and 777
Old Saw Mill River Road, Tarrytown, NY 10591, under a non-cancelable operating lease expiring in
2012 as well as office space in Cedar Knolls, NJ under a non-cancelable operating lease expiring in
2013. On April 29, 2009, the Company entered into a Lease Termination Agreement (the Agreement)
with BMR-Landmark at Eastview, LLC, a Delaware limited liability company (BMR) pursuant to which
the Company and BMR terminated the lease (Lease) of space at 765 and 777 Old Saw Mill River Road
in Tarrytown, New York (the Lease Premises). The Agreement provides that Company shall make the
following payments to BMR: (a) One Million Dollars, payable upon execution of the Agreement, (b)
Five Hundred Thousand Dollars, payable six months after the execution date of the Agreement, and
(c) Seven Hundred Fifty Thousand Dollars, payable twelve months after the execution date of the
Agreement. For more information on this topic, please see the discussion on the Restructuring
Expense under Contingencies below.
Contingencies. In the ordinary course of business, we enter into agreements with third parties that
include indemnification provisions which, in our judgment, are normal and customary for companies
in our industry sector. These agreements are typically with business partners, clinical sites, and
suppliers. In these agreements, we generally agree to indemnify, hold harmless and reimburse
indemnified parties for losses suffered or incurred by the indemnified parties with respect to our
product candidates, use of such product candidates or other actions taken or omitted by us. The
maximum potential amount of future payments we could be required to make under these
indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or
settle claims related to these indemnification provisions. As a result, the estimated fair value of
liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded
for these provisions as of June 30, 2009.
In the normal course of business, we may be confronted with issues or events that may result
in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the
action of various regulatory agencies. If necessary, management consults with counsel and other
appropriate experts to assess any matters that arise. If, in managements opinion, we have incurred
a probable loss as set forth by accounting principles generally accepted in the United States, an
estimate is made of the loss and the appropriate accounting entries are reflected in our financial
statements. Except as discussed below, there are no currently pending, threatened lawsuits or
claims against the Company that could have a material adverse effect on our financial position,
results of operations or cash flows.
On April 6, 2007, the Board of Directors appointed Michael V. Novinski to the position of
President and Chief Executive Officer. Pursuant to his appointment, the Company entered into a
three year employment agreement with Mr. Novinski. If Mr. Novinskis contract is terminated without
cause by the Board of Directors or at any time by the Executive for Good Reason as defined in his
contract, we are obligated to make severance payments to Mr. Novinski.
In April 2005, the Company entered into an employment contract with its then Chief Executive
Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January 16, 2007, the
Board of Directors terminated Dr. Goldbergs services. On April 26, 2007, the Board of Directors
held a special hearing at which it determined that Dr. Goldbergs termination was for cause. On
March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration asserting that
his termination was without cause and seeking $1,048,000 plus attorneys fees, interest,
arbitration costs and other relief alleged to be owed to him in connection with his employment
agreement with the Company. Dr. Goldbergs employment agreement provides, among other things, that
in the event he is terminated without cause, Dr. Goldberg would be paid his base salary plus bonus,
if any, monthly for a severance period of eighteen months or, in the event of a change of control,
twenty-four months, and he would also be entitled to continued health and life insurance coverage
during the severance period and all unvested stock options and restricted stock awards would
immediately vest in full upon such termination. Dr. Goldbergs employment agreement provided that
in the event he is terminated with cause, he will
15
receive no additional compensation. During the year ended December 31, 2007, the Company
accrued the estimated costs to settle this matter. On July 7, 2009, the Company received an interim
decision and award in the arbitration brought by Dr. Goldberg against the Company which found that
Dr. Goldbergs termination in 2007 was not for cause under the terms of his employment agreement
and dismissed the Companys counterclaims and affirmative defenses. The arbitrators interim ruling
reserved decision on remedies pending further briefing and continued the proceedings. The Company
is analyzing the ruling and considering its options. It is the Companys current intention to
continue to vigorously defend its position; however, based on the interim ruling, the Company
adjusted its estimate of cost to settle this matter by adding $414 thousand non-cash compensation
expense. It is impossible to predict with certainty the ultimate impact the resolution of this
matter will have on our financial statements. It is possible that additional costs could be
incurred to resolve the matter and such costs could be material. The ultimate resolution could have
a material adverse impact on our financial statements.
On August 18, 2008, the Company filed a complaint in the United States District Court for the
District of New Jersey against Laura A. Kragie and Kragie BioMedWorks, Inc. seeking a declaratory
judgment affirming Emispheres sole rights to its proprietary technology for the oral
administration of Vitamin B12, as set forth in several Emisphere United States provisional patent
applications. The complaint includes a claim under the Lanham Act arising from statements made by
defendants on their web site. Laura A. Kragie, M.D., is a former consultant for Emisphere who later
was employed by Emisphere. On February 13, 2009, the defendants filed an answer, affirmative
defenses and counterclaims, adding as counterclaim defendants current or former Emisphere
executives or employees, including Michael V. Novinski. The countersuit against Emisphere alleges
breach of contract, fraudulent inducement, trademark infringement, false advertising, and other
claims. Emisphere believes that the counterclaims are without merit, and will litigate all claims
vigorously. At the current time, we are unable to estimate the ultimate loss, if any, that may
result from the resolution of this matter.
The Company evaluates the financial consequences of legal actions periodically or as facts
present themselves and books accruals to account for its best estimate of future costs accordingly.
Restructuring Expense
On December 8, 2008, as part of our efforts to improve operational efficiency we decided to
close our research and development facilities in Tarrytown to reduce costs and improve operating
efficiency. In connection with the closing of those facilities we recorded $3.8 million in
restructuring expenses comprised of $2.6 million lease restructuring expense (net of subleases),
$0.2 million in termination benefits (employee severance and related costs) and $1.0 million in
leasehold improvement abandonment. The restructuring liability at December 31, 2008 of $2.9 million
relates primarily to the portion of the Tarrytown facility we ceased using as of December 8, 2008,
is recorded at net present value, and includes several obligations related to the restructuring.
During the six months ended June 30, 2009, we made approximately $170 thousand in net rental
payments (calculated at net present value) on the Tarrytown property and made termination payments
of approximately $104 thousand which represented employee severance and benefits charges. The
restructuring liability was reduced by these amounts.
On April 29, 2009, the Company entered into a Lease Termination Agreement with BMR pursuant to
which the Company and BMR terminated the lease of space at 765 and 777 Old Saw Mill River Road in
Tarrytown, New York. The Company had previously announced its decision to close its research and
development facility located on the Lease Premises in an effort to improve operational efficiency
and to strengthen its financial foundation. Pursuant to the Agreement, the Lease was terminated
effective as of April 1, 2009. The Agreement provides that Company shall make the following
payments to BMR: (a) One Million Dollars, payable upon execution of the Agreement, (b) Five Hundred
Thousand Dollars, payable six months after the execution date of the Agreement, and (c) Seven
Hundred Fifty Thousand Dollars, payable twelve months after the execution date of the Agreement.
Consequently, the restructuring liability was adjusted to reflect the terms of the Lease
Termination Agreement, resulting in a $353 thousand reduction in the liability and restructuring
costs. Adjustments to the restructuring liability and restructuring costs result in an improvement
in the net loss and net loss per share of $0.35 million and $0.01 respectively for the six months
ended June 30, 2009.
Adjustments to the restructuring liability are as follows ($ thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at |
|
|
Cash |
|
|
Adjustments to |
|
|
Liability at |
|
|
|
December 31, 2008 |
|
|
Payments |
|
|
the Liability |
|
|
June 30, 2009 |
|
Lease restructuring expense |
|
$ |
2,772 |
|
|
$ |
(1,170 |
) |
|
$ |
(353 |
) |
|
$ |
1,249 |
|
Employee severance and related costs |
|
|
108 |
|
|
|
(104 |
) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,880 |
|
|
|
(1,274 |
) |
|
|
(353 |
) |
|
|
1,253 |
|
16
11. Income Taxes
The Company is primarily subject to United States federal and New Jersey state income tax. The
Companys policy is to recognize interest and penalties related to income tax matters in income tax
expense. As of December 31, 2008 and June 30, 2009, the Company had no accruals for interest or
penalties related to income tax matters. For the three months ended June 30, 2009 and 2008, the
effective income tax rate was 0%. The difference between the Companys effective income tax rate
and the Federal statutory rate of 35% is attributable to state tax benefits and tax credits offset
by changes in the deferred tax valuation allowance.
12. New Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board (FASB) ratified the final consensuses
for EITF 07-5 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys
Own Stock (EITF 07-5). EITF 07-5 became effective for fiscal years beginning after December 15,
2008. Subsequent to the filing of our Form 10-Q for the quarters ended March 31 and June 30, 2009,
the Company identified a misapplication of accounting upon the initial adoption of EITF 07-5. The
Company has assessed the impact of the misapplication of EITF 07-5 on its first and second quarter
2009 financial statements and concluded that, although there was no impact on the Companys cash
position, the effect of the misapplication was material to the financial statements. [Refer to Note
17 to the financial statements for more details]
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS 168, The FASB
Accounting Standards Collection and the Hierarchy of Generally Accepted Accounting Principles.
When effective, the FASB Accounting Standards Codification (the Codification) will become the
single official source of authoritative, nongovernmental U.S. generally accepted accounting
principles (GAAP). All other literature will be considered non-authoritative. The Codification
does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily
accessible, user friendly online research system. The Codification will be effective for interim
and annual periods ending after September 15, 2009. The Company will be required to report using
the Codification commencing with the quarter ended September 30, 2009. Management does not
anticipate that reporting under the Codification will have a material impact on the Companys
financial statements.
