e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2011
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
incorporation or organization)
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(I.R.S. Employer
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) |
(973) 532-8000
(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 þ 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):
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Large accelerated filer o | |
Accelerated filer þ | |
Non-accelerated filer o | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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, $.01 par value, outstanding as of August 1,
2011 was 60,677,478.
EMISPHERE TECHNOLOGIES, INC.
Index
All other items called for by the instructions to Form 10-Q have been omitted because the
items are not applicable or the relevant information is not material.
2
PART I
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ITEM 1. |
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FINANCIAL STATEMENTS |
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
June 30, 2011 and December 31, 2010
(in thousands, except share and per share data)
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June 30, |
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December 31, |
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2011 |
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2010 |
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(unaudited) |
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Assets: |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,343 |
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$ |
5,326 |
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Accounts receivable, net |
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60 |
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14 |
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Inventories |
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260 |
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260 |
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Prepaid expenses and other current assets |
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535 |
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496 |
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Total current assets |
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2,198 |
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6,096 |
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Equipment and leasehold improvements, net |
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61 |
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82 |
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Purchased technology, net |
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718 |
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838 |
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Restricted cash |
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260 |
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260 |
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Total assets |
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$ |
3,237 |
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$ |
7,276 |
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Liabilities and Stockholders Deficit: |
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Current liabilities |
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Accounts payable and accrued expenses |
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$ |
2,172 |
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$ |
2,954 |
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Notes payable related party, including accrued
interest and net of related discount |
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547 |
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Derivative instruments: |
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Related party |
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5,517 |
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17,293 |
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Others |
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1,638 |
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5,647 |
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Contract termination liability, current |
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149 |
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435 |
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Restructuring accrual, current |
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300 |
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Other current liabilities |
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1,189 |
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35 |
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Total current liabilities |
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11,212 |
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26,664 |
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Notes payable, including accrued interest and net of
related discount, related party |
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22,480 |
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20,385 |
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Deferred revenue |
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31,577 |
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31,535 |
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Derivative instrument related party |
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6,895 |
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11,166 |
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Deferred lease liability and other liabilities |
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26 |
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46 |
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Total liabilities |
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72,190 |
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89,796 |
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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, $.01 par value; authorized 100,000,000
shares; issued 52,366,334 shares (52,076,602
outstanding) as of June 30, 2011 and issued
52,178,834 shares (51,889,102 outstanding) as
December 31, 2010 |
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524 |
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522 |
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Additional paid-in-capital |
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402,577 |
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401,853 |
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Accumulated deficit |
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(468,102 |
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(480,943 |
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Common stock held in treasury, at cost; 289,732 shares |
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(3,952 |
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(3,952 |
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Total stockholders deficit |
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(68,953 |
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(82,520 |
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Total liabilities and stockholders deficit |
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$ |
3,237 |
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$ |
7,276 |
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The accompanying notes are an integral part of the financial statements.
3
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENT OF OPERATIONS
For the three and six months ended June 30, 2011 and 2010
(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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2011 |
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2010 Restated |
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2011 |
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2010 Restated |
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Net Sales |
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$ |
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$ |
39 |
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$ |
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$ |
51 |
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Costs and expenses: |
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Research and development |
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563 |
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732 |
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1,092 |
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1,294 |
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General and administrative |
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1,593 |
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2,129 |
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3,043 |
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4,463 |
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Restructuring costs |
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50 |
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Gain on disposal of fixed assets |
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(1 |
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Expense from settlement of lawsuit |
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220 |
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220 |
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Depreciation and amortization |
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70 |
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75 |
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140 |
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150 |
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Total costs and expenses |
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2,226 |
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3,156 |
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4,275 |
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6,176 |
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Operating loss |
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(2,226 |
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(3,117 |
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(4,275 |
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(6,125 |
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Other non-operating income (expense): |
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Other income |
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45 |
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2 |
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68 |
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5 |
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Change in fair value of derivative
instruments |
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Related party |
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4,310 |
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(6,208 |
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16,046 |
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(15,328 |
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Other |
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1,079 |
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(2,424 |
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3,660 |
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(7,271 |
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Interest expense |
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Related party |
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(1,362 |
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(794 |
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(2,642 |
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(859 |
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Other |
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(4 |
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(160 |
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(16 |
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(382 |
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Loss on extinguishment of debt |
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(17,014 |
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(17,014 |
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Financing fees |
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(1,858 |
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(1,858 |
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Total other non-operating income (expense) |
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4,068 |
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(28,456 |
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17,116 |
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(42,707 |
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Net income (loss) |
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$ |
1,842 |
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$ |
(31,573 |
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$ |
12,841 |
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$ |
(48,832 |
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Net income (loss) per share, basic |
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$ |
0.04 |
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$ |
(0.73 |
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$ |
0.25 |
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$ |
(1.14 |
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Net income (loss) per share, diluted |
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$ |
0.03 |
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$ |
(0.73 |
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$ |
0.22 |
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$ |
(1.14 |
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Weighted average shares outstanding, basic |
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52,076,602 |
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43,338,432 |
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52,064,171 |
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42,711,367 |
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Weighted average shares outstanding, diluted |
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54,924,355 |
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43,338,432 |
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62,900,927 |
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42,711,367 |
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The accompanying notes are an integral part of the financial statements.
4
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2011 and 2010
(in thousands)
(unaudited)
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For the six months ended |
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June 30, |
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2011 |
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2010 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
12,841 |
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$ |
(48,832 |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation |
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20 |
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30 |
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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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(19,706 |
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22,599 |
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Non-cash interest expense |
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2,642 |
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20,112 |
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Non-cash compensation expense |
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140 |
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547 |
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Gain on disposal of fixed assets |
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(1 |
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Changes in assets and liabilities excluding non-cash transactions: |
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(Increase) decrease in accounts receivable |
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(46 |
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120 |
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Increase in inventory |
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(24 |
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Increase in prepaid expenses and other current assets |
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(39 |
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(531 |
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Increase in deferred revenue |
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42 |
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2,012 |
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(Decrease) increase in accounts payable and accrued expenses |
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(1,066 |
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887 |
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Increase (decrease) in other current liabilities |
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1,154 |
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(21 |
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Decrease in deferred lease liability |
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(21 |
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(17 |
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Decrease in restructuring accrual |
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(300 |
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(150 |
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Total adjustments |
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(17,060 |
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45,683 |
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Net cash used in operating activities |
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(4,219 |
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(3,149 |
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Net cash provided by investing activities proceeds from sale of fixed assets |
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1 |
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Net cash provided by financing activities proceeds from exercise of warrants |
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236 |
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Net decrease in cash and cash equivalents |
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(3,983 |
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(3,148 |
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Cash and cash equivalents, beginning of period |
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5,326 |
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3,566 |
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Cash and cash equivalents, end of period |
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1,343 |
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$ |
418 |
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Schedule of non-cash financing activities |
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Common stock issued to settle accrued Directors compensation |
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$ |
11 |
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Exchange of debt as deferred revenue |
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$ |
13,000 |
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Reclassification of derivative liability to equity upon exercise of warrants |
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$ |
349 |
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The accompanying notes are an integral part of the financial statements.
5
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Nature of Operations and Liquidity
Nature of Operations. Emisphere Technologies, Inc. (Emisphere, the Company, our, us, or
we) is a biopharmaceutical company that focuses on a unique and improved delivery of therapeutic
molecules or nutritional supplements using its Eligen® Technology. These molecules are
currently available or are 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, by applying the Eligen® Technology
to those drugs or nutrients. Our development efforts are conducted internally or in collaboration
with corporate development partners. Typically, the drugs that we target are at an advanced stage
of development, or have already received regulatory approval, and are currently available on the
market.
Liquidity. As of June 30, 2011, we had approximately $1.3 million in cash and cash equivalents,
approximately $9.0 million in working capital deficiency, a stockholders deficit of approximately
$69.0 million and an accumulated deficit of approximately $468.1 million. Our operating loss for
the three months ended June 30, 2011 was approximately $2.2 million and $4.3 million for the six
months ended June 30, 2011.
On June 30, 2011, we entered into a securities purchase agreement with various institutional
investors to sell an aggregate of 4,300,438 shares of our common stock and warrants to purchase a
total of 3,010,306 shares of our common stock for gross proceeds, before deducting fees and
expenses and excluding the proceeds, if any, from the exercise of the warrants of $3,749,982 (the
2011 Private Placement). The 2011 Private Placement closed on July 6, 2011. In connection with
the 2011 Private Placement, we entered into a securities purchase agreement on the same date with
MHR Fund Management LLC to sell an aggregate of 4,300,438 shares of our common stock and warrants
to purchase a total of 3,010,306 shares of our common stock for gross proceeds, before deducting
fees and expenses and excluding the proceeds, if any, from the exercise of the warrants of
$3,749,982 (the 2011 MHR Private Placement). Simultaneous with closing the 2011 Private
Placement, we closed the 2011 MHR Private Placement with MHR and certain of its affiliated
investment funds. In connection with the 2011 Private Placement and the 2011 MHR Private Placement,
we entered into a waiver agreement with MHR, pursuant to which MHR waived certain anti-dilution
adjustment rights under its senior secured notes and certain warrants that would otherwise have
been triggered by the 2011 Private Placement. As consideration for such waiver, we issued to MHR
warrants to purchase 795,000 shares of our common stock and agreed to reimburse MHR for up to
$25,000 of its legal fees. In both the Private Placement and the MHR Private Placement (together,
the July 2011 Financing), each unit, consisting of one share of common stock and a warrant to
purchase 0.7 shares of common stock, were sold at a purchase price of $0.872. All of the warrants
issued in the July 2011 Financing are exercisable at an exercise price of $1.09 per share and will
expire on July 6, 2016.
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 through approximately April 2012, or earlier if unforeseen events arise that
negatively affect our liquidity. 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, 2010 contained a going concern
explanatory paragraph. We are pursuing new and enhanced collaborations and exploring other funding
options, with the objective of minimizing dilution and disruption.
Our plan is to raise capital when needed and/or to pursue product partnering opportunities. 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
6
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 before April 2012 will adversely affect our business, financial condition and results
of operations, and could force us to reduce or cease our operations. 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, 2010 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 for the year ended December 31, 2010.