In May 2009 FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 was issued in order to
establish principles and requirements for reviewing and reporting subsequent events and requires
disclosure of the date through which subsequent events are evaluated and whether the date
corresponds with the time at which the financial statements were available for issue (as defined)
or were issued. SFAS No. 165 is effective for interim reporting periods ending after June 15, 2009.
The adoption of SFAS 165 during the period ended June 30, 2009 did not have a material impact on
the Companys financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS 107, Disclosures about
Fair Value of Financial Instruments, to require entities to provide disclosures about fair value of
financial instruments in interim financial information. This FSP also amends APB Opinion No. 28,
Interim Financial Reporting, to require those disclosures in summarized financial information at
interim reporting periods. In addition, an entity shall disclose in the body or in the accompanying
notes of its summarized financial information for interim reporting periods and in its financial
statements for annual reporting periods the fair value of all financial instruments for which it is
practicable to estimate that value, whether recognized or not recognized in the statement of
financial position, as required by SFAS 107. The Company adopted FSP FAS 107-1 and APB 28-1 in the
quarter ended June 30, 2009 and there was no material impact on the Companys financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP changes existing guidance for determining whether an
impairment is other than temporary to debt securities; replaces the existing requirement that
management assert it has both the intent and ability to hold an impaired security until recovery
with a requirement that management assert: (a) it does not have the intent to sell the security;
and (b) it is more likely than not it will not have to sell the security before recovery of its
cost basis; requires that an entity recognize noncredit losses on held-to-maturity debt securities
in other comprehensive income and amortize that amount over the remaining life of the security in a
prospective manner by offsetting the recorded value of the asset unless the security is
subsequently sold or there are additional credit loses; and requires entities to present the total
other-than-temporary impairment in the statement of earnings with an offset for the amount
recognized in other comprehensive income. When adopting FSP FAS 115-2 and FAS 124-2, entities are
required to record a cumulative-effect adjustment as of the beginning of the period of adoption to
reclassify the noncredit component of a previously recognized other-temporary impairment from
retained earnings to accumulated other comprehensive income if the entity does not intend to sell
the security and it is not more likely than not that the entity will be required to sell the
security before recovery. The Company adopted FSP FAS 115-1 and 124-2 in the quarter ended June 30,
2009 and there no material impact on the Companys financial statements.
17
In April 2009 the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly. This FSP affirms that the objective of fair value when the market for an
asset is not active is the price that would be received to sell the asset in an orderly
transaction; clarifies and includes additional factors for determining whether there has been a
significant decrease in market activity for an asset when the market for that asset is not active;
and eliminates the proposed presumption that all transactions are distressed (not orderly) unless
proven otherwise. The FSP instead requires an entity to base its conclusion about whether a
transaction was not orderly on the weight of the evidence. The Company adopted FSP FAS 157-4 for
the quarter ended June 30, 2009 and there was no material impact on the Companys financial
statements.
18
In December 2007, the FASB ratified the consensus reached by the EITF with respect to EITF
Issue No. 07-01 Accounting for Collaborative Arrangements. The EITF defined collaborative
arrangements and established reporting requirements for transactions between participants in a
collaborative arrangement and between participants in the arrangement and third parties. This issue
is effective for financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of EITF Issue No. 07-01 did not have a material impact on our financial position,
results of operations or cash flows.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activities (SFAS 161). The new standard is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys financial position, financial
performance, and cash flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. In accordance with the provisions of SFAS 161 we
have included additional disclosures (in Note 7. Derivatives) describing how and why we use
derivative instruments. The Company has determined that the adoption of SFAS 161 did not have a
material impact on our financial statements.
Effective January, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
157). In February 2008, the FASB issued Staff Position (FSP) FAS 157-1 to exclude SFAS no. 13,
Accounting for Leases and its related interpretive accounting pronouncements that address leasing
transactions, from the scope of SFAS No. 157. In February 2008, the FASB also issued FASB Staff
Position No. 157-2, Effective Date of FASB Statement 157, which provides a one year deferral of
the effective date of SFAS 157 for non-financial assets and non-financial; liabilities, except
those that are recognized or disclosed in the financial statements at fair value. SFAS 157 defines
fair value, establishes a framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS
157 as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or the most advantageous market for an asset or liability in an
orderly transaction between participants on the measurement date. Valuation techniques used to
measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs.
The standard describes a fair value hierarchy based on the levels of inputs, of which the first two
are considered observable and the last unobservable, that may be used to measure fair value which
are the following:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities |
|
|
|
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or corroborated by observable market data or
substantially the full term of the assets or liabilities |
|
|
|
Level 3 Unobservable inputs that are supported by little or no market activity and
that are significant to the value of the assets or liabilities |
The adoption of this statement for non-financial assets and liabilities effective January 1,
2009, did not have a material impact on the Companys results of operations or financial condition.
14. Fair Value
In accordance with SFAS 157, the following table represents the Companys fair value hierarchy
for its financial assets and liabilities measured at fair value on a recurring basis as of June 30,
2009 ($ thousands):
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(RESTATED) |
|
|
|
|
|
Derivative instruments |
|
$ |
4,118 |
|
|
$ |
267 |
|
|
|
|
|
|
|
|
Total |
|
|
4,118 |
|
|
|
267 |
|
|
|
|
|
|
|
|
The derivative instruments were valued using the market approach which is considered Level 2
because it uses inputs other than quoted prices in active markets that are either directly or
indirectly observable. Accordingly, the derivatives were valued using the Black-Scholes model.
19
Some of the Companys financial instruments are not measured at fair value on a recurring
basis but are recorded at amounts that approximate fair value due to their liquid or short-term
nature, such as cash and cash equivalents, receivables and payables.
The estimated fair value of the Companys loans payable (including current portion) at June
30, 2009 was $23.0 million as compared to $30.2 million at December 31, 2008, which are the
carrying value of these instruments.
15. Sale of Patents
On February 8, 2008, the Company sold to MannKind Corporation (Mannkind) certain patents and
a patent application relating to diketopiperazine technology for a total purchase price of $2.5
million. An initial payment of $1.5 million was received in February 2008 and recognized as other
income. On May 21, 2009, an additional $500,000 was received by the Company and recognized as other
income. The remaining $500,000 is due to be paid to Emisphere no later than October 5, 2010 and
will be recognized as other income when payment becomes reasonably assured.
16. Subsequent Events
On July 7, 2009, we received an interim decision and award in an arbitration brought by our
former CEO Michael Goldberg, M.D. against the Company which found that Dr. Goldbergs termination
in 2007 was not for cause under the terms of his employment agreement and dismissed the Companys
counterclaims and affirmative defenses. Dr. Goldberg brought such arbitration on March 22, 2007,
asserting that his termination was without cause following a change in control. During the
arbitration, Dr. Goldberg sought a total damage amount of at least $9,223,646 plus interest. On
September 13, 2009, the arbitrator issued an interim award in favor of Dr. Goldberg for a total
amount of $1,030,891, plus interest, which includes his claims for severance and certain other
items but denied his claims relating to a change-in-control benefit, options, bonuses and certain
other claims. The arbitrator has not yet determined the amount, if any, of Dr. Goldbergs
attorneys fees that he is entitled to receive from the Company. The Company is evaluating its
options with respect to the interim awards. If the awards are upheld and confirmed in court, the
Company will be required to pay the final amount due to Dr. Goldberg. Depending on the size of the
amount, we may be required to seek additional funding in order to continue to develop fully any new
products or technologies. As discussed above, we cannot assure you that financing will be available
when needed, or on favorable terms or at all.
On August 21, 2009, the Company issued 5,714,286 shares of Common Stock and warrants to
purchase 2,685,714 shares of Common Stock to certain institutional investors pursuant to an
effective shelf registration statement on Form S-3, which was filed with the SEC on September 20,
2007, and declared effective on October 1, 2007 (File No. 333-146212) and a registration statement
(File No. 333-161425) filed on August 19, 2009 pursuant to Rule 462(b) promulgated under the
Securities Act (collectively, the Registration Statement), for gross proceeds of $4,000,000 (the
Offering). Each unit, consisting of one share of Common Stock and a warrant to purchase 0.47 of a
share of Common Stock, was sold for a purchase price of $0.70. The warrants to purchase additional
shares will be exercisable at an exercise price of $0.70 per share beginning immediately after
issuance and will expire 5 years from the date they are first exercisable.
Also on August 21, 2009, the Company issued 6,015,037 shares of Common Stock and warrants to
purchase 3,729,323 shares of Common Stock to MHR Fund Management, LLC (MHR) in a private
placement transaction. Gross proceeds from the private placement were $4,000,000. Each unit,
consisting of one share of Common Stock and a warrant to purchase 0.62 of a share of Common Stock,
was sold for a purchase price of $0.665. The warrants to purchase additional shares are immediately
exercisable at an exercise price of $0.70 per share and expire 5 years from the date they are first
exercisable.
In connection with the Offering, the Company also issued warrants to purchase 504,000 shares
of Common Stock to Rodman & Renshaw, LLC in connection with their role as the exclusive placement
agent and financial adviser in connection with the Offering. Such warrant is exercisable at an
exercise price of $0.875 per share beginning immediately after issuance and will expire on October
1, 2012. Also in connection with the Offering certain anti-dilution provisions included in warrants
issued to Elan International Services, Ltd. (Elan), and in connection with the Companys March 2005
equity financing were triggered. Consequently, the exercise price of warrants to purchase 600,000
shares issued to Elan was adjusted from $3.76 to $0.4635 and warrants to purchase 967,464 shares
at an exercise price of $3.98 issued in connection with the Companys March 2005 equity financing
were adjusted to warrants to purchase 1,010,631 shares at an exercise price of $3.81.
The Company has evaluated subsequent events through October 21, 2009, the date on which
financial statements were reissued, and, except for the matter discussed herein, has determined
that there are no subsequent events that require adjustments to the financial statements for the
quarter ended June 30, 2009.
20
17. Restatement of Previously Issued Financial Statements
Subsequent to the filing of our Form 10-Q for the quarter ended June 30, 2009, the Company
identified a misapplication of accounting upon the initial adoption of EITF 07-5 Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5) on
January 1, 2009. The Company has assessed the impact of the misapplication of EITF 07-5 on its
first and second quarter 2009 financial statements and concluded that, although there was no impact
on the Companys cash position, the effect on its financial statements was material.
The impact on the Companys balance sheet of adopting EITF 07-5 on January 1, 2009 was to
change the designation of certain financial instruments that, prior to the application of EITF
07-5, were not required to be accounted for as a liability and recorded at fair value; however
under EITF 07-5 such financial instruments need to be recorded on the Companys balance sheet as a
liability at fair value and any changes in fair value from period to period will be reflected in
operating results. The financial instruments impacted by EITF 07-5 include the warrant issued to
Elan Corporation, plc (Elan Warrant) and the embedded conversion feature included in the MHR Note
(MHR Embedded Derivative). The adjustments to previously issued statements of operations relate
to market-to-market adjustments for the change in fair value for the applicable period in the Elan
Warrant and the MHR Embedded Derivative. In addition, the bifurcation for the MHR Embedded
Derivative from the MHR Note increased the debt discount, the accretion of which over the life of
the debt increases interest expense. The total mark-to-market impact on the three and six month
periods was $71 thousand and $13 thousand, respectively; accretion of debt discount to interest
expense was $412 thousand and $794 thousand, respectively.
The tables below summarize the impact of the restatement from amounts previously reported on
the Companys Form 10-Q for the periods ended March 31, 2009 and June 30, 2009. The restatement
did not impact cash flow from operating, investing, or financing activities.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
Balance Sheet (in thousands) |
|
As Filed |
|
As Restated |
Derivative instruments (current portion) |
|
|
|
|
|
|
|
|
Related Party |
|
$ |
307 |
|
|
$ |
337 |
|
Others |
|
|
281 |
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
Derivative instrument related party (long term) |
|
|
|
|
|
|
3,224 |
|
|
|
|
|
|
|
|
|
|
Notes payable, including accrued interest and
net of related discount (long-term) |
|
|
19,521 |
|
|
|
10,753 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
401,313 |
|
|
|
389,098 |
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
$ |
(442,818 |
) |
|
$ |
(425,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2009 |
|
2009 |
Statement of Operations (in thousands, except per share data) |
|
As Filed |
|
As Restated |
|
As Filed |
|
As Restated |
Changes in fair value of derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party |
|
$ |
(205 |
) |
|
$ |
(193 |
) |
|
$ |
(154 |
) |
|
$ |
(80 |
) |
Other |
|
|
(206 |
) |
|
|
(289 |
) |
|
|
(167 |
) |
|
|
(254 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party |
|
|
(685 |
) |
|
|
(1,097 |
) |
|
|
(1,346 |
) |
|
|
(2,140 |
) |
Other |
|
|
(137 |
) |
|
|
(137 |
) |
|
|
(273 |
) |
|
|
(273 |
) |
Net loss |
|
|
(3,704 |
) |
|
|
(4,187 |
) |
|
|
8,797 |
|
|
|
9,604 |
|
Net loss per share, basis ad diluted |
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.32 |
) |
21
At adoption date, EITF 07-5 required that the impact on the financial statements of initial
application be accounted for as a change in accounting and reflected in the financial statements as
a cumulative adjustment on January 1, 2009. The cumulative adjustment included a decrease in Notes
payable of approximately $9.6 million, an increase in Derivative instruments of approximately $3.5
million and the balance was a reduction in Stockholders deficit.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
SAFE HARBOR CAUTIONARY STATEMENT
Certain statements in this Managements Discussion and Analysis of Financial Conditions and
Results of Operations and elsewhere in this report as well as statements made from time to time by
our representatives may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements include (without
limitation) statements regarding planned or expected studies and trials of oral formulations that
utilize our Eligen® Technology; the timing of the development and commercialization of our product
candidates or potential products that may be developed using our Eligen® Technology; the potential
market size, advantages or therapeutic uses of our potential products; variation in actual savings
and operational improvements resulting from restructurings; and the sufficiency of our available
capital resources to meet our funding needs. We do not undertake any obligation to publicly update
any forward-looking statement, whether as a result of new information, future events, or otherwise,
except as required by law. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance or achievements to
be materially different from any future results or achievements expressed or implied by such
forward-looking statements. Such factors include the factors described under Part II, Item 1A.
Risk Factors and other factors discussed in connection with any forward looking statements.
General
Emisphere Technologies, Inc. is a biopharmaceutical company that focuses on a unique and
improved delivery of therapeutic molecules or nutritional supplements using its Eligen® Technology.
These molecules could be currently available or are under development. Such molecules are usually
delivered by injection; in many cases, their benefits are limited due to poor bioavailability, slow
on-set of action or variable absorption. In those cases, our technology may increase the benefit of
the therapy by improving bioavailability or absorption or by increasing the onset of action. The
Eligen® Technology can be applied to the oral route of administration as well other delivery
pathways, such as buccal, rectal, inhalation, intra-vaginal or transdermal.
Since our inception in 1986, substantial efforts and resources have been devoted to
understanding the Eligen® Technology and establishing a product development pipeline that
incorporated this technology with selected molecules. Although no products have been commercialized
to date, research and investment is now being placed behind both the pipeline and the advancement
of this technology. Further development and exploration of the technology entail risk and
operational expenses. However, we have made significant progress on refocusing our efforts on
strategic development initiatives and cost control and continue to aggressively seek to reduce
non-strategic spending.
22
In 2007 and 2008, Emisphere reevaluated the Eligen® Technology and refocused our corporate
strategy on commercializing the Eligen® Technology as quickly as possible, building high-value
partnerships and reprioritizing the product pipeline. Spending was redirected and aggressive cost
control initiatives were implemented. These changes resulted in redeployment of resources to
programs that may yield commercial products in a shorter period of time. In addition to continuing
to develop product candidates in-house, we demonstrated and enhanced the value of our Eligen®
Technology by attracting new partners like Novo Nordisk and rejuvenating existing partnerships like
Novartis.
The application of the Eligen® Technology is potentially broad and may provide for a number of
opportunities across a spectrum of therapeutic modalities. During the second quarter 2009, we
continued to develop our product pipeline utilizing the Eligen® Technology with prescription and
nonprescription product candidates. We prioritized our development efforts based on overall
potential returns on investment, likelihood of success, and market and medical need. Our goal is to
implement our Eligen® Technology to enhance overall healthcare, including patient accessibility and
compliance, while benefiting the commercial pharmaceutical marketplace and driving company
valuation.
Investments required to continue developing our product pipeline may be partially paid by
income-generating license arrangements whose value tends to increase as product candidates move
from pre-clinical into clinical development. It is our intention that incremental investments that
may be required to fund our research and development will be approached incrementally in order to
minimize disruption or dilution.
We plan to attempt to expand our current collaborative relationships to take advantage of the
critical knowledge that others have gained by working with our technology. We will also continue to
pursue product candidates for internal development and commercialization. We believe that these
internal candidates must be capable of development with reasonable investments in an acceptable
time period and with a reasonable risk-benefit profile.
Our product pipeline includes prescription and nutritional supplements candidates. On the
prescription side, our licensees include Novartis Pharma AG (Novartis), which is using our drug
delivery technology in combination with salmon calcitonin, parathyroid hormone, and human growth
hormone. Their most advanced program is testing an oral formulation of calcitonin to treat
osteoarthritis and osteoporosis. Novartis is conducting two Phase III clinical studies for
osteoarthritis and one Phase III clinical study for osteoporosis. During the third quarter 2008
Novartis completed enrollment for the first trial for osteoarthritis; a multi-center Phase III
study exploring the safety and efficacy of an oral formulation of salmon calcitonin using
Emispheres proprietary Eligen® Technology to treat patients with osteoarthritis of the knee. This
study, which will be used to support the filing with health authorities worldwide, includes more
than 1,100 patients between the ages of 51 and 80 years old with a medical history and symptoms of
knee osteoarthritis. This study will be conducted mainly in Europe and is estimated to be completed
during the second half 2010. In June 2009 Emisphere announced that Novartis Pharma AG and Nordic
Bioscience had completed recruitment for a second multi-center Phase III study exploring the safety
and efficacy of an oral formulation of salmon calcitonin using Emispheres proprietary Eligen®
Technology to treat patients with osteoarthritis of the knee. This study, which is intended to be
used to support a regulatory filing in the U.S., includes more than 900 patients between the ages
of 51 and 80 with a medical history and symptoms of knee osteoarthritis. The two year study is
being conducted in Europe, the U.S., as well as other countries.
Novartis is also conducting a Phase III trial for osteoporosis. This Phase III trial is a
multi-center study exploring the safety and efficacy of oral Eligen® salmon calcitonin to treat
vertebral fractures in postmenopausal women aged 60-80 with osteoporosis. The last of 4,500+
patients were recruited for the osteoporosis study in the final week of June 2008, and the
three-year study will be conducted in North and South America, Europe and Asia. Now that these
Phase III studies are fully enrolled, over 5,500 clinical study patients will be using the Eligen®
Technology in 2009.
A study Novartis Pharma AG and its partner Nordic Bioscience published in the December 2008
issue of BMC Clinical Pharmacology demonstrated that orally administered salmon calcitonin using
Emispheres carrier, (5-CNAC) an Eligen® oral delivery technology, is effective in reducing bone
breakdown. The randomized, double-blind, double-dummy, placebo-controlled study among 81 subjects
in Copenhagen was conducted on behalf of Emispheres partner Novartis Pharma AG by Nordic
Bioscience by M.A. Karsdal, I. Byrjalsen, B.J. Riis and C. Christiansen. The study suggests that
orally administered 0.8 mg of salmon calcitonin was effective in suppression of Serum CTX
irrespective of time of dosing. Serum CTX-1 (Serum C-terminal telo-peptide of collagen type I) is
the biochemical marker used to measure bone resorption. There were no safety concerns with the
salmon calcitonin oral formulation using Emispheres carrier 5-CNAC, which had been previously
demonstrated in earlier studies.