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, 2011, shares available for future grants under the Plans amounted to 1,587,648.
Total compensation expense recorded during the six months ended June 30, 2011 for share-based
payment awards was $0.14 million, of which $0.03 million is included in research and development
and $0.11 million is included in general and administrative expenses in the condensed statement of
operations for the six months ended June 30, 2011. Total compensation expense recorded during the
six months ended June 30, 2010 for share-based payment awards was $0.55 million, of which $0.06
million is included in research and development and $0.49 million is included in general and
administrative expenses in the condensed statement of operations for the six months ended June 30,
2010. At June 30, 2011, total unrecognized estimated compensation expense related to non-vested
stock options granted prior to that date was $0.4 million, which is expected to be recognized over
a weighted-average period of approximately two years. No options were exercised in the six months
ended June 30, 2011 or 2010. No tax benefit was realized due to a continued pattern of operating
losses.
7
During the six months ended June 30, 2011, the Company granted no options. On July 15, 2011, the
Company granted 20,000 in options to Gary Riley and 30,000 options to Michael Garone.
4. Inventories
Inventories are stated at the lower of cost or market determined by the first in, first out method.
Inventories consist principally of finished goods at June 30, 2011 and December 31, 2010.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
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June 30, |
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December 31, |
|
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2011 |
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2010 |
|
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(in thousands) |
Prepaid corporate insurance |
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$ |
85 |
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$ |
41 |
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Deposit on inventory |
|
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420 |
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|
420 |
|
Prepaid expenses and other current assets |
|
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30 |
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|
35 |
|
|
|
|
|
|
$ |
535 |
|
|
$ |
496 |
|
|
|
|
6. Fixed Assets
Equipment and leasehold improvements, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives |
|
June 30, |
|
December 31, |
|
|
in Years |
|
2011 |
|
2010 |
|
|
|
|
|
|
(in thousands) |
Equipment |
|
|
3-7 |
|
|
$ |
1,370 |
|
|
$ |
1,370 |
|
Leasehold improvements |
|
Term of lease |
|
|
61 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,431 |
|
|
|
1,431 |
|
Less, accumulated depreciation and amortization |
|
|
|
|
|
|
1,370 |
|
|
|
1,349 |
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net |
|
|
|
|
|
$ |
61 |
|
|
$ |
82 |
|
|
|
|
|
|
|
|
7. 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, |
|
|
2011 |
|
2010 |
|
|
(in thousands) |
Gross carrying amount |
|
$ |
4,533 |
|
|
$ |
4,533 |
|
Less, accumulated amortization |
|
|
3,815 |
|
|
|
3,695 |
|
|
|
|
Net book value |
|
$ |
718 |
|
|
$ |
838 |
|
|
|
|
Amortization expense for the purchased technology is approximately $60 thousand per quarter in 2011
and in the remaining years through 2014.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
8
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
(In thousands) |
Accounts payable and other accrued expenses |
|
$ |
1,756 |
|
|
$ |
2,201 |
|
Accrued bonus |
|
|
|
|
|
|
300 |
|
Accrued legal, professional fees and other |
|
|
300 |
|
|
|
375 |
|
Accrued vacation |
|
|
77 |
|
|
|
69 |
|
Clinical trial expenses and contract research |
|
|
39 |
|
|
|
9 |
|
|
|
|
|
|
$ |
2,172 |
|
|
$ |
2,954 |
|
|
|
|
9. Other Current Liabilities
At June 30, 2011, other current liabilities included $1.15 million deposits related to the future
private placement of the Companys common stock to certain institutional investors at a purchase
price of $0.872 per unit, with each unit consisting of one share of common stock and one warrant to
purchase 0.7 shares of common stock. As of July 6, 2011 we had closed the private placement, and
the $1.15 million deposit was reclassified as equity.
10. Notes Payable
Notes payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
(in thousands) |
MHR Convertible Notes |
|
$ |
22,480 |
|
|
$ |
19,864 |
|
MHR Promissory Notes |
|
|
547 |
|
|
|
521 |
|
|
|
|
|
|
$ |
23,027 |
|
|
$ |
20,385 |
|
|
|
|
MHR Convertible Notes. On September 26, 2005, we received net proceeds of approximately $12.9
million under a $15 million secured loan agreement (the Loan Agreement) executed with MHR Fund
Management LLC (together with its affiliates, MHR). Under the Loan Agreement, MHR requested, and
on May 16, 2006, we effected, the exchange of the loan from MHR for senior secured convertible
notes (the MHR Convertible Notes) with substantially the same terms as the Loan Agreement, except
that the MHR Convertible Notes are convertible, at the sole discretion of MHR, into shares of our
common stock at a price per share of $3.78. As of June 30, 2011, the MHR Convertible Notes were
convertible into 7,051,181 shares of our common stock. The MHR Convertible Notes are due on
September 26, 2012, bear interest at 11% and are collateralized by a first priority lien in favor
of MHR on substantially all of our assets. Interest is payable in the form of additional MHR
Convertible Notes rather than in cash.
In connection with the Loan Agreement, we amended MHRs previously existing warrants to purchase
387,374 shares of common stock (MHR 2005 Warrants) to provide additional anti-dilution
protection. We also granted MHR the option (MHR Option) to purchase warrants for up to 617,211
shares of our common stock. The MHR Option was exercised during April 2006 whereby MHR acquired
617,211 warrants (MHR 2006 Warrants) to acquire an equal number of shares of common stock. The
exercise price for the MHR Option was $0.01 per warrant for the first 67,084 warrants and $1.00 per
warrant for each additional warrant. See Note 11 for a further discussion of the liability related
to these warrants.
Total issuance costs associated with the Loan Agreement were $2.1 million, of which $1.9 million
were allocated to the MHR Convertible Notes, and $0.2 million were allocated to the related
derivative instruments. Of the $1.9 million allocated to the MHR Convertible Notes, $1.4 million
represents reimbursement of MHRs legal fees and $0.5 million represents our legal and other
transaction costs. The $1.4 million paid on behalf of the lender has been recorded as a reduction
of the face value of the note, while the $0.5 million of our costs has been recorded as deferred
financing costs.
The MHR Convertible Notes provide MHR with the right to require us to redeem the notes in the event
of a change in control. The change in control redemption feature has been determined to be an
embedded derivative instrument which must be separated from the host contract. For the year ended
December 31, 2006, the fair value of the change in control redemption feature was estimated using a
combination of a put option model for the penalties and the Black-Scholes model for the conversion
option that would exist under the MHR Convertible Notes. The estimate resulted in a value that was
de minimis and, therefore, no separate liability was recorded. Changes in the assumptions used to
estimate the fair value of this derivative instrument, in particular the probability that a change
in control will
9
occur, could result in a material change to the fair value of the instrument. For the six months
ended June 30, 2011 and for the years ended December 31, 2010, 2009 and 2008, management determined
the probability of exercise of the right due to change in control to be remote. The fair value of
the change in control redemption feature is de minimis.
In connection with the MHR Convertible Notes financing, the Company agreed to appoint a
representative of MHR (MHR Nominee) and another person (the Mutual Director) to its Board of
Directors. Further, the Company agreed to amend, and in January 2006 did amend, 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 MHR Convertible Notes provide for various events of default including for failure to perfect
any of the liens in favor of MHR, failure to observe any covenant or agreement, failure to maintain
the listing and trading of our common stock, sale of a substantial portion of our assets, merger
with another entity without the prior consent of MHR, or any governmental action renders us unable
to honor or perform our obligations under the Loan Agreement or results in a material adverse
effect on our operations. If an event of default occurs, the MHR Convertible Notes provide for the
immediate repayment and certain additional amounts as set forth in the MHR Convertible Notes. We
currently have a waiver from MHR for failure to perfect liens on certain intellectual property
rights through August 10, 2012.
Effective January 1, 2009, the Company adopted the provisions of the Financial Accounting Standards
Board Accounting Codification Topic 815-40-15-5, Evaluating Whether an Instrument Involving a
Contingency is Considered Indexed to an Entitys Own Stock (FASB ASC 815-40-15-5). Under FASB ASC
815-40-15-5, the conversion feature embedded in the MHR Convertible Notes have been bifurcated from
the host contract and accounted for separately as a derivative. The bifurcation of the embedded
derivative increased the amount of debt discount thereby reducing the book value of the MHR
Convertible Notes and increasing prospectively the amount of interest expense to be recognized over
the life of the MHR Convertible Notes using the effective yield method.
As consideration for its consent and limitation of rights in connection with the Master Agreement
and Amendment by and between the Company and Novartis dated as of June 4, 2010 (the Novartis
Agreement), the Company granted MHR warrants to purchase 865,000 shares of its common stock (the
June 2010 MHR Warrants) under the MHR Letter Agreement (as defined below). The Company estimated
the fair value of the June 2010 MHR Warrants on the date of grant using Black-Scholes models to be
$1.9 million. The Company determined that the resulting modification of the MHR Convertible Notes
was substantial in accordance with ASC 470-50, Modifications and Extinguishments. As such, the
modification of the MHR Convertible Notes was accounted for as an extinguishment and restructuring
of the debt, and the warrants issued to MHR were expensed as a financing fee. The fair value of the
MHR Convertible Notes as of June 4, 2010 was estimated by calculating the present value of future
cash flows discounted at a market rate of return for comparable debt instruments to be $17.2
million. The Company recognized a loss on extinguishment of debt in the amount of $17.0 million
which represented the difference between the net carrying amount of the MHR Convertible Notes and
their fair value as of the date of the Novartis Agreement and the MHR Letter Agreements.