23
A study Novartis Pharma AG and its partner Nordic Bioscience published in the October 2008
issue of BMC Clinical Pharmacology demonstrated that oral salmon calcitonin using Emispheres
proprietary Eligen® Technology taken 30 to 60 minutes before meals with 50 ml of water results in
improved absorption and improved efficacy measured by the biomarker of reduced bone resorption
(sCTX-I) compared to the commonly prescribed nasal formulation. The study was a randomized,
partially-blind, placebo-controlled, single dose exploratory crossover clinical trial using 56
healthy postmenopausal women.
Novartis is also conducting a Phase I study in postmenopausal women to determine the safety
and tolerability of oral PTH134, a combination of human PTH-1-34 and Emispheres delivery agent
5-CNAC, for the treatment of postmenopausal osteoporosis. The study is designed to assess the
bioavailability profile of increasing doses of PTH- 1-34 combined with different amounts of 5-CNAC
administered orally. The trial is being conducted in Switzerland and is estimated to yield first
interpretable results by the end of the year.
Research using the Eligen® Technology and GLP-1, a potential treatment for Type 2 diabetes is
being conducted by Novo Nordisk A/S (Novo Nordisk) and by Dr. Christoph Beglinger, M.D., an
independent medical researcher at University Hospital in Basel, Switzerland. We had previously
conducted extensive tests on oral insulin for Type 1 diabetes and concluded that a more productive
pathway is to move forward with GLP-1 and its analogs, an oral form of which might be used to treat
Type 2 diabetes and related conditions. Consequently, on June 21, 2008 we entered into an exclusive
Development and License Agreement with Novo Nordisk focused on the development of oral formulations
of Novo Nordisks proprietary GLP-1 receptor agonists. Novo Nordisks development efforts are in
the early preclinical stage. Additionally, a second early stage human study of an oral formulation
that combines PYY and native GLP-1 with Emispheres proprietary delivery agent known as SNAC was
conducted at University Hospital by Professor Beglinger. The study demonstrated the oral delivery
of the GLP-1 peptide was safe and effective and that the oral formulation of GLP-1 stimulated an
early increase in fasting insulin and a decrease in fasting glucose as compared to placebo.
Emisphere is independently developing Eligen® B12 as a nutritional supplement product
candidate. Following our proof of concept animal studies of the absorption of vitamin B12 using our
Eligen® Technology, additional preclinical studies using dogs further demonstrated that the Eligen®
Technology enhances the absorption of oral B12 and confirmed earlier proof of concept studies
conducted in rats. We have completed our first clinical study testing our new vitamin B12
formulation in 20 normal healthy males.
The data from our first pharmacokinetic study showed mean vitamin B12 peak blood levels were
more than 10 times higher for the Eligen® B12 5mg formulation than for the 5mg commercial
formulation. The mean time to reach peak concentration (Tmax) was reduced by over 90%; to 0.5 hours
for the Eligen® B12 5mg from 6.8 hours for the commercial 5mg product. Improvement in
bioavailability was approximately 240%, with absorption time at 30 minutes and a mean
bioavailability of 5%. The study was conducted with a single administration of Eligen® B12; there
were no adverse reactions, and Eligen® B12 was well-tolerated.
The data from our first Eligen® B12 clinical study demonstrates a new, more bioavailable oral
form vitamin B12 and a potential new avenue for addressing the problems with B12 supplementation.
Eligen® B12 avoids the normal specialized absorption process that limits absorption of vitamin B12
from current formulations. By circumventing the current absorption process, Eligen® B12 may present
an opportunity to reduce the potential uncertainty associated with oral megadoses of vitamin B12
and may reduce the substantial number of injections being taken by millions of individuals.
The Company is planning one or more additional clinical studies, including pharmacokinetic and
safety and efficacy studies in vitamin B12 deficient people to further elucidate the advantages of
the Eligen® technology. Currently, it is estimated that at least five million people in the U.S.
are taking 40 million injections of vitamin B12 per year to treat a variety of debilitating medical
conditions (as noted above). Another estimated five million are consuming more than 600 million
tablets of vitamin B12 orally.
The safety of the carrier we plan to use to deliver Eligen® B12 has been demonstrated in
earlier preclinical and clinical studies. Since vitamins are regulated by the FDA under different
provisions than those used for drugs and biologicals, we anticipate that our development of
vitamins may be shorter and less expensive than for a prescription drug.
The Company also continues to focus on improving operational efficiency. On December 8, 2008
we announced plans to strengthen our financial foundation while maintaining our focus on advancing
and commercializing the Eligen® Technology. By closing our research and development facility in
Tarrytown, New York and utilizing independent contractors to conduct essential research and
development, we have reduced our annual operating costs by approximately 55% from 2008 levels.
Annual cash expenditures were reduced by approximately $11 million and the resulting cash burn rate
to support continuing operations is approximately $8 million per year. Additionally, we expect to
accelerate the commercialization of the Eligen® Technology in a cost effective way and to gain
operational efficiencies by tapping into more advanced scientific processes independent contractors
can provide.
24
On April 29, 2009, the Company entered into a Lease Termination Agreement (the Agreement)
with BMR-Landmark at Eastview, LLC, a Delaware limited liability company (BMR) pursuant to which
the Company and BMR terminated the lease (Lease) of space at 765 and 777 Old Saw Mill River Road
in Tarrytown, New York (the Lease Premises). The Company had previously announced its decision to
close its research and development facility located on the Lease Premises in an effort to improve
operational efficiency and to strengthen its financial foundation. Pursuant to the Agreement, the
Lease was terminated effective as of April 1, 2009. The Company was allowed to enter and access the
Lease Premises from April 1, 2009 until April 30, 2009, for the sole purpose of winding down the
Companys operations in the Lease Premises, removing its property and decommissioning the Lease
Premises.
The Agreement provides that the Company shall make the following payments to BMR: (a) $1
million, payable upon execution of the Agreement, (b) $0.5 million, payable six months after the
execution date of the Agreement, and (c) $0.75 million, payable twelve months after the execution
date of the Agreement. By terminating its Tarrytown lease, the Companys monthly cash burn rate is
reduced by approximately $0.3 million immediately. In addition, a total of approximately $14
million in future lease payments were eliminated. Through this lease termination agreement the
Company realized a critical milestone in its cost control plan, which will help meet its cash burn
target of between $7 million and $8 million per year.
During April 2009 we announced a strategic alliance with AAIPharma intended to expand the
application of Emispheres Eligen® Technology and AAIPharmas drug development services. AAIPharma
Inc. is a global provider of pharmaceutical product development services that enhance the
therapeutic performance of its clients drugs. The company works with many pharmaceutical and
biotech companies and currently provides drug product formulation development services to
Emisphere. This relationship expands our access to new therapeutic candidates for the Eligen®
Technology, which potentially could lead to new products and to new alliance agreements as well. We
are also pleased that a global provider of pharmaceutical product development services with the
stature of AAI has chosen to combine with Emisphere in a synergistic alliance that will benefit
both organizations. This strategic alliance supports AAIs strategy to offer drug delivery options
to its pharmaceutical and biotech customers.
During May 2009 the Company announced data from a clinical study designed to assess the effect
of oral administration of two peptides, GLP-1 and PYY3-36, utilizing Emispheres Eligen® Technology
on appetite suppression. The study was conducted at the University Hospital in Basel, Switzerland
by Professor Christoph Beglinger, of the Clinical Research Center, Department of Biomedicine
Division of Gastroenterology, and Department of Clinical Pharmacology and Toxicology at the
hospital. The randomized, double-blind, placebo-controlled trial was conducted in 16 normal weight
males between the ages of 18 and 40. The study was designed to investigate the effects of orally
administered GLP-1 and PYY3-36 formulated with Emispheres Sodium N-[8-(2-hydroxybenzoyl) Amino]
Caprylate (SNAC) carrier and their potential effect in the control of food intake and satiety.
Prior studies have shown the ability of both peptides to reduce appetite and food consumption in
healthy subjects and in patients with obesity. The study concluded that these orally administered
peptides, when delivered with Emispheres SNAC carrier, were rapidly absorbed from the
gastrointestinal tract, leading to concentrations several times higher than endogenous hormone
levels achieved after a standard test meal. Specifically, results showed that oral GLP-1 (2 mg
tablet) alone and the combination of oral GLP-1 (2 mg tablet) plus PYY3-36 (1 mg tablet) induced a
significant reduction in calorie intake although there was no synergistic effect when the two
peptides were used in combination. Oral PYY3-36 at a 1 mg dose by itself, did not significantly
reduce calorie intake. Oral GLP-1 (2 mg tablet) and oral PYY3-36 (1 mg tablet) were both shown to
induce a rapid increase in plasma GLP-1 concentrations and plasma PYY concentrations, respectively.
This new data represents further evidence of the ability of the Eligen® Technology, and the SNAC
carrier, to enhance oral absorption of peptides which normally exhibit low oral bioavailability. In
this case, GLP-1 alone, and the combination of the two peptides together, were able to cross the
gastrointestinal tract into the bloodstream in high enough concentrations to significantly affect
appetite.
On May 1, 2009, the Company was informed by an independent expert panel of scientists that its
SNAC carrier has been provisionally designated as Generally Recognized as Safe (GRAS) for its
intended application in combination with nutrients added to food and dietary supplements. Following
a comprehensive evaluation of research and toxicology data, Emispheres SNAC was found to be safe
at a dosage up to 250 mg per day when used in combination with nutrients to improve their dietary
availability.
On May 19, 2009, Franklin M. Berger was appointed to the Companys Board of Directors.
During June 2009 the Company entered into a research agreement with Syracuse University to
combine Emispheres proprietary Eligen® oral drug delivery technology with a new oral drug delivery
system developed in the laboratory of Robert Doyle, Assistant Professor of Chemistry in Syracuse
Universitys College of Arts and Sciences. The experiments will test whether the combination of
Eligen® and Doyles oral drug delivery technology will enhance the absorption of an
appetite-suppressing hormone. Dr. Doyle and his colleagues have successfully developed innovative
methods for the oral delivery of both proteins and peptides using novel
25
methods. There may be significant potential for innovation in this partnership and an
opportunity for further expansion for the use of the Eligen® Technology in the drug delivery arena.
Researchers in Doyles lab are trying to find a way to create an appetite-suppressing drug using
PYY that can be taken orally rather than by injection. PYY is a hormone that is released by the
cells lining the small intestine after people eat, which signals feelings of fullness. Recent
research has shown that the higher the level of PYY in the bloodstream, the greater the feeling of
fullness. The Eligen® Technology platform has shown great promise for improving the bodys ability
to absorb both small and large molecule drugs. Dr. Doyle and his colleagues at Syracuse University
are interested in assessing its ability to overcome the limited natural absorption of their vitamin
based carrier to achieve significant advancements in oral protein/peptide delivery.
On July 28, 2009 the Company announced that, concurrent with the publication of two papers in
the July/August issue of the peer reviewed journal, International Journal of Toxicology, which
describes the toxicology of its SNAC carrier, SNAC has achieved GRAS status for its intended use in
combination with nutrients added to food and dietary supplements. The publication of two papers in
the International Journal of Toxicology was the final, necessary step in the process of obtaining
GRAS status for its SNAC carrier. Now that SNAC has achieved GRAS status, it is exempt from
pre-market approval for its intended use in combination with nutrients added to food and dietary
supplements. This opens the way for the potential commercialization of the Eligen® Technology with
other substances such as vitamins. The Company expects that the first of these products will be its
oral Eligen® Vitamin B12 product.
Our other product candidates in development are in earlier or preclinical research phases, and
we continue to assess them for their compatibility with our technology and market need. Our intent
is to seek partnerships with pharmaceutical and biotechnology companies for certain of these
products. We plan to expand our pipeline with product candidates that demonstrate significant
opportunities for growth.
Results of Operations
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
|
Change |
|
|
(in thousands) |
|
|
(RESTATED) |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
|
|
|
$ |
14 |
|
|
$ |
(14 |
) |
Operating expenses |
|
$ |
2,998 |
|
|
$ |
5,909 |
|
|
$ |
(2,911 |
) |
Operating loss |
|
$ |
(2,998 |
) |
|
$ |
(5,895 |
) |
|
$ |
(2,897 |
) |
Other income (expense) |
|
$ |
(1,189 |
) |
|
$ |
(1,748 |
) |
|
$ |
(559 |
) |
Net loss |
|
$ |
(4,187 |
) |
|
$ |
(7,643 |
) |
|
$ |
(3.456 |
) |
Revenue decreased $0.01 million for the three months ended June 30, 2009 compared to the same
period last year because receipts from partnerships are classified as deferred revenue because all
revenue recognition criteria have not yet been met.
Operating expenses decreased $2.9 million or 49% for the three months ended June 30, 2009 in
comparison to the same period last year. Details of these changes are highlighted in the table
below:
|
|
|
|
|
|
|
(in thousands) |
|
Decrease in human resources costs |
|
$ |
(918 |
) |
Increase in professional fees |
|
|
27 |
|
Decrease in occupancy costs |
|
|
(802 |
) |
Decrease in clinical costs |
|
|
(141 |
) |
Decrease in depreciation and amortization |
|
|
(127 |
) |
Decrease in other costs |
|
|
(950 |
) |
|
|
|
|
|
|
$ |
(2,911 |
) |
|
|
|
|
Human resource costs declined 34% commensurate with the December 2008 reduction in headcount.
Without the $0.4 million non-cash compensation expense adjustment in the Companys estimate of
costs to settle the arbitration with Dr. Goldberg; human resource costs would have declined 49%.
Professional fees increased 2% primarily due to increases in legal fees.
26
Occupancy costs decreased 90% primarily due to the closure of our laboratory facilities in
Tarrytown, NY in December 2008.
Clinical costs decreased 30% due to reprioritization of clinical testing programs and outside
lab fees related to oral formulations of the PYY and GLP-1 combination and B12.
Depreciation and amortization costs decreased 57% due to the sale of laboratory equipment and
the write off of certain leasehold improvements in connection with the above referenced closure of
the Tarrytown facility.
Other costs decreased 230% due primarily to a $0.78 million gain on the sale of laboratory
equipment. Without these sales, other costs would have decreased 41% due to the reduction in
headcount and closure of Tarrytown facility
Our principal operating costs include the following items as a percentage of total operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
Human resource costs, including benefits |
|
|
61 |
% |
|
|
46 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
40 |
% |
|
|
20 |
% |
Occupancy for our laboratory and operating space |
|
|
3 |
% |
|
|
15 |
% |
Clinical costs |
|
|
11 |
% |
|
|
8 |
% |
Depreciation and amortization |
|
|
3 |
% |
|
|
4 |
% |
Other |
|
|
-18 |
% |
|
|
7 |
% |
Other expense decreased $0.6 million for the three months ended June 30, 2009 in comparison to the
same period last year primarily due to a $0.8 million decrease in the change in fair value of
derivative instruments due to relative changes in stock price and the receipt of $0.5 million
installment payment for the sale of patent to MannKind partially offset by approximately $0.5
million increase in related party interest expense and approximately $0.2 million decrease in
sublease income.
As a result of the above factors, we had a net loss of $4.2 million for the three months ended June
30, 2009, compared to a net loss of $7.6 million for the three months ended June 30, 2008.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
|
Change |
|
|
(in thousands) |
|
|
|
(RESTATED) |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
|
|
|
$ |
169 |
|
|
$ |
(169 |
) |
Operating expenses |
|
$ |
7,657 |
|
|
$ |
12,527 |
|
|
$ |
(4,870 |
) |
Operating loss |
|
$ |
(7,657 |
) |
|
$ |
(12,358 |
) |
|
$ |
(4,701 |
) |
Other income (expense) |
|
$ |
(1,947 |
) |
|
$ |
773 |
|
|
$ |
(2,720 |
) |
Net loss |
|
$ |
(9,604 |
) |
|
$ |
(11,585 |
) |
|
$ |
(1,981 |
) |
Revenue decreased $0.17 million for the six months ended June 30, 2009 compared to the same period
last year because receipts from partnerships are classified as deferred revenue because all revenue
recognition criteria have not yet been met.
Operating expenses decreased $4.9 million or 39% for the six months ended June 30, 2009 in
comparison to the same period last year. Details of these changes are highlighted in the table
below:
|
|
|
|
|
|
|
(in thousands) |
|
Decrease in human resources costs |
|
$ |
(2,632 |
) |
Increase in professional fees |
|
|
427 |
|
Decrease in occupancy costs |
|
|
(1,133 |
) |
Increase in clinical costs |
|
|
282 |
|
Decrease in depreciation and amortization |
|
$ |
(142 |
) |
Decrease in other costs |
|
|
(1,672 |
) |
|
|
|
|
|
|
$ |
(4,870 |
) |
|
|
|
|
27
Human resource costs declined 46% commensurate with the December 2008 reduction in headcount.
Without the $0.4 million non-cash compensation expense adjustment in the Companys estimate of
costs to settle the arbitration with Dr. Goldberg; human resource costs would have declined 53%.
Professional fees increased 17% primarily due to increases in legal fees.
Occupancy costs decreased 53% due to the closure of our laboratory facilities in Tarrytown, NY
in December 2008.
Clinical costs increased 45% due to clinical testing programs and outside lab fees related to
oral formulations of the PYY and GLP-1 combination and B12.
Depreciation and amortization costs decreased 32% due to the sale of laboratory equipment and
the write off of certain leasehold improvements in connection with the above referenced closure of
the Tarrytown facility.
Other costs decreased 167% due primarily to a net $0.82 million gain on the sale of laboratory
equipment for the six months ended June 30, 2009 versus June 30, 2008. Without these sales, other
costs would have decreased 85% due to the reduction in headcount and closure of Tarrytown facility
Our principal operating costs include the following items as a percentage of total operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
Human resource costs, including benefits |
|
|
41 |
% |
|
|
46 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
39 |
% |
|
|
21 |
% |
Occupancy for our laboratory and operating space |
|
|
13 |
% |
|
|
17 |
% |
Clinical costs |
|
|
12 |
% |
|
|
5 |
% |
Depreciation and amortization |
|
|
4 |
% |
|
|
4 |
% |
Other |
|
|
-9 |
% |
|
|
8 |
% |
Other income decreased $2.7 million for the six months ended June 30, 2009 in comparison to the
same period last year primarily due to a $1.0 million decrease in sale of patent to Mannkind ($1.5M
in 2008 vs. $0.5M in 2009), a $0.5 million increase in the change in fair value of derivatives due
to relative changes in stock price, a $0.2 million decrease in investment income, and a $1.0
million increase in related party interest expense.
As a result of the above factors, we had a net loss of $9.6 million for the six months ended June
30, 2009, compared to a net loss of $11.6 million for the six months ended June 30, 2008.