The book value of the MHR Convertible Notes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
(in thousands) |
Face Value of the notes (including accrued interest) |
|
$ |
26,653 |
|
|
$ |
25,233 |
|
Discount (related to the warrant purchase option and embedded conversion feature) |
|
|
(4,173 |
) |
|
|
(5,369 |
) |
|
|
|
|
|
$ |
22,480 |
|
|
$ |
19,864 |
|
|
|
|
2010 MHR Promissory Notes. In connection with the Novartis Agreement, the Company and MHR entered
into a letter agreement (the MHR Letter Agreement), and MHR, the Company and Novartis entered
into a non-disturbance agreement (the Non-Disturbance Agreement), which was a condition to
Novartis execution of the Novartis Agreement. Pursuant to the MHR Letter Agreement, MHR agreed to
limit certain rights and courses of action that it
10
would have available to it as a secured party under the Senior Secured Term Loan Agreement and
Pledge and Security Agreement (Loan and Security Agreement) between MHR and the Company. MHR also
consented to the Novartis Agreement, which consent was required under the Loan and Security
Agreement, and MHR also agreed to enter into a comparable agreement at some point in the future in
connection with another potential Company transaction (the Future Transaction Agreement). The MHR
Letter Agreement also provided for the Company to reimburse MHR for its legal fees incurred in
connection with the Non-Disturbance Agreement for up to $500,000 and up to $100,000 in legal
expenses incurred by MHR in connection with the Future Transaction Agreement. The reimbursements
were to be paid in the form of non-interest bearing promissory notes issued on the effective date
of the MHR Letter Agreement. As such, the Company issued to MHR non-interest promissory notes for
$500,000 and $100,000 on June 8, 2010. The Company received documentation that MHR expended more
than the $500,000 of legal fees in connection with the Non-Disturbance Agreement and $100,000 of
legal fees in connection with the Future Transaction Agreement, and, consequently, recorded the
issuance of the $500,000 and $100,000 promissory notes and a corresponding charge to financing
expenses. The promissory notes are due June 4, 2012. The Company imputed interest at its
incremental borrowing rate of 10%, and discounted the face amounts of the promissory notes. As of
June 30, 2011, the unamortized discount of the $500,000 and $100,000 promissory notes are $44,000
and $9,000, respectively.
11. Derivative Instruments
Derivative instruments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
(in thousands) |
MHR Convertible Note |
|
$ |
6,895 |
|
|
|
11,166 |
|
MHR 2006 Warrants |
|
|
1 |
|
|
|
646 |
|
August 2007 Warrants |
|
|
82 |
|
|
|
481 |
|
August 2009 Warrants |
|
|
2,553 |
|
|
|
7,807 |
|
June 2010 MHR Warrants |
|
|
619 |
|
|
|
1,495 |
|
August 2010 Warrants |
|
|
3,270 |
|
|
|
10,550 |
|
August 2010 MHR Waiver Warrants |
|
|
630 |
|
|
|
1,961 |
|
|
|
|
|
|
$ |
14,050 |
|
|
$ |
34,106 |
|
|
|
|
The fair value of the warrants that have exercise price reset features is estimated using an
adjusted Black-Scholes model. The Company computes valuations each quarter, using Black-Scholes
model calculations for such warrants to account for the various possibilities that could occur due
to various circumstances that could arise in connection with the contractual terms of said
instruments. The Company weights each Black-Scholes model calculation based on its estimation of
the likelihood of the occurrence of each circumstance and adjusts relevant Black-Scholes model
input to calculate the value of the derivative at the reporting date.
Embedded Conversion Feature of MHR Convertible Notes. The MHR 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 MHR Convertible Notes 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 FASB ASC
815-40-15-5 effective January 1, 2009. Under FASB ASC 815-40-15-5, the embedded conversion feature
is not considered indexed to the Companys own stock and, therefore, does not meet the scope
exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. The
adoption of FASB ASC 815-40-15-5 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 Notes. The fair
value of the embedded conversion feature is estimated, at the end of each quarterly reporting
period, using Black-Scholes models. The assumptions used in computing the fair value as of June 30,
2011 are a closing stock price of $0.90, conversion prices of $3.78 and $0.90, expected volatility
of 137.75% over the remaining term of one year and three
11
months and a risk-free rate of 0.19%. The fair value of the embedded conversion feature decreased
by $0.9 million and $4.3 million for the three and six months ended June 30, 2011, respectively,
which has been recognized in the accompanying statements of operations. The embedded conversion
feature will be adjusted to estimated fair value for each future period they remain outstanding.
See Note 10 for a further discussion of the MHR Convertible Notes.
MHR 2006 Warrants. In connection with the exercise of the MHR Option in April 2006 discussed in
Note 9 above, the Company issued to MHR warrants to purchase 617,211 shares 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 Warrants (see
below). The anti-dilution feature of the MHR 2006 Warrants was triggered in connection with the
August 2007 Financing, resulting in an adjusted exercise price of $3.76. Based on the provisions of
FASB ASC 815, Derivatives and Hedging, 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 Financing Warrants and, therefore,
they have been accounted for as a separate liability. The fair value of the MHR 2006 Warrants is
estimated at the end of each quarterly period using Black-Scholes models. The assumptions used in
computing the fair value as of June 30, 2011 are a closing stock price of $0.90, exercise price of
$3.76, expected volatility of 112.93% over the remaining term of three months and a risk-free rate
of 0.03%. The fair value of the MHR 2006 Warrants decreased by $0.1 million and $0.6 million for
the three and six months ended June 30, 2011, respectively, which has been recognized in the
accompanying statement of operations. The MHR 2006 Warrants will be adjusted to estimated fair
value for each future period they remain outstanding.
August 2007 Warrants. In connection with an equity financing in August 2007 (the August 2007
Financing), Emisphere sold warrants to purchase up to 400,000 shares of common stock (the August
2007 Warrants). Of these 400,000 warrants, 91,073 were sold to MHR. Each of the August 2007
Warrants were issued with an exercise price of $3.948 and expire on August 21, 2012. The August
2007 Warrants provide for certain anti-dilution protection as provided therein. Under the terms of
the August 2007 Warrants, we have an obligation to make a cash payment to the holders of the August
2007 Warrants for any gain that could have been realized if the holders exercise the August 2007
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 August 2007 Warrants have been exercised.
Accordingly, the 2007 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
model. The assumptions used in computing the fair value as of June 30, 2011 are a closing stock
price of $0.90, expected volatility of 140.41% over the remaining term of one year and two months
and a risk-free rate of 0.19%.The fair value of the August 2007 Warrants decreased $0.1 million and
$0.4 million for the three and six months ended June 30, 2011, respectively, which has been
recognized in the accompanying statements of operations. The August 2007 Warrants will be adjusted
to estimated fair value for each future period they remain outstanding.
August 2009 Warrants. In connection with an equity financing in August 2009 (the August 2009
Financing), Emisphere sold warrants to purchase 6.4 million shares of common stock to MHR (3.7
million) and other unrelated investors (2.7 million) (the August 2009 Warrants). The August 2009
Warrants were issued with an exercise price of $0.70 and expire on August 21, 2014. Under the terms
of the August 2009 Warrants, we have an obligation to make a cash payment to the holders of the
August 2009 Warrants for any gain that could have been realized if the holders exercise the August
2009 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 August 2009 Warrants have been
exercised. Accordingly, the August 2009 Warrants have been accounted for as a liability. The fair
value of the August 2009 Warrants is estimated, at the end of each quarterly reporting period,
using the Black-Scholes model. The assumptions used in computing the fair value as of June 30, 2011
are a closing stock price of $0.90, expected volatility of 122.86% over the remaining term of three
years and two months and a risk-free rate of 0.81%. The fair value of the August 2009 Warrants
decreased $1.6 million and $5.3 million for the three and six months ended June 30, 2011,
respectively, 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. During the
year ended December 31, 2010, the unrelated investors exercised their warrants to purchase up to
2,685,714 million shares of the Companys common stock at an exercise price of $0.70, using the
cashless exercise provision. The Company issued an aggregate of 1,966,937 shares to such holders
in accordance with the terms of the cashless exercise provision. The Company calculated the fair
value of the 2,685,714 exercised warrants on their respective exercise dates using the
Black-Scholes model. The weighted average
12
assumptions used in computing the fair values were a closing stock price of $1.91, expected
volatility of 101.99% over the remaining contractual life of four years, three months and a
risk-free rate of 1.46%. The fair value of the 2.7 million exercised warrants increased by $2.2
million from January 1, 2010 through the date of exercise which has been recognized in the
accompanying statements of operations. The fair value of the derivative liabilities at the exercise
dates of $4.3 million was reclassified to additional paid-in-capital. After these cashless
exercises, warrants to purchase up to 3,729,323 shares of common stock, in the aggregate, remain
outstanding.
June 2010 MHR Warrants. As consideration for its consent and limitation of rights in
connection with the Novartis Agreement, the Company granted MHR warrants to purchase 865,000 shares
of its common stock under the MHR Letter Agreement. The June 2010 MHR Warrants are exercisable at
$2.90 per share and will expire on August 21, 2014. The June 2010 MHR Warrants provide for certain
anti-dilution protection as provided therein. 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 June
2010 MHR 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 June 2010 MHR Warrants have been
exercised. Accordingly, the June 2010 MHR Warrants have been accounted for as a liability. Their
fair value is estimated, at the end of each quarterly reporting period, using the Black-Scholes
model. The Company estimated the fair value of the June 2010 MHR Warrants on the date of grant
using Black-Scholes models to be $1.9 million, which triggered the recognition of extinguishment
and restructuring accounting for the MHR Convertible Notes (see Notes 9 and 15). The assumptions
used in computing the fair value of the June 2010 MHR Warrants at June 30, 2011 are closing stock
prices of $0.90, $0.54, and $2.89, exercise prices of $0.90, $0.54, $2.89, and $2.90, expected
volatility of 122.87% over the remaining three years and two months, and a risk-free rate of 0.81%.
The fair value of the June 2010 MHR Warrants decreased by $0.2 million and $0.9 million for the
three and six months ended June 30, 2011, respectively, which has been recognized in the
accompanying statements of operations. The June 2010 MHR Warrants will be adjusted to estimated
fair value for each future period they remain outstanding.
August 2010 Warrants. On August 25, 2010, the Company entered into a securities purchase agreement
(together with the securities purchase agreement with MHR, as defined below, the August 2010
Financing) with certain institutional investors pursuant to which the Company agreed to sell an
aggregate of 3,497,528 shares of its common stock and warrants to purchase a total of 2,623,146
additional shares of its common stock for total gross proceeds of $3,532,503. Each unit, consisting
of one share of common stock and a warrant to purchase 0.75 shares of common stock, was sold at a
purchase price of $1.01. The warrants to purchase additional shares are exercisable at a price of
$1.26 per share and will expire five years from the date of issuance. In accordance with the terms
of a registration rights agreement with the investors, the Company filed a registration statement
on September 15, 2010, which was declared effective October 12, 2010. On August 25, 2010, the
Company also announced that it had entered into a separate securities purchase agreement with MHR
as part of the August 2010 Financing, pursuant to which the Company agreed to sell an aggregate of
3,497,528 shares of its common stock and warrants to purchase a total of 2,623,146 additional
shares of its common stock for total gross proceeds of $3,532,503. Each unit, consisting of one
share of common stock and a warrant to purchase 0.75 shares of common stock, was sold at a purchase
price of $1.01. The warrants to purchase additional shares are exercisable at a price of $1.26 per
share and will expire five years from the date of issuance. In connection with the August 2010
Financing, Emisphere sold warrants to purchase 5.2 million shares of common stock to MHR (2.6
million) and other unrelated investors (2.6 million) (the August 2010 Warrants). The August 2010
Warrants were issued with an exercise price of $1.26 and expire on August 26, 2015. Under the terms
of the August 2010 Warrants, we have an obligation to make a cash payment to the holders of the
August 2010 Warrants for any gain that could have been realized if the holders exercise the August
2010 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 August 2010 Warrants have been
exercised. Accordingly, the August 2010 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 model. On January 12, 2011, one of the unrelated investors notified the Company of
its intention to exercise 0.2 million warrants. The Company received proceeds of $0.2 million from
the exercise of these warrants. The Company calculated the fair value of the 0.2 million exercised
warrants on January 12, 2011 using the Black-Scholes option pricing model. The assumptions used in
computing the fair value as of January 12, 2011 are a closing stock price of $2.25, expected
volatility of 107.30% over the remaining contractual life of four years and seven months and a
risk-free rate of 1.99%. The fair value of the 0.2 million exercised warrants decreased by
approximately $28,000 for the period from January 1, 2011 through January 12, 2011 which has been
recognized in the
13
accompanying statements of operations The assumptions used in computing the fair value of the
remaining August 2010 Warrants as of June 30, 2011 are a closing stock price of $0.90, exercise
price of $1.26, expected volatility of 113.31% over the remaining term of four years and two
months, and a risk-free rate of 1.76%. The fair value of the August 2010 Warrants decreased by $2.1
million and $6.9 million for the three and six months ended June 30, 2011, respectively, which has
been recognized in the accompanying statements of operations. The August 2010 Warrants will be
adjusted to estimated fair value for each future period they remain outstanding.
August 2010 MHR Waiver Warrants. In connection with the August 2010 Financing, the Company entered
into a waiver agreement with MHR (Waiver Agreement), pursuant to which MHR waived certain
anti-dilution adjustment rights under the MHR Convertible Notes and certain warrants issued by the
Company to MHR that would otherwise have been triggered by the August 2010 Financing. As
consideration for such waiver, the Company issued to MHR warrants to purchase 975,000 shares of its
common stock (the August 2010 MHR Waiver Warrants). The August 2010 MHR Waiver Warrants are in
the same form of warrant as the August 2010 Warrants issued to MHR described above. Accordingly,
the August 2010 MHR Waiver Warrants have been accounted for as a liability. The fair value of the
August 2010 MHR Waiver Warrants is estimated, at the end of each quarterly reporting period, using
Black-Scholes models. The Company estimated the fair value of the warrants on the date of grant
using Black-Scholes models to be $0.8 million. The assumptions used in computing the fair value of
the August 2010 MHR Waiver Warrants at June 30, 2011 are a closing stock price of $0.90, exercise
price of $1.26, expected volatility of 113.31% over the term of four years and two months, and a
risk free rate of 1.76%. The fair value of the August 2010 MHR Waiver Warrants decreased by $0.4
million and $1.3 million for the three and six months ended June 30, 2011, respectively, which has
been recognized in the accompanying statements of operations. The August 2010 MHR Waiver Warrants
will be adjusted to estimated fair value for each future period they remain outstanding.
12. Net income (loss) per share
The following table sets forth the information needed to compute basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 Restated |
|
|
2011 |
|
|
2010 Restated |
|
|
|
(in thousands except per share data) |
|
|
(in thousands except per share data) |
|
Basic net income (loss) |
|
$ |
1,842 |
|
|
$ |
(31,573 |
) |
|
$ |
12,841 |
|
|
$ |
(48,832 |
) |
Effect of
dilutive securities - MHR convertible note assumed conversion |
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
Numerator for
diluted net income (loss) per share after assumed note conversion |
|
|
1,842 |
|
|
|
(31,573 |
) |
|
|
13,764 |
|
|
|
(48,832 |
) |
|
|
|
Weighted average common shares outstanding: |
|
|
52,076,602 |
|
|
|
43,338,432 |
|
|
|
52,064,171 |
|
|
|
42,711,367 |
|
Dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
221,124 |
|
|
|
|
|
|
|
309,457 |
|
|
|
|
|
Warrants |
|
|
2,626,629 |
|
|
|
|
|
|
|
3,476,116 |
|
|
|
|
|
Shares
underlying MHR convertible note payable |
|
|
|
|
|
|
|
|
|
|
7,051,183 |
|
|
|
|
|
|
|
|
Diluted weighted average common shares
outstanding and assumed conversion |
|
|
54,924,355 |
|
|
|
43,338,432 |
|
|
|
62,900,927 |
|
|
|
42,711,367 |
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.04 |
|
|
$ |
(0.73 |
) |
|
$ |
0.25 |
|
|
$ |
(1.14 |
) |
Diluted net income (loss) per share |
|
$ |
0.03 |
|
|
$ |
(0.73 |
) |
|
$ |
0.22 |
|
|
$ |
(1.14 |
) |
For the three and six months periods ended June 30, 2011 and 2010, certain potential shares of
common stock have been excluded from the calculation of diluted income (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. In addition, incremental shares from the assumed conversion of the MHR note payable are excluded for the three month periods ended June 30, 2011 and 2010 and for the six month period ended June 30, 2010 as the effect of these shares is anti-dilutive in these periods.
The following table sets forth
the number of potential shares of common stock that have been excluded from diluted net income
(loss) per share because their effect was anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Options to purchase common shares |
|
|
2,759,476 |
|
|
|
3,187,116 |
|
|
|
2,671,143 |
|
|
|
3,187,116 |
|
Outstanding warrants |
|
|
9,018,697 |
|
|
|
6,954,391 |
|
|
|
8,169,210 |
|
|
|
6,954,391 |
|
MHR
convertible note payable |
|
|
7,051,183 |
|
|
|
6,319,856 |
|
|
|
|
|
|
|
6,319,856 |
|
|
|
|
|
|
|
18,829,356 |
|
|
|
16,461,363 |
|
|
|
10,840,353 |
|
|
|
16,461,363 |
|
14
13. Commitments and Contingencies
Commitments. At the beginning of 2009 we had leased approximately 80,000 square feet of office
space at 765 Old Saw Mill River Road, Tarrytown, NY for use as administrative offices and
laboratories. The lease for our administrative and laboratory facilities had been set to expire on
August 31, 2012. However, 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 of space at 765 Old Saw Mill River Road
in Tarrytown, NY. Pursuant to the Agreement, the Lease was terminated effective as of April 1,
2009. The Agreement provided that the Company make the following payments to BMR: (a) $1 million,
paid upon execution of the Agreement, (b) $0.5 million, paid six months after the execution date of
the Agreement, and (c) $0.75 million, payable twelve months after the execution date of the
Agreement. Initial and six months payments were made on schedule. Although the final payment was
due originally on April 29, 2010, on March 17, 2010 the Company and BMR agreed to amend the
Agreement (the Amendment). According to the Amendment, the final payment was modified as follows:
the Company was to pay Eight Hundred Thousand Dollars ($800,000), as follows: (i) Two Hundred
Thousand Dollars ($200,000) within five (5) days after the Execution Date and (ii) One Hundred
Thousand Dollars ($100,000) on each of the following dates: July 15, 2010, August 15, 2010,
September 15, 2010, October 15, 2010, November 15, 2010, and December 15, 2010. Through July 1,
2011, the Company paid in full $800,000 of principal plus $28,250 interest for late payments in
accordance with the terms of the Lease Agreement.
We continue to lease office space at 240 Cedar Knolls Road, Cedar Knolls, NJ under a
non-cancellable operating lease expiring in 2013.
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.
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. Pursuant to 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, 2011.
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 our opinion, we have incurred a
probable loss as set forth by accounting principles generally accepted in the U.S., an estimate is
made of the loss and the appropriate accounting entries are reflected in our financial statements.
After consultation with legal counsel, we do not anticipate that liabilities arising out of
currently pending or threatened lawsuits and claims will have a material adverse effect on our
financial position, results of operations or cash flows.
14. 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, NY to reduce costs and improve operating
efficiency which resulted in a restructuring charge of approximately $3.8 million in the fourth
quarter, 2008. On April 29, 2009, the Company entered into the Lease Termination Agreement with
BMR, and credited the restructuring charge of $0.35 million in accordance with the terms of the
Agreement. On March 17, 2010 the Company and BMR amended the Agreement as described in this Note
(above). Consequently, the restructuring liability was readjusted to reflect the terms of the
Amendment accordingly.
15
Adjustments to the restructuring liability are as follows ($ thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at |
|
Cash |
|
Adjustment to |
|
Liability at |
|
|
December 31, 2010 |
|
Payments |
|
the Liability |
|
June 30, 2011 |
Lease restructuring expense |
|
$ |
300 |
|
|
$ |
(300 |
) |
|
$ |
|
|
|
$ |
|
|
15. 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, 2010 and June 30, 2011, the Company had no accruals for interest or
penalties related to income tax matters. For the three and six months ended June 30, 2011 and 2010,
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.