Liquidity and Capital Resources
Since our inception in 1986, we have generated significant losses from operations and we
anticipate that we will continue to generate significant losses from operations for the foreseeable
future. As of June 30, 2009, our accumulated deficit was approximately $425.0 million and our
stockholders deficit was approximately $39.6 million. Our net loss and operating loss was $4.2
million and $3.0 million, respectively for the three months ended June 30, 2009 compared to net
loss and net operating loss of $7.6 million and $5.9 million respectively for the three months
ended June 30, 2008. Our net loss and net operating loss for the six months ended June 30, 2009
were $9.6 million and $7.7 million respectively compared to $11.6 million and $12.4 million net
loss and net operating loss for the six months ended June 30, 2008, respectively.
We have limited capital resources and operations to date have been funded primarily with the
proceeds from collaborative research agreements, public and private equity and debt financings and
income earned on investments. As of June 30, 2009 total cash was $1.5 million including restricted
cash of $0.26 million. The change in cash relates to the net loss offset by changes in accounts
payable and non-cash items. We anticipate that our existing capital resources, without implementing
additional cost reductions, raising additional capital, or obtaining substantial cash inflows from
potential partners or our products, will enable us to continue operations through approximately
August 2009. These conditions raise substantial doubt about our ability to continue as a going
concern. Consequently, the audit report prepared by our independent registered public accounting
firm relating to our financial statements for the year ended December 31, 2008 included a going
concern explanatory paragraph.
28
Our business will require substantial additional investment that has not yet been secured.
While our plan is to raise capital and to pursue partnering opportunities, we cannot be sure how
much we will need to spend in order to develop, market and manufacture new products and
technologies in the future. Subject to raising adequate capital, we expect to continue to spend
substantial amounts on research and development, including amounts spent on conducting clinical
trials for our product candidates. Further, we will not have sufficient resources to develop fully
any new products or technologies unless we are able to raise substantial additional financing on
acceptable terms or secure funds from new or existing partners. We cannot assure that financing
will be available on favorable terms or at all. Additionally, these conditions may increase the
cost to raise capital and/or result in further dilution. Our failure to raise capital will have a
serious adverse affect on our business, financial condition and results of operations, and would
force us to cease operations. Upon ceasing operations we would be unable to pay in full our
liabilities, would be in default of our notes payable and would likely seek bankruptcy protection.
However, we have implemented aggressive cost control initiatives and management processes to
extend our cash runway. By terminating its Tarrytown lease and implementing an outsourcing strategy
where appropriate, the Company achieved its cash burn target of between $7 million and $8 million
per year to support continuing operations. Management believes there are reasonable financing
alternatives potentially available to it that will enable it to meet its near term operating cash
requirements.
Off-Balance Sheet Arrangements
As of June 30, 2009, we had no off-balance sheet arrangements, other than operating leases.
There were no changes in significant contractual obligations during the three months ended June 30,
2009.
Critical Accounting Estimates
Please refer to the Companys Annual Report on Form 10-K filed with the SEC on March 16, 2009
and Form 10-K/A filed with the SEC on April 30, 2009, for detailed explanations of its critical
accounting estimates which have not changed significantly during the period ended June 30, 2009.
New Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board (FASB) ratified the final consensuses
for EITF 07-5 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys
Own Stock (EITF 07-5). EITF 07-5 became effective for fiscal years beginning after December 15,
2008. Subsequent to the filing of our Form 10-Q for the quarters ended March 31 and June 30, 2009,
the Company identified a misapplication of accounting upon the initial adoption of EITF 07-5. The
Company has assessed the impact of the misapplication of EITF 07-5 on its first and second quarter
2009 financial statements and concluded that, although there was no impact on the Companys cash
position, the effect of the misapplication was material to the financial statements. [Refer to Note
17 to the financial statements for more details]
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS 168, The FASB
Accounting Standards Collection and the Hierarchy of Generally Accepted Accounting Principles.
When effective, the FASB Accounting Standards Codification (the Codification) will become the
single official source of authoritative, nongovernmental U.S. generally accepted accounting
principles (GAAP). All other literature will be considered non-authoritative. The Codification
does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily
accessible, user friendly online research system. The Codification will be effective for interim
and annual periods ending after September 15, 2009. The Company will be required to report using
the Codification commencing with the quarter ended September 30, 2009. Management does not
anticipate that reporting under the Codification will have a material impact on the Companys
financial statements.
In May 2009 FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 was issued in order to
establish principles and requirements for reviewing and reporting subsequent events and requires
disclosure of the date through which subsequent events are evaluated and whether the date
corresponds with the time at which the financial statements were available for issue (as defined)
or were issued. SFAS No. 165 is effective for interim reporting periods ending after June 15, 2009.
The adoption of SFAS 165 during the period ended June 30, 2009 did not have a material impact on
the Companys financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS 107, Disclosures about
Fair Value of Financial Instruments, to require entities to provide disclosures about fair value of
financial instruments in interim financial information. This FSP also amends APB Opinion No. 28,
Interim Financial Reporting, to require those disclosures in summarized financial information at
interim reporting periods. In
29
addition, an entity shall disclose in the body or in the accompanying notes of its summarized
financial information for interim reporting periods and in its financial statements for annual
reporting periods the fair value of all financial instruments for which it is practicable to
estimate that value, whether recognized or not recognized in the statement of financial position,
as required by SFAS 107. The Company adopted FSP FAS 107-1 and APB 28-1 in the quarter ended June
30, 2009 and there was no material impact on the Companys financial statements.
30
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP changes existing guidance for determining whether an
impairment is other than temporary to debt securities; replaces the existing requirement that
management assert it has both the intent and ability to hold an impaired security until recovery
with a requirement that management assert: (a) it does not have the intent to sell the security;
and (b) it is more likely than not it will not have to sell the security before recovery of its
cost basis; requires that an entity recognize noncredit losses on held-to-maturity debt securities
in other comprehensive income and amortize that amount over the remaining life of the security in a
prospective manner by offsetting the recorded value of the asset unless the security is
subsequently sold or there are additional credit loses; and requires entities to present the total
other-than-temporary impairment in the statement of earnings with an offset for the amount
recognized in other comprehensive income. When adopting FSP FAS 115-2 and FAS 124-2, entities are
required to record a cumulative-effect adjustment as of the beginning of the period of adoption to
reclassify the noncredit component of a previously recognized other-temporary impairment from
retained earnings to accumulated other comprehensive income if the entity does not intend to sell
the security and it is not more likely than not that the entity will be required to sell the
security before recovery. The Company adopted FSP FAS 115-1 and 124-2 in the quarter ended June 30,
2009 and there no material impact on the Companys financial statements.
In April 2009 the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly. This FSP affirms that the objective of fair value when the market for an
asset is not active is the price that would be received to sell the asset in an orderly
transaction; clarifies and includes additional factors for determining whether there has been a
significant decrease in market activity for an asset when the market for that asset is not active;
and eliminates the proposed presumption that all transactions are distressed (not orderly) unless
proven otherwise. The FSP instead requires an entity to base its conclusion about whether a
transaction was not orderly on the weight of the evidence. The Company adopted FSP FAS 157-4 for
the quarter ended June 30, 2009 and there was no material impact on the Companys financial
statements.
In December 2007, the FASB ratified the consensus reached by the EITF with respect to EITF
Issue No. 07-01 Accounting for Collaborative Arrangements. The EITF defined collaborative
arrangements and established reporting requirements for transactions between participants in a
collaborative arrangement and between participants in the arrangement and third parties. This issue
is effective for financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of EITF Issue No. 07-01 did not have a material impact on our financial position,
results of operations or cash flows.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activities (SFAS 161). The new standard is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys financial position, financial
performance, and cash flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. In accordance with the provisions of SFAS 161 we
have included additional disclosures (in Note 7. Derivatives) describing how and why we use
derivative instruments. The Company has determined that the adoption of SFAS 161 did not have a
material impact on our financial statements.
Effective January, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
157). In February 2008, the FASB issued Staff Position (FSP) FAS 157-1 to exclude SFAS no. 13,
Accounting for Leases and its related interpretive accounting pronouncements that address leasing
transactions, from the scope of SFAS No. 157. In February 2008, the FASB also issued FASB Staff
Position No. 157-2, Effective Date of FASB Statement 157, which provides a one year deferral of
the effective date of SFAS 157 for non-financial assets and non-financial; liabilities, except
those that are recognized or disclosed in the financial statements at fair value. SFAS 157 defines
fair value, establishes a framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS
157 as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or the most advantageous market for an asset or liability in an
orderly transaction between participants on the measurement date. Valuation techniques used to
measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs.
31
The standard describes a fair value hierarchy based on the levels of inputs, of which the first two
are considered observable and the last unobservable, that may be used to measure fair value which
are the following:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities |
|
|
|
|
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or corroborated by observable market data or
substantially the full term of the assets or liabilities |
|
|
|
|
Level 3 Unobservable inputs that are supported by little or no market activity and
that are significant to the value of the assets or liabilities |
The adoption of this statement for non-financial assets and liabilities effective January 1,
2009, did not have a material impact on the Companys results of operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Fair Value of Warrants and Derivative Liabilities. At June 30, 2009, the estimated fair value
of derivative instruments was $4.1 million. We estimate the fair values of these instruments using
the Black-Scholes option pricing model which takes into account a variety of factors, including
historical stock price volatility, risk-free interest rates, remaining maturity and the closing
price of our common stock. We believe that the assumption that has the greatest impact on the
determination of fair value is the closing price of our common stock. The following table
illustrates the potential effect of changes in the assumptions used to calculate fair value:
|
|
|
|
|
|
|
derivatives |
|
|
(in thousands) |
25% increase in stock price |
|
$ |
1,022 |
|
50% increase in stock price |
|
|
2,176 |
|
5% increase in assumed volatility |
|
|
122 |
|
25% decrease in stock price |
|
|
(1,071 |
) |
50% decrease in stock price |
|
|
(1,898 |
) |
5% decrease in assumed volatility |
|
|
(466 |
) |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures (Restated)
The Companys senior management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities
Exchange Act of 1934 (the Exchange Act)) designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuers management, including its principal executive officer or officers and
principal financial officer or officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
In our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, originally filed on
August 10, 2009, our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the Exchange Act))
were effective as of June 30, 2009. In connection with our decision to restate our Quarterly
Report on Form 10-Q for the three and six month period ended June 30, 2009, as more fully described
in Note 17 to the financial statements of this Form 10-Q/A, our management, including our Chief
Executive Officer and Chief Financial Officer, performed a reevaluation and concluded that our
disclosure controls and procedures were not effective as of June 30, 2009 as a result of the
material weakness in our internal control over financial reporting as discussed below.