16. New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2011-04, which updated the guidance in ASC Topic 820, Fair Value Measurement. The
amendments in this ASU generally represent clarifications of Topic 820, but also include some
instances where a particular principle or requirement for measuring fair value or disclosing
information about fair value measurements has changed. This update results in common principles
and requirements for measuring fair value and for disclosing information about fair value
measurements in accordance with U.S. GAAP and International Financial Reporting Standards. The
amendments in this ASU are to be applied prospectively. For public entities, the amendments are
effective for interim and annual periods beginning after December 15, 2011, and early application
is not permitted. ASU 2011-04 is not expected to have a material impact on the Companys financial
position or results of operations.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (ASC Topic 805): Disclosure
of Supplementary Pro Forma Information for Business Combinations. The amendments in this ASU
affect any public entity as defined by ASC Topic 805 that enters into business combinations that
are material on an individual or aggregate basis. The amendments in this ASU specify that if a
public entity presents comparative financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
The amendments also expand the supplemental pro forma disclosures to include a description of the
nature and amount of material, nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and earnings. The amendments are
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
adoption of ASU 2010-29 did not have a material impact on the Companys results of operations or
financial condition.
In December 2010, the FASB issued ASU 2010-28, Intangibles Goodwill and Other (ASC Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts. The amendments in this ASU modify Step 1 of the goodwill impairment test for
reporting units with zero or negative carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are any adverse qualitative factors
indicating that an impairment may exist. The qualitative factors are consistent with the existing
guidance and examples, which require that goodwill of a reporting unit be tested for impairment
between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. For public entities, the
amendments in this ASU are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2010. The adoption of ASU 2010-28 did not have a material impact on
the Companys results of operations or financial condition.
In April 2010, the FASB issued ASU 2010-17, Revenue Recognition Milestone Method (ASU
2010-17). ASU
16
2010-17 provides guidance on the criteria that should be met for determining whether the milestone
method of revenue recognition is appropriate. A vendor can recognize consideration that is
contingent upon achievement of a milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria to be considered substantive. The
following criteria must be met for a milestone to be considered substantive. The consideration
earned by achieving the milestone should (i) be commensurate with either the level of effort
required to achieve the milestone or the enhancement of the value of the item delivered as a result
of a specific outcome resulting from the vendors performance to achieve the milestone; (ii) be
related solely to past performance; and (iii) be reasonable relative to all deliverables and
payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there
can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both
substantive and non-substantive milestones. ASU 2010-17 is effective on a prospective basis for
milestones achieved in fiscal years, and interim periods within those years, beginning on or after
June 15, 2010. The adoption of ASU 2010-17 did not have a material effect on the Companys results
of operations or financial condition.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements,
(amendments to FASB ASC Topic 605, Revenue Recognition ) (ASU 2009-13). ASU 2009-13 requires
entities to allocate revenue in an arrangement using estimated selling prices of the delivered
goods and services based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative selling price method.
ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The adoption of ASU 2009-13 did not have a material impact on the Companys results of
operations or financial condition.
Management does not believe there would have been a material effect on the accompanying financial
statements had any other recently issued, but not yet effective, accounting standards been adopted
in the current period.
17. Fair Value
In accordance with FASB ASC 820, Fair Value Measurements and Disclosures, 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, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
Level 2 |
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
($ thousands) |
|
|
($ thousands) |
|
Derivative instruments (short term) |
|
$ |
7,155 |
|
|
$ |
22,940 |
|
Derivative instruments (long term) |
|
|
6,895 |
|
|
|
11,166 |
|
|
|
|
|
|
|
|
Total |
|
$ |
14,050 |
|
|
$ |
34,106 |
|
|
|
|
|
|
|
|
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.
We have determined that it is not practical to estimate the fair value of our notes payable because
of their unique nature and the costs that would be incurred to obtain an independent valuation. We
do not have comparable outstanding debt on which to base an estimated current borrowing rate or
other discount rate for purposes of estimating the fair value of the notes payable and we have not
been able to develop a valuation model that can be applied consistently in a cost efficient manner.
These factors all contribute to the impracticability of estimating the fair value of the notes
payable. At June 30, 2011, the carrying value of the notes payable and accrued interest was $26.7
million.
18. Subsequent Events
On July 6, 2011, the Company closed a transaction with certain institutional investors
(collectively, the Buyers) to sell an aggregate of approximately 4.3 million shares of its common
stock and warrants (the Warrants) to purchase a total of approximately 3.0 million shares of its
common stock (the Warrant Shares) for gross proceeds of approximately $3.75 million (the Private
Placement). Also on July 6, 2011, the Company and the Buyers entered
17
into a registration rights agreement (the Registration Rights Agreement) pursuant to which the
Company provided certain registration rights to the Buyers, including an obligation of the Company
to file with the Securities and Exchange Commission within 20 days a registration statement on Form
S-1 covering the shares issued in the Private Placement and the Warrant Shares. That registration
statement on Form S-1 was filed with the SEC on July 26, 2011.
Simultaneous with closing the Private Placement, the Company closed a transaction with MHR Fund
Management LLC and certain of its affiliated investment funds (MHR) to sell an aggregate of
approximately 4.3 million shares of its common stock and warrants (the MHR Warrants) to purchase
a total of approximately 3.0 million shares of its common stock (the MHR Warrant Shares) for
gross proceeds of approximately $3.75 million (the MHR Private Placement).
In connection with the Private Placement and the MHR Private Placement, the Company entered into a
Waiver Agreement with MHR (Waiver Agreement), pursuant to which MHR waived certain anti-dilution
adjustment rights under its Senior Secured Notes and certain warrants issued by the Company to MHR
that would otherwise have been triggered by the Private Placement. As consideration for such
waiver, the Company issued to MHR warrants (the MHR Waiver Warrants) to purchase 795,000 shares
of its common stock (the MHR Waiver Warrant Shares) and agreed to reimburse MHR for up to $25,000
of its legal fees.
In both the Private Placement and the MHR Private Placement, each unit, consisting of one share of
common stock and a warrant to purchase 0.7 shares of common stock, were sold at a purchase price of
$0.872. The Warrants, the MHR Warrants and the MHR Waiver Warrants are exercisable at an exercise
price of $1.09 per share and will expire July 6, 2016.
|
|
|
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 available currently or are under development. Such molecules
are usually delivered by injection; in many cases, their benefits are limited due to poor
bioavailability, slow onset of action or variable absorption. In those cases, our technology may
increase the benefit of the therapy by improving the absorption of a therapeutic molecule thereby
increasing its bioavailability, or by decreasing the time to peak blood concentrations which could
result in faster onset of the molecules therapeutic action. The Eligen® Technology can
make it possible to deliver certain therapeutic molecules orally, without altering their chemical
form or biological activity. Eligen® delivery agents, or carriers, facilitate or
18
enable the transport of therapeutic molecules across the mucous membranes of the gastrointestinal
tract, to reach the general circulation where they dissociate from the carrier and are free to
elicit their pharmacological effect. 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. Our corporate strategy is focused on commercializing the
Eligen® Technology as quickly as possible, building high-value partnerships and
developing our product pipeline. We develop potential product candidates in-house, as is evident in
the development of our higher dose Eligen® B12 (1000 mcg) product, and we enhance the
value of the Eligen® Technology through our development partners, including Novartis,
Novo Nordisk A/S (Novo Nordisk) and others. Further development, exploration and
commercialization of the technology entail risk and operational expenses. However, we continue to
focus our efforts on strategic development initiatives as well as cost control, and aggressively
seek to reduce non-strategic spending.
The application of the Eligen® Technology is potentially broad and may provide for a
number of opportunities across a spectrum of therapeutic modalities or nutritional supplements.
During the second quarter 2011, we continued to develop our product pipeline utilizing the
Eligen® Technology with prescription and non-prescription 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 investments that may be required to fund our
research and development will be approached incrementally in order to minimize disruption or
dilution.
We are planning 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, medical food and nutritional supplements product
candidates that are being developed in partnership or internally. During 2010 our development
partners Novartis and Novo Nordisk continued or expanded their development programs and we
continued to make progress on our internally developed Eligen® B12 product.
Novartis is using our Eligen® drug delivery technology in combination with salmon
calcitonin and human growth hormone. Their most advanced program utilizing the Companys
Eligen® Technology is testing an oral formulation of calcitonin to treat osteoarthritis
and osteoporosis. For osteoarthritis, Novartis completed one Phase III trial and a second Phase III
clinical study is continuing. Novartis is also conducting a Phase III clinical study for
osteoporosis. In its Media Release for the second quarter 2011, Novartis reported that its planned
submission for oral calcitonin for the treatment of osteoporosis is scheduled to be filed with the
regulatory authorities during 2012.
On June 17, 2011, Novartis informed us of the results of its recently completed Proof of Concept
study for an oral PTH1-34 using Emispheres Eligen® Technology in post-menopausal women with
osteoporosis or osteopenia. Novartis informed us that, although the study confirmed that oral
PTH1-34 was both safe and well-tolerated, several clinical endpoints were not met. Based on the
data analyzed, Novartis has terminated the study and anticipates no further work on oral
formulation of PTH1-34.
Novo Nordisk is using our Eligen® drug delivery technology in combination with its
proprietary GLP-1 receptor agonists and insulins. During December 2010, the Company entered into an
exclusive Development and License Agreement with Novo Nordisk to develop and commercialize oral
formulations of Novo Nordisks insulins using Emispheres Eligen® Technology (the
Insulin Agreement). This was the second license agreement between the two companies. The first
agreement, for the development of oral formulations of GLP-1 receptor agonists, was signed in
19
June 2008, with a potential drug currently in a Phase I clinical trial. The Insulin Agreement
included $57.5 million in potential product development and sales milestone payments to Emisphere,
of which $5 million was paid upon signing, as well as royalties on sales. This extended partnership
with Novo Nordisk has the potential to offer significant new solutions to millions of people with
diabetes worldwide and it also serves to further validate our Eligen® Technology.
The Company is developing an oral formulation of Eligen® B12 (1000 mcg) for use by B12 deficient
individuals. During the fourth quarter 2010, the Company completed a clinical trial which
demonstrated that both oral Eligen® B12 (1000 mcg) and injectable B12 (current standard of care)
can efficiently and quickly restore normal Vitamin B12 levels in deficient individuals The
manuscript summarizing the results from that clinical trial has been published in the July 2011
edition of the journal Clinical Therapeutics (Volume 22, pages 934 945). We also conducted
market research to help assess the potential commercial opportunity for our potential Eligen® B12
(1000 mcg) product. On August 5, 2011 we received notice from the Patent Office that the U.S.
patent application directed to the oral Eligen® B12 formulation was allowed. This new
patent provides intellectual property protection for Eligen® B12 through approximately
2028. Currently, we are evaluating the results of our clinical trials and market research and
exploring alternative development and commercialization options with the purpose of maximizing the
commercial and health benefits potential of our Eligen® B12 asset.
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 needs. 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, 2011 Compared to Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
2011 |
|
2010 |
|
Change |
|
|
(in thousands) |
Revenue |
|
$ |
|
|
|
$ |
39 |
|
|
$ |
(39 |
) |
Operating expenses |
|
$ |
2,226 |
|
|
$ |
3,156 |
|
|
$ |
(930 |
) |
Operating loss |
|
$ |
(2,226 |
) |
|
$ |
(3,117 |
) |
|
$ |
(891 |
) |
Other income (expense) |
|
$ |
4,068 |
|
|
$ |
(28,456 |
) |
|
$ |
32,524 |
|
Net income (loss) |
|
$ |
1,842 |
|
|
$ |
(31,573 |
) |
|
$ |
33,415 |
|
Revenue decreased $0.04 million for the three months ended June 30, 2011 compared to the same
period last year due to termination of commercial sales of low dose
Eligen® B12.
Operating expenses decreased $0.93 million or 29% for the three months ended June 30, 2011 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 |
|
$ |
(450 |
) |
Decrease in professional fees |
|
|
(100 |
) |
Decrease in occupancy costs |
|
|
(1 |
) |
Decrease in clinical costs |
|
|
(122 |
) |
Decrease in depreciation and amortization |
|
|
(5 |
) |
Decrease in other costs |
|
|
(252 |
) |
|
|
|
|
|
|
$ |
(930 |
) |
|
|
|
|
Human resource costs decreased $450 thousand, or 39%, due primarily to a $366 thousand decrease
from a reduction in personnel in 2011 and an $84 thousand reduction in non-cash compensation.
20
Professional fees decreased $100 thousand, or 8%, due primarily to a $243 thousand reduction in
legal fees offset by a $144 thousand net increase in other professional fees due primarily to a
$201 thousand executive search fee partially offset by a $59 thousand reduction in corporate
governance, accounting and other consulting fees.
Clinical costs decreased $122 thousand, or 48%, due primarily to a decrease in clinical trial costs
related to a B-12 trial completed in 2010 and outside lab fees.
Other costs decreased $252 thousand, or 62%, due primarily to the $220 thousand charge to settle
outstanding lawsuits in 2010 and a $32 thousand reduction in telecommunication and travel costs.
Our principal operating costs include the following items as a percentage of total operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2011 |
|
2010 |
Human resource costs, including benefits |
|
|
31 |
% |
|
|
36 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
49 |
% |
|
|
38 |
% |
Occupancy for our laboratory and operating space |
|
|
4 |
% |
|
|
3 |
% |
Clinical costs |
|
|
6 |
% |
|
|
8 |
% |
Depreciation and amortization |
|
|
3 |
% |
|
|
2 |
% |
Other |
|
|
7 |
% |
|
|
13 |
% |
Other income for the three months ended June 30, 2011 increased $32.5 million, due primarily to a
$17.0 million one-time charge for loss on extinguishment of debt during 2010; a $14.0 million gain
from the change in fair value of derivative instruments arising from the decrease in the price of
the Companys stock; financing fees of $1.9 million in connection with the settlement of the
Novartis note in June 2010 offset by a $0.3 million net increase in interest expense and other
income.
As a result of the above factors, we had a net income of $1.8 million for the three months ended
June 30, 2011, compared to a net loss of $31.6 million for the three months ended June 30, 2010.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
2011 |
|
2010 |
|
Change |
|
|
(in thousands) |
Revenue |
|
$ |
|
|
|
$ |
51 |
|
|
$ |
51 |
|
Operating expenses |
|
$ |
4,275 |
|
|
$ |
6,176 |
|
|
$ |
(1,901 |
) |
Operating loss |
|
$ |
(4,275 |
) |
|
$ |
(6,125 |
) |
|
$ |
(1,850 |
) |
Other income (expense) |
|
$ |
17,116 |
|
|
$ |
(42,707 |
) |
|
$ |
(59,823 |
) |
Net income (loss) |
|
$ |
12,841 |
|
|
$ |
(48,832 |
) |
|
$ |
(61,673 |
) |
Revenue decreased $0.05 million for the six months ended June 30, 2011 compared to the same period
last year due to termination of commercial sales of low dose Eligen® B12.
Operating expenses decreased $1.9 million or 31% for the six months ended June 30, 2011 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 |
|
$ |
(1,143 |
) |
Decrease in professional fees |
|
|
(235 |
) |
Increase in occupancy costs |
|
|
5 |
|
Decrease in clinical costs |
|
|
(175 |
) |
Decrease in depreciation and amortization |
|
|
(10 |
) |
Decrease in other costs |
|
|
(343 |
) |
|
|
|
|
|
|
$ |
(1,901 |
) |
|
|
|
|
21
Human resource costs decreased $1,143 thousand, or 42%, due primarily to a $737 thousand decrease
from a reduction in personnel in 2011, including a $638 thousand reduction from the CEO vacancy,
and a $406 thousand reduction in non-cash compensation.
Professional fees decreased $235 thousand, or 11%, due primarily to a $393 thousand decrease in
legal fees offset by a $158 thousand net increase in other professional fees due primarily to a
$201 thousand executive search fee and a $73 thousand increase in accounting fees in connection
with the restatement of prior period financial statements in the Companys Annual Report for 2010,
partially offset by a $110 thousand reduction in corporate governance and other consulting fees.
Occupancy costs increased $5 thousand, or 3%, due to higher common area maintenance costs in the
first quarter 2011.
Clinical costs decreased $175 thousand, or 47%, due primarily to a $107 thousand decrease in
clinical trial costs related to the B 12 trial completed in 2010 and a $68 thousand decrease in
outside lab fees.
Depreciation and amortization costs decreased $10 thousand, or 7%, due to certain assets being
fully depreciated during 2010.
Other costs decreased $343 thousand, or 53%, due primarily to a $220 thousand charge to settle
outstanding lawsuits in 2010; additional restructuring costs of $50 thousand for revision of lease
termination agreement with BMR in 2010; a $73 thousand reduction in telecommunication, travel ,
insurance, and other office expenses.
Our principal operating costs include the following items as a percentage of total operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2011 |
|
2010 |
Human resource costs, including benefits |
|
|
37 |
% |
|
|
44 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
44 |
% |
|
|
34 |
% |
Occupancy for our laboratory and operating space |
|
|
4 |
% |
|
|
3 |
% |
Clinical costs |
|
|
5 |
% |
|
|
6 |
% |
Depreciation and amortization |
|
|
3 |
% |
|
|
3 |
% |
Other |
|
|
7 |
% |
|
|
10 |
% |
Other income increased $59.8 million, due primarily to the $17.0 million one-time charges for loss
on extinguishment of debt; a $42.3 million gain from the change in fair value of derivative
instruments arising from the in the price of the Companys stock ; financing fees of $1.9 million
in connection with the settlement of the Novartis note in June 2010; offset by a $1.3 million net
increase in interest expense and other income.
As a result of the above factors, we had a net income of $12.8 million for the six months ended
June 30, 2011, compared to a net loss of $48.8 million for the six months ended June 30, 2010.
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, 2011, our accumulated deficit was approximately $468.1 million and our stockholders
deficit was approximately $69.0 million. Our operating loss was $2.2 million for the three months
ended June 30, 2011 compared to an operating loss of $3.1 million for the three months ended June
30, 2010. Our operating loss for the six months ended June 30, 2011 was $4.3 million compared to
$6.1 million, for the six months ended June 30, 2010.
22
On June 30, 2011, we entered into a securities purchase agreement with various institutional
investors to sell an aggregate of 4,300,438 shares of our common stock and warrants to purchase a
total of 3,010,306 shares of our common stock for gross proceeds, before deducting fees and
expenses and excluding the proceeds, if any, from the exercise of the warrants of $3,749,982 (the
2011 Private Placement). The 2011 Private Placement closed on July 6, 2011. In connection with
the 2011 Private Placement, we entered into a securities purchase agreement on the same date with
MHR Fund Management LLC to sell an aggregate of 4,300,438 shares of our common stock and warrants
to purchase a total of 3,010,306 shares of our common stock for gross proceeds, before deducting
fees and expenses and excluding the proceeds, if any, from the exercise of the warrants of
$3,749,982 (the 2011 MHR Private Placement). Simultaneous with closing the 2011 Private
Placement, we closed the 2011 MHR Private Placement with MHR and certain of its affiliated
investment funds. In connection with the 2011 Private Placement and the 2011 MHR Private Placement,
we entered into a waiver agreement with MHR, pursuant to which MHR waived certain anti-dilution
adjustment rights under its senior secured notes and certain warrants that would otherwise have
been triggered by the 2011 Private Placement. As consideration for such waiver, we issued to MHR
warrants to purchase 795,000 shares of our common stock and agreed to reimburse MHR for up to
$25,000 of its legal fees. In both the Private Placement and the MHR Private Placement (together,
the July 2011 Financing), each unit, consisting of one share of common stock and a warrant to
purchase 0.7 shares of common stock, were sold at a purchase price of $0.872. All of the warrants
issued in the July 2011 Financing are exercisable at an exercise price of $1.09 per share and will
expire on July 6, 2016.
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, 2011 total cash and cash equivalents was $1.3 million.
The change in cash relates to the operating loss offset by changes in accounts payable and non-cash
items. We anticipate that our existing capital resources, without implementing cost reductions,
raising additional capital, or obtaining substantial cash inflows from potential partners for our
products, will enable us to continue operations through approximately April 2012. However, this
expectation is based on the current operating plan that could change as a result of many factors
and additional funding may be required sooner than anticipated. These conditions raise substantial
doubt about our ability to continue as a going concern. The audit report prepared by our
independent registered public accounting firm relating to our financial statements for the year
ended December 31, 2010 includes an explanatory paragraph expressing substantial doubt about our
ability to continue as a going concern.