In
light of the material weakness described below, we performed additional analysis and other
post closing procedures to ensure that our financial statements were prepared in accordance with
generally accepted accounting principles. Accordingly, we believe that
32
the financial statements included in this report fairly present in all material respects, our
financial condition, results of operations and cash flows for the periods presented.
Material Weaknesses in Internal Control over Financial Reporting and Status of Remediation Efforts
A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the companys annual or interim financial statements will not be prevented or detected in a timely
basis.
As of June 30, 2009, we did not maintain effective controls to ensure completeness and
accuracy with regard to the proper recognition, presentation and disclosure of conversion features
of certain convertible debt instruments and warrants. Specifically, we determined that Emerging
Issue Task Force 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
Entitys Own Stock (EITF 07-5) had not been properly adopted on January 1, 2009 with regard to the
conversion feature in our MHR convertible note and certain warrants issued in 2005 and as more
fully described in Note 17 to the condensed financial statements.
As a result, our financial statements included in the Form 10-Q for the three and six months
ended June 30, 2009 did not reflect the warrant as a derivative
liability, nor the bifurcation of the conversion feature embedded in the convertible debt
instrument as a derivative liability.
For the three months ended June 30, 2009, we understated the change in the fair value of the
warrant liability and understated net loss, which included the effects of the accretion of debt
discount associated with the embedded conversion feature in the MHR Convertible Note.
For the six months ended June 30, 2009, we understated the change in the fair value of the
warrant liability and understated net loss which included the effects of the accretion of debt
discount associated with the embedded conversion feature in the MHR Convertible Note. As a result,
the Company has concluded that there is a material weakness regarding the identification,
evaluation, and adoption of applicable accounting guidance in a timely manner.
Managements Remediation Initiatives
In light of the material weakness described above, we are in the process of designing and
implementing improvements in our internal control over financial reporting to address the material
weakness with regard to the proper recognition, presentation and disclosure of conversion features
of certain convertible debt instruments and warrants. These improvements will include, among other
things; improved access to and evaluation of recent accounting pronouncements as it relates to
financing arrangements and derivative instruments, including enhancing the documentation around
conclusions reached in the implementation of applicable generally accepted accounting principles.
In addition, we will provide further training of those individuals involved in technical accounting
and reporting regarding financing arrangements and derivative instruments.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three month
period ended June 30, 2009 that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
33
PART II
ITEM 1. LEGAL PROCEEDINGS
In April 2005, the Company entered into an employment contract with its then Chief Executive
Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January 16, 2007, the
Board of Directors terminated Dr. Goldbergs services. On April 26, 2007, the Board of Directors
held a special hearing at which it determined that Dr. Goldbergs termination was for cause. On
March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration asserting that
his termination was without cause and seeking $1,048,000 plus attorneys fees, interest,
arbitration costs and other relief alleged to be owed to him in connection with his employment
agreement with the Company. Dr. Goldbergs employment agreement provides, among other things, that
in the event he is terminated without cause, Dr. Goldberg would be paid his base salary plus bonus,
if any, monthly for a severance period of eighteen months or, in the event of a change of control,
twenty-four months, and he would also be entitled to continued health and life insurance coverage
during the severance period and all unvested stock options and restricted stock awards would
immediately vest in full upon such termination. Dr. Goldbergs employment agreement provided that
in the event he is terminated with cause, he will receive no additional compensation. During the
year ended December 31, 2007, the Company accrued the estimated costs to settle this matter. On
July 7, 2009, the Company received an interim decision and award in the arbitration brought by Dr.
Goldberg against the Company which found that Dr. Goldbergs termination in 2007 was not for cause
under the terms of his employment agreement and dismissed the Companys counterclaims and
affirmative defenses. The arbitrators interim ruling reserved decision on remedies pending further
briefing and continued the proceedings. The Company is analyzing the ruling and considering its
options. It is the Companys current intention to continue to vigorously defend its position;
however, based on the interim ruling, the Company adjusted its estimate of cost to settle this
matter by adding $414 thousand non-cash compensation expense. It is impossible to predict with
certainty the ultimate impact the resolution of this matter will have on our financial statements.
It is possible that additional costs could be incurred to resolve the matter and such costs could
be material. The ultimate resolution could have a material adverse impact on our financial
statements.
On August 18, 2008, the Company filed a complaint in the United States District Court for the
District of New Jersey against Laura A. Kragie and Kragie BioMedWorks, Inc. seeking a declaratory
judgment affirming Emispheres sole rights to its proprietary technology for the oral
administration of Vitamin B12, as set forth in several Emisphere United States provisional patent
applications. The complaint also includes a claim under the Lanham Act arising from statements made
by defendants on their web site. Laura A. Kragie, M.D., is a former consultant for Emisphere who
later was employed by Emisphere. On February 13, 2009, the defendants filed an answer, affirmative
defenses and counterclaims, adding as counterclaim defendants current or former Emisphere
executives or employees, including Michael V. Novinski. The countersuit against Emisphere alleges
breach of contract, fraudulent inducement, trademark infringement, false advertising, and other
claims. Emisphere believes that the counterclaims are without merit and will litigate all claims
vigorously. At the current time, we are unable to estimate the ultimate loss, if any, that may
result from the resolution of this matter.
ITEM 1A. RISK FACTORS
The following risk factors should be read carefully in connection with evaluating our business
and the forward-looking statements that we make in this Report and elsewhere (including oral
statements) from time to time. Any of the following risks could materially and adversely affect our
business, our operating results, our financial condition and the actual outcome of matters as to
which forward-looking statements are made in this Report. Our business is subject to many risks,
which are discussed from time to time in our filings with the SEC. In addition to the other
information set forth in this report, you should carefully consider the following risk factors,
which are further discussed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K and
Form 10-K/A for the year ended December 31, 2008 and our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009. The Risk Factors included in the Form 10-K, Form 10-K/A and Form 10-Q
from the first quarter 2009 have not materially changed, other than as provided below.
Financial Risks
|
|
We have a history of operating losses and we may never achieve profitability. |
|
|
|
We have limited liquidity and, as a result, may not be able to meet our operating and debt
service requirement including our obligations under our senior secured loan. |
34
|
|
We believe that our existing cash resources will be sufficient to meet our projected operating
and debt service obligations through August 2009 but will not be sufficient to meet our
obligations thereafter, including but not limited to, our obligations to make (1) interest and
principal payments under our convertible promissory note held by Novartis, that matures on
December 1, 2009 (See Risk Factors We may not be able to make the payments we owe to Novartis
Pharma AG), (2) interest and principal payments under our convertible promissory note held by
MHR (See Risk Factors We may not be able to meet the covenants detailed in the Convertible
Notes with MHR Institutional Partners IIA LP, which could result in an increase in the interest
rate on the Convertible Notes and/or accelerated maturity of the Convertible Notes, which we
would not be able to satisfy), and (3) payments, including payment of related expenses, we may
have to make to our former CEO (See Risk Factors A decision against us in the arbitration
brought by our former CEO would be detrimental to our business). If we default on the payment of
the interest and principal on our indebtedness, Novartis or MHR may seek to exercise their rights
and remedies to obtain payment under the notes. Such actions on their part could force us to file
a bankruptcy case or have an involuntary bankruptcy case filed against us or otherwise liquidate
our assets. Any of these events would materially and adversely affect our business, financial
condition and results of operations. Furthermore, in the event of our bankruptcy or liquidation,
holders of common stock would not be entitled to receive any cash or other property or assets
until holders of our debt securities and other creditors have been paid in full. |
|
|
|
We will need to raise capital soon and we may not be able to do so. |
|
|
|
As discussed above, we believe that our existing cash resources will be sufficient to meet our
projected operating and debt service obligations through August 2009, but prior to or after that
time we will need to raise capital in order to meet our obligations. There is no guarantee that
we will be able to raise capital on favorable terms or at all, and we may be forced to cease
operations at that time. |
|
|
|
While our plan is to raise capital and to pursue product partnering opportunities, we cannot be
sure how much we will need to spend in order to develop, market, and manufacture new products and
technologies in the future. Subject to raising adequate capital, we expect to continue to spend
substantial amounts on research and development, including amounts spent on conducting clinical
trials for our product candidates. Further, we will not have sufficient resources to develop
fully any new products or technologies unless we are able to raise substantial additional
financing or to secure funds from new or existing partners. We cannot assure you that financing
will be available when needed, or on favorable terms or at all. The current economic environment
combined with a number of other factors pose additional challenges to the Company in securing
adequate financing under acceptable terms. If additional capital is raised through the sale of
equity or convertible debt securities, the issuance of such securities would result in dilution
to our existing stockholders. Additionally, these conditions may increase the costs to raise
capital. Our failure to raise capital will have a serious adverse affect on our business,
financial condition and results of operations, and would force us to cease operations. Upon
ceasing operations we would be unable to pay in full our liabilities, would be in default of our
notes payable and would likely seek bankruptcy protection. |
|
|
|
As a result of the circumstances described, no assurances can be given that we will be successful
in raising the capital we will need now or in the future, to continue our business. |
|
|
|
The audit opinion issued by our independent registered public accounting firm relating to our
financial statements for the year ended December 31, 2008 contained a going concern
explanatory paragraph. |
|
|
|
We may not be able to meet the covenants detailed in the Convertible Notes with MHR
Institutional Partners IIA LP, which could result in an increase in the interest rate on the
Convertible Notes and/or accelerated maturity of the Convertible Notes, which we would not be
able to satisfy. |
|
|
|
We may not be able to make the payments we owe to Novartis Pharma AG. |
|
|
|
A decision against us in the arbitration brought by our former CEO would be detrimental to
our business. |
|
|
|
On July 7, 2009, we received an interim decision and award in an arbitration brought by our
former CEO Michael Goldberg, M.D. against the Company which found that Dr. Goldbergs termination
in 2007 was not for cause under the terms of his employment agreement and dismissed the Companys
counterclaims and affirmative defenses. Dr. Goldberg brought such arbitration on March 22, 2007,
asserting that his termination was without cause and seeking $1,048,000 plus attorneys fees,
interest, arbitration costs and other relief alleged to be owed to him in connection with his
employment agreement with the Company. The arbitrators interim ruling reserved decision on
remedies pending further briefing and continued the proceedings. If such interim ruling is |
35
|
|
upheld as final, we will be required to pay the amount determined in such final ruling. Depending
on the size of the amount, we may be required to seek additional funding in order to continue to
develop fully any new products or technologies. As discussed above, we cannot assure you that
financing will be available when needed, or on favorable terms or at all. |
Risks Related to our Business
|
|
|
We are highly dependent on the clinical success of our product candidates. |
|
|
|
|
We are highly dependent upon collaborative partners to develop and commercialize
compounds using our delivery agents. |
|
|
|
|
Our collaborative partners control the clinical development of certain of our drug
candidates and may terminate their efforts at will. |
|
|
|
|
Our product candidates are in various stages of development, and we cannot be certain
that any will be suitable for commercial purposes. |
|
|
|
|
Our collaborative partners are free to develop competing products. |
|
|
|
|
Our business will suffer if we fail or are delayed in developing and commercializing an
improved oral form of vitamin B12. |
|
|
|
|
Our business will suffer if we cannot adequately protect our patent and proprietary
rights. |
|
|
|
|
We may be at risk of having to obtain a license from third parties making proprietary
improvements to our technology. |
|
|
|
|
We are dependent on third parties to manufacture and, in some cases, test our products. |
|
|
|
|
We are dependent on our key personnel and if we cannot recruit and retain leaders in our
research, development, manufacturing, and commercial organizations, our business will be
harmed. |
Risks Related to our Industry
|
|
|
Our future business success depends heavily upon regulatory approvals, which can be
difficult to obtain for a variety of reasons, including cost. |
|
|
|
|
We may face product liability claims related to participation in clinical trials for
future products. |
|
|
|
|
We are subject to environmental, health and safety laws and regulations for which we
incur costs to comply. |
|
|
|
|
We face rapid technological change and intense competition. |
Other Risks
|
|
|
Provisions of our corporate charter documents, Delaware law, our financing documents and
our stockholder rights plan may dissuade potential acquirers, prevent the replacement or
removal of our current management and members of our Board of Directors and may thereby
affect the price of our common stock. |
|
|
|
|
Our stock price has been and may continue to be volatile. |
|
|
|
|
Future sales of common stock or warrants, or the prospect of future sales, may depress
our stock price. |
|
|
|
|
We are required to evaluate our internal control under Section 404 of the Sarbanes-Oxley Act
of 2002 and any adverse results from such evaluation could impact investor confidence in the
reliability of our internal controls over financial reporting. |
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a
report by our management on our internal control over financial reporting. Such report must
contain among other matters, an assessment of the effectiveness of our
36
internal control over financial reporting as of the end of our fiscal year, including a
statement as to whether or not our internal control over financial reporting is effective. This
assessment must include disclosure of any material weaknesses in our internal control over
financial reporting identified by management.
We will continue to perform the system and process documentation and evaluation needed to
comply with Section 404, which is both costly and challenging. During this process, if our
management identifies one or more material weaknesses in our internal control over financial
reporting, we will be unable to assert such internal control is effective. We concluded that our
disclosure controls and procedures were not effective as of the three and six months period ended
June 30, 2009 as a result of a material weakness in our internal control over financial
reporting, specifically we did not maintain effective controls to ensure completeness and
accuracy with regard to the proper recognition, presentation and disclosure of conversion
features of certain convertible debt instruments and warrants. As a result, the Company has
concluded that there is a material weakness regarding the identification, evaluation, and
adoption of applicable accounting guidance in a timely manner. If we are unable to remediate the
noted deficiency or otherwise assert our internal control over financial reporting is effective
as of the end of a fiscal year or if our independent registered public accounting firm is unable
to express an opinion on the effectiveness of our internal control over financial reporting, we
could lose investor confidence in the accuracy and completeness of our financial reports, which
may have an adverse effect on our stock price.
For a more complete listing and description of these and other risks that the Company faces,
please see our Annual Report for 2008 on Form 10-K as filed with the SEC on March 16, 2009, Form
10-K/A as filed with the SEC on April 30, 2009 and our Form 10-Q as filed with the SEC on May 7,
2009.
37
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Stockholders was held on June 24, 2009. The matter voted upon at the
meeting was the election of two directors. The number of votes cast for and against or withheld
with respect to each matter voted upon at the meeting and the number of abstentions and broker
nonvotes are as follows:
|
|
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Withheld |
Election of Directors: |
|
|
|
|
|
|
|
|
Mr. Franklin M. Berger |
|
|
25,558,809 |
|
|
|
1,756,394 |
|
Mr. John D. Harkey, Jr. |
|
|
24,458,845 |
|
|
|
1,856,358 |
|
The terms of office for the following directors continued after our Annual Meeting: Mr.
Kenneth I. Moch, Mr. Michael V. Novinski, Dr. Mark H. Rachesky and Dr. Michael Weiser.
ITEM 5. OTHER EVENTS
On June 9, 2009, the Companys securities were suspended from trading on the NASDAQ Capital
Market and were subsequently delisted from the NASDAQ Capital Market on July 2, 2009. The delisting
resulted from the Companys non-compliance with the minimum market value of listed securities
requirement for continued listing on The NASDAQ Capital Market pursuant to NASDAQ Marketplace Rule
4310(c)(3)(B). The Companys securities began trading on the Over-the-Counter Bulletin Board (the
OTCBB), an electronic quotation service maintained by the Financial Industry Regulatory
Authority, effective with the open of business on June 9, 2009. The Companys trading symbol
remains EMIS. However, it is the Companys understanding that, for certain quote publication
websites, investors may be required to key EMIS.OB to obtain quotes.
On July 28, 2009 the Company announced that, concurrent with the publication of two papers in
the July/August issue of the peer reviewed journal, International Journal of Toxicology, which
describes the toxicology of its Sodium N-[8-(2-hydroxybenzoyl) Amino] Caprylate (SNAC) carrier,
SNAC has achieved GRAS status for its intended use in combination with nutrients added to food and
dietary supplements. The publication of two papers in the International Journal of Toxicology was
the final, necessary step in the process of obtaining GRAS status for its SNAC carrier. Now that
SNAC has achieved GRAS status, it is exempt from pre-market approval for its intended use in
combination with nutrients added to food and dietary supplements. This opens the way for the
potential commercialization of the Eligen® Technology with other substances such as vitamins. The
Company expects that the first of these products will be its oral Eligen® Vitamin B12 product.
ITEM
6. EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
3.1
|
|
Amended and Restated Certificate of Incorporation of Emisphere
Technologies, Inc., as amended by the Certificate of Amendment
of Amended and Restated Certificate of Incorporation of
Emisphere Technologies, Inc., dated April 20, 2007 (incorporated
by reference to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2007). |
|
|
|
3.2(a)
|
|
By-Laws of Emisphere Technologies, Inc. as amended December 7,
1998 and September 26, 2005 (incorporated by reference to the
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1999, and the Current Report on Form 8-K filed
September 30, 2005). |
|
|
|
3.2(b)
|
|
Amendment to the By-Laws, as amended, of Emisphere Technologies,
Inc. (incorporated by reference to the Current Report on Form
8-K filed September 14, 2008). |
|
|
|
10.1
|
|
Form of Non-Employee Director Non-Qualified Stock Option
Agreement under the 2007 Stock Award and Incentive Plan
(incorporated by reference to the Current Report on Form 8-K
filed May 21, 2009). |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of
the Sarbanes- Oxley Act of 2002 (filed herewith). |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes- Oxley Act of 2002
(furnished herewith). |
38
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Emisphere Technologies, Inc.
|
|
Date: October 21, 2009 |
/s/ Michael V. Novinski
|
|
|
Michael V. Novinski |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
Date: October 21, 2009 |
/s/ Michael R. Garone
|
|
|
Michael R. Garone |
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
39
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
3.1
|
|
Amended and Restated Certificate of Incorporation of Emisphere
Technologies, Inc., as amended by the Certificate of Amendment
of Amended and Restated Certificate of Incorporation of
Emisphere Technologies, Inc., dated April 20, 2007 (incorporated
by reference to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2007). |
|
|
|
3.2(a)
|
|
By-Laws of Emisphere Technologies, Inc. as amended December 7,
1998 and September 26, 2005 (incorporated by reference to the
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1999, and the Current Report on Form 8-K filed
September 30, 2005). |
|
|
|
3.2(b)
|
|
Amendment to the By-Laws, as amended, of Emisphere Technologies,
Inc. (incorporated by reference to the Current Report on Form
8-K filed September 14, 2008). |
|
|
|
10.1
|
|
Form of Non-Employee Director Non-Qualified Stock Option
Agreement under the 2007 Stock Award and Incentive Plan
(incorporated by reference to the Current Report on Form 8-K
filed May 21, 2009). |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of
the Sarbanes- Oxley Act of 2002 (filed herewith). |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes- Oxley Act of 2002
(furnished herewith). |
40