While our plan is to raise capital when needed and/or 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. 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 you that financing will be available on favorable
terms or at all. Additionally, these conditions may increase the cost to raise capital. 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 costs to raise capital and/or result in further dilution. Our failure
to raise capital when needed would adversely affect our business, financial condition and results
of operations, and could force us to reduce or cease our operations.
If we are successful in raising additional capital to continue operations, our business will still
require substantial additional investment that we have not yet secured. Further, we will not have
sufficient resources to fully develop 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 you that financing will be available on favorable terms or at all. For further
discussion, see Part II, Item 1A Risk Factors.
Off-Balance Sheet Arrangements
As of June 30, 2011, we had no off-balance sheet arrangements. There were no changes in significant
contractual obligations during the three months ended June 30, 2011.
23
Critical Accounting Estimates
Please refer to the Companys Annual Report on Form 10-K filed with the SEC on March 31, 2011 for
detailed explanations of its critical accounting estimates which have not changed significantly
during the period ended June 30, 2011.
New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2011-04, which updated the guidance in ASC Topic 820, Fair Value Measurement. The
amendments in this ASU generally represent clarifications of Topic 820, but also include some
instances where a particular principle or requirement for measuring fair value or disclosing
information about fair value measurements has changed. This update results in common principles
and requirements for measuring fair value and for disclosing information about fair value
measurements in accordance with U.S. GAAP and International Financial Reporting Standards. The
amendments in this ASU are to be applied prospectively. For public entities, the amendments are
effective for interim and annual periods beginning after December 15, 2011, and early application
is not permitted. ASU 2011-04 is not expected to have a material impact on the Companys financial
position or results of operations.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (ASC Topic 805): Disclosure
of Supplementary Pro Forma Information for Business Combinations. The amendments in this ASU
affect any public entity as defined by ASC Topic 805 that enters into business combinations that
are material on an individual or aggregate basis. The amendments in this ASU specify that if a
public entity presents comparative financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
The amendments also expand the supplemental pro forma disclosures to include a description of the
nature and amount of material, non-recurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and earnings. The amendments are
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
adoption of ASU 2010-29 did not have a material impact on the Companys results of operations or
financial condition.
In December 2010, the FASB issued ASU 2010-28, Intangibles Goodwill and Other (ASC Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts. The amendments in this ASU modify Step 1 of the goodwill impairment test for
reporting units with zero or negative carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are any adverse qualitative factors
indicating that an impairment may exist. The qualitative factors are consistent with the existing
guidance and examples, which require that goodwill of a reporting unit be tested for impairment
between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. For public entities, the
amendments in this ASU are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2010. The adoption of ASU 2010-28 did not have a material impact on
the Companys results of operations or financial condition.
In April 2010, the FASB issued ASU 2010-17, Revenue Recognition Milestone Method (ASU
2010-17). ASU 2010-17 provides guidance on the criteria that should be met for determining whether
the milestone method of revenue recognition is appropriate. A vendor can recognize consideration
that is contingent upon achievement of a milestone in its entirety as revenue in the period in
which the milestone is achieved only if the milestone meets all criteria to be considered
substantive. The following criteria must be met for a milestone to be considered substantive. The
consideration earned by achieving the milestone should (i) be commensurate with either the level of
effort required to achieve the milestone or the enhancement of the value of the item delivered as a
result of a specific outcome resulting from the vendors performance to achieve the milestone; (ii)
be related solely to past performance; and (iii) be reasonable relative to all deliverables and
payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there
can be more than one milestone in an arrangement. Accordingly, an arrangement may contain
24
both substantive and non-substantive milestones. ASU 2010-17 is effective on a prospective basis
for milestones achieved in fiscal years, and interim periods within those years, beginning on or
after June 15, 2010. The adoption of ASU 2010-17 did not have a material effect on the Companys
results of operations or financial condition.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements,
(amendments to FASB ASC Topic 605, Revenue Recognition ) (ASU 2009-13). ASU 2009-13 requires
entities to allocate revenue in an arrangement using estimated selling prices of the delivered
goods and services based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative selling price method.
ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The adoption of ASU 2009-13 did not have a material impact on the Companys results of
operations or financial condition.
Management does not believe that any other recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Fair Value of Warrants and Derivative Liabilities. At June 30, 2011, the estimated fair value of
derivative instruments was $14.0 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. Furthermore, the Company computes the fair value of these instruments
using multiple Black-Scholes model calculations to account for the various circumstances that could
arise in connection with the contractual terms of said instruments. The Company weights each
Black-Scholes model calculation based on its estimation of the likelihood of the occurrence of each
circumstance and adjusts relevant Black-Scholes model input to calculate the value of the
derivative at the reporting date. We are required to revalue this liability each quarter. 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 |
|
$ |
2,596 |
|
50% increase in stock price |
|
|
5,293 |
|
5% increase in assumed volatility |
|
|
469 |
|
25% decrease in stock price |
|
|
(2,458 |
) |
50% decrease in stock price |
|
|
(4,740 |
) |
5% decrease in assumed volatility |
|
|
(484 |
) |
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
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.
25
The Company has evaluated the effectiveness of the design and operation of its disclosure controls
and procedures under the supervision of and with the participation of management, including its
Interim Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by
this report. Based on that evaluation, our Interim Chief Executive Officer and Chief Financial
Officer has concluded that our disclosure controls and procedures are effective.
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, 2011 that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II
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 detailed further in our Annual Report on Form 10-K , including:
Financial Risks
|
|
|
We have a history of operating losses and we may never achieve profitability. If we
continue to incur losses or we fail to raise additional capital or receive substantial cash
inflows from our partners by April 2012, we may be forced to cease operations. |
|
|
|
The audit opinion issued by our independent registered public accounting firm relating
to our financial statements for the year ended December 31, 2010 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. |
|
|
|
Our stock was de-listed from NASDAQ. |
Risks Related to our Business
|
|
|
Our business will suffer if we fail or are delayed in developing and commercializing an
improved oral form of Vitamin B12. |
|
|
|
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. |
26
|
|
|
Our collaborative partners are free to develop competing products. |
|
|
|
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 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 identified a material weakness in our internal control over financial reporting that
resulted in the restatement of our financial statements. This material weakness could
continue to adversely affect our ability to report our results of operations and financial
condition accurately and in a timely manner. |
|
|
|
Our senior management is responsible for establishing and maintaining a system of internal
control over financial reporting designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. In connection with the preparation of our 2010 financial
statements, management performed a reevaluation of our system of internal control over
financial reporting for the quarterly periods ended March 31, June 30, and September 30, 2009
and 2010, and in our Annual Report for the years ended December 31, 2009 and 2010, and
concluded that our disclosure controls and procedures were not effective as of the periods
reported as a result of the material weakness in our internal control over financial
reporting. Specifically, we concluded that the Companys system of internal controls did not
effectively ensure completeness and accuracy with regard to the proper recognition,
presentation and disclosure of accounting for certain non-cash interest expense and debt
discounts in connection the MHR Convertible Notes arising from the adoption of Financial
Accounting Standards Board Accounting Codification Topic 815-40-15-5, Evaluating Whether an
Instrument Is Considered Indexed to an Entitys Own Stock (FASB ASC 815-40-15-5) effective
January 1, 2009. |
|
|
|
We have designed new procedures and controls intended to address the material weakness
described in more detail in Note 19 to our financial statements contained in our Annual
Report on Form 10-K for the period ended December 31, 2010. We note that a system of
procedures and controls, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. |
27
|
|
|
If we are unable to establish appropriate internal controls, we may not have
adequate, accurate or timely financial information, and we may be unable to meet our
reporting obligations or comply with the requirements of the SEC or the Sarbanes-Oxley Act of
2002, which could result in the imposition of sanctions, including the inability of
registered broker dealers to make a market in our common shares, or investigation by
regulatory authorities. Any such action or other negative results caused by our inability to
meet our reporting requirements or comply with legal and regulatory requirements or by
disclosure of an accounting, reporting or control issue could adversely affect the trading
price of our securities. Further and continued determinations that there are significant
deficiencies or material weaknesses in the effectiveness of our internal controls could also
reduce our ability to obtain financing or could increase the cost of any financing we obtain
and require additional expenditures to comply with applicable requirements. |
For a more complete listing and description of these and other risks that the Company faces, please
see our Annual Report for 2010 on Form 10-K as filed with the SEC on March 31, 2011.
|
|
|
ITEM 5. |
|
OTHER INFORMATION |
On August 3, 2011, the Company received notification from Novartis that Novartis will be
terminating that certain Research Collaboration and License Agreement by and among the Company and
Novartis (the Oral HGH Agreement), dated September 22, 2004, as amended (the Termination). The
Oral HGH Agreement provided for collaboration between the Company and Novartis on clinical trials
of an oral human growth hormone product using the Eligen® Technology and provided
Novartis with an exclusive worldwide license to develop, make, have made, use and sell products
developed under the program. In connection with the Termination, Emisphere may continue to develop
and/or commercialize the product.
The Termination will be effective as of October 26, 2011. In connection with the Oral HGH
Agreement and the Termination, Novartis will provide the Company, upon request, with the data
generated from the collaboration that would be necessary for the Company to continue to develop and
commercialize an oral human growth hormone product using the Eligen® Technology. The
Company has not incurred any penalties in connection with the Termination.
|
|
|
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 (filed as
Exhibit 3.1 to the Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2007 and incorporated herein by
reference). |
|
|
|
3.2
|
|
By-Laws of Emisphere Technologies, Inc., as amended December
7, 1998 (filed as Exhibit 3(ii) to the Quarterly Report on
Form 10-Q for the quarterly period ended January 31, 1999) and
as further amended on September 23, 2005 (filed as Exhibit 3.1
to the Current Report on Form 8-K filed on September 30, 2005
and incorporated herein by reference). |
|
|
|
3.3
|
|
Amendment, effective as of September 11, 2007, to the Amended
By-Laws of Emisphere Technologies, Inc. (filed as Exhibit 3.1
to the Current Report on Form 8-K filed on September 14, 2007
and incorporated herein by reference). |
|
|
|
4.1
|
|
Restated Rights Agreement dated as of April 7, 2006 between
Emisphere Technologies, Inc. and Mellon Investor Services, LLC
(filed as Exhibit 1.1 to the Current Report on Form 8-K filed
on April 10, 2006 and incorporated herein by reference). |
|
|
|
4.2
|
|
Form of Warrant (filed as Exhibit 4.1 to the Current Report on
Form 8-K filed on June 30, 2011 and incorporated herein by
reference). |
28
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
4.3
|
|
Form of MHR Warrant (filed as Exhibit 4.3 to the Current
Report on Form 8-K filed on June 30, 2011 and incorporated
herein by reference). |
|
|
|
10.1
|
|
Securities Purchase Agreement, dated June 30, 2011, by and
among Emisphere Technologies, Inc. and the Buyers named
therein (filed as Exhibit 10.1 to the Current Report on Form
8-K filed on June 30, 2011 and incorporated herein by
reference). |
|
|
|
10.2
|
|
Securities Purchase Agreement, dated June 30, 2011, by and
among Emisphere Technologies, Inc. and the MHR Buyer (filed as
Exhibit 10.2 to the Current Report on Form 8-K filed on June
30, 2011 and incorporated herein by reference). |
|
|
|
10.3
|
|
Waiver Agreement, dated June 30, 2011, by and among Emisphere
Technologies, Inc. and MHR (filed as Exhibit 10.3 to the
Current Report on Form 8-K filed on June 30, 2011 and
incorporated herein by reference). |
|
|
|
10.4
|
|
Registration Rights Agreement by and among Emisphere
Technologies, Inc. and the Buyers named therein, dated July 6,
2011 (filed as Exhibit 10.85 to the Registration Statement on
Form S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.5
|
|
Warrant A-54 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and EOS Holdings LLC (filed as Exhibit
10.86 to the Registration Statement on Form S-1 filed on July
26, 2011 and incorporated herein by reference). |
|
|
|
10.6
|
|
Warrant A-55 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Kingsbrook Opportunities Master Fund LP
(filed as Exhibit 10.87 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.7
|
|
Warrant A-56 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Bai Ye Feng (filed as Exhibit 10.88 to
the Registration Statement on Form S-1 filed on July 26, 2011
and incorporated herein by reference). |
|
|
|
10.8
|
|
Warrant A-57 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Cranshire Capital, L.P. (filed as
Exhibit 10.89 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.9
|
|
Warrant A-58 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and HF H VICTOR UW VICTOR ART 7 (filed as
Exhibit 10.90 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.10
|
|
Warrant A-59 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Freestone Advantage Partners, LP (filed
as Exhibit 10.91 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.11
|
|
Warrant A-60 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Iroquois Master Fund Ltd. (filed as
Exhibit 10.92 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.12
|
|
Warrant A-61 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Shipman & Goodwin LLP Profit Sharing
Trust FBO James T. Betts (filed as Exhibit 10.93 to the
Registration Statement on Form S-1 filed on July 26, 2011 and
incorporated herein by reference). |
|
|
|
10.13
|
|
Warrant A-62 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Son Nam Nguyen (filed as Exhibit 10.94
to the Registration Statement on Form S-1 filed on July 26,
2011 and incorporated herein by reference). |
29
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
10.14
|
|
Warrant A-63 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Pine Lodge Capital Company Ltd. (filed
as Exhibit 10.95 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.15
|
|
Warrant A-64 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Huaidong Wang (filed as Exhibit 10.89
to the Registration Statement on Form S-1 filed on July 26,
2011 and incorporated herein by reference). |
|
|
|
10.16
|
|
Warrant A-65 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Anson Investments Master Fund LP (filed
as Exhibit 10.97 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.17
|
|
Warrant A-66 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners Master Account LP
(filed as Exhibit 10.98 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.18
|
|
Warrant A-67 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP (filed as
Exhibit 10.99 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.19
|
|
Warrant A-68 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP (filed
as Exhibit 10.100 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.20
|
|
Warrant A-69 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
(filed as Exhibit 10.101 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.21
|
|
Warrant A-70 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners Master Account LP
(filed as Exhibit 10.102 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.22
|
|
Warrant A-71 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP (filed
as Exhibit 10.103 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.23
|
|
Warrant A-72 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP (filed
as Exhibit 10.104 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.24
|
|
Warrant A-73 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
(filed as Exhibit 10.105 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
31.1
|
|
Certification of the Interim Chief Executive Officer and 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). |
|
|
|
101.INS*
|
|
XBRL Instance Document. |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
* |
|
Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934, and are otherwise not subject to liability under these sections.
|
30
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: August 9, 2011 |
/s/ Michael R. Garone
|
|
|
Michael R. Garone |
|
|
Interim Chief Executive Officer and Chief
Financial Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer) |
|
31
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 (filed as
Exhibit 3.1 to the Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2007 and incorporated herein by
reference). |
|
|
|
3.2
|
|
By-Laws of Emisphere Technologies, Inc., as amended December
7, 1998 (filed as Exhibit 3(ii) to the Quarterly Report on
Form 10-Q for the quarterly period ended January 31, 1999) and
as further amended on September 23, 2005 (filed as Exhibit 3.1
to the Current Report on Form 8-K filed on September 30, 2005
and incorporated herein by reference). |
|
|
|
3.3
|
|
Amendment, effective as of September 11, 2007, to the Amended
By-Laws of Emisphere Technologies, Inc. (filed as Exhibit 3.1
to the Current Report on Form 8-K, filed on September 14, 2007
and incorporated herein by reference). |
|
|
|
4.1
|
|
Restated Rights Agreement dated as of April 7, 2006 between
Emisphere Technologies, Inc. and Mellon Investor Services, LLC
(filed as Exhibit 1.1 to the Current Report on Form 8-K filed
April 10, 2006 and incorporated herein by reference). |
|
|
|
4.2
|
|
Form of Warrant (filed as Exhibit 4.1 to the Current Report on
Form 8-K filed on June 30, 2011 and incorporated herein by
reference). |
|
|
|
4.3
|
|
Form of MHR Warrant (filed as Exhibit 4.3 to the Current
Report on Form 8-K filed on June 30, 2011 and incorporated
herein by reference). |
|
|
|
10.1
|
|
Securities Purchase Agreement, dated June 30, 2011, by and
among Emisphere Technologies, Inc. and the Buyers named
therein (filed as Exhibit 10.1 to the Current Report on Form
8-K filed on June 30, 2011 and incorporated herein by
reference). |
|
|
|
10.2
|
|
Securities Purchase Agreement, dated June 30, 2011, by and
among Emisphere Technologies, Inc. and the MHR Buyer (filed as
Exhibit 10.2 to the Current Report on Form 8-K filed on June
30, 2011 and incorporated herein by reference). |
|
|
|
10.3
|
|
Waiver Agreement, dated June 30, 2011, by and among Emisphere
Technologies, Inc. and MHR (filed as Exhibit 10.3 to the
Current Report on Form 8-K filed on June 30, 2011 and
incorporated herein by reference). |
|
|
|
10.4
|
|
Registration Rights Agreement by and among Emisphere
Technologies, Inc. and the Buyers named therein, dated July 6,
2011 (filed as Exhibit 10.85 to the Registration Statement on
Form S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.5
|
|
Warrant A-54 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and EOS Holdings LLC (filed as Exhibit
10.86 to the Registration Statement on Form S-1 filed on July
26, 2011 and incorporated herein by reference). |
|
|
|
10.6
|
|
Warrant A-55 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Kingsbrook Opportunities Master Fund LP
(filed as Exhibit 10.87 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.7
|
|
Warrant A-56 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Bai Ye Feng (filed as Exhibit 10.88 to
the Registration Statement on Form S-1 filed on July 26, 2011
and incorporated herein by reference). |
|
|
|
10.8
|
|
Warrant A-57 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Cranshire Capital, L.P. (filed as
Exhibit 10.89 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.9
|
|
Warrant A-58 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and HF H VICTOR UW VICTOR ART 7 (filed as
Exhibit 10.90 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
32
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
10.10
|
|
Warrant A-59 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Freestone Advantage Partners, LP (filed
as Exhibit 10.91 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.11
|
|
Warrant A-60 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Iroquois Master Fund Ltd. (filed as
Exhibit 10.92 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.12
|
|
Warrant A-61 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Shipman & Goodwin LLP Profit Sharing
Trust FBO James T. Betts (filed as Exhibit 10.93 to the
Registration Statement on Form S-1 filed on July 26, 2011 and
incorporated herein by reference). |
|
|
|
10.13
|
|
Warrant A-62 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Son Nam Nguyen (filed as Exhibit 10.94
to the Registration Statement on Form S-1 filed on July 26,
2011 and incorporated herein by reference). |
|
|
|
10.14
|
|
Warrant A-63 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Pine Lodge Capital Company Ltd. (filed
as Exhibit 10.95 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.15
|
|
Warrant A-64 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Huaidong Wang (filed as Exhibit 10.89
to the Registration Statement on Form S-1 filed on July 26,
2011 and incorporated herein by reference). |
|
|
|
10.16
|
|
Warrant A-65 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and Anson Investments Master Fund LP (filed
as Exhibit 10.97 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.17
|
|
Warrant A-66 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners Master Account LP
(filed as Exhibit 10.98 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.18
|
|
Warrant A-67 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP (filed as
Exhibit 10.99 to the Registration Statement on Form S-1 filed
on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.19
|
|
Warrant A-68 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP (filed
as Exhibit 10.100 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.20
|
|
Warrant A-69 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
(filed as Exhibit 10.101 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.21
|
|
Warrant A-70 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners Master Account LP
(filed as Exhibit 10.102 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
10.22
|
|
Warrant A-71 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP (filed
as Exhibit 10.103 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.23
|
|
Warrant A-72 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP (filed
as Exhibit 10.104 to the Registration Statement on Form S-1
filed on July 26, 2011 and incorporated herein by reference). |
|
|
|
10.24
|
|
Warrant A-73 dated as of July 6, 2011, between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
(filed as Exhibit 10.105 to the Registration Statement on Form
S-1 filed on July 26, 2011 and incorporated herein by
reference). |
|
|
|
31.1
|
|
Certification of the Interim Chief Executive Officer and 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). |
|
|
|
101.INS*
|
|
XBRL Instance Document. |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
* |
|
Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934, and are otherwise not subject to liability under these sections.
|
33