FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended April 30, 1997
OR
[ ]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 1-10615
EMISPHERE TECHNOLOGIES, INC.
(EXACT name of registrant as specified in its charter)
DELAWARE 13-3306985
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
15 Skyline Drive 10532
Hawthorne, New YORK (Zip Code)
(Address of principal executive
offices)
(914) 347-2220
(Registrant s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be files 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 at least the past 90 days. Yes X No
---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Registrant s common stock, $.01 par value,
outstanding as of June 1, 1997 was: 9,526,262
Page 1 of 15
Exhibit Index on Page 13
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
TABLE OF CONTENTS
April 30, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL Statements: Page
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statement of Stockholders' Equity 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 6. EXHIBITS and Reports on Form 8-K 15
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, April 30,
Assets: 1996 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,904,674 $ 6,122,700
Marketable securities 6,332,817 9,008,240
Receivable due from Elan-Emisphere Venture 662,730
Prepaid expenses and other current assets 289,769 372,546
----------- -------------
Total current assets 18,527,260 16,166,216
Equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization 1,450,862 1,416,830
Other assets 61,243 61,243
------------ ------------
Total assets $ 20,039,365 $ 17,644,289
============ ============
Liabilities and Stockholders Equity:
Current liabilities:
Accounts payable $ 191,038 $ 370,039
Accrued compensation 211,826 240,785
Accrued professional fees 263,000 149,750
Accrued expenses 61,923 44,959
----------- ------------
Total current liabilities 727,787 805,533
Investment deficiency in Elan-Emisphere Venture 1,977,071
Deferred lease liability 44,823 37,112
----------- ------------
Total liabilities 772,610 2,819,716
----------- ------------
Commitments and contingencies
Stockholders equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value; 20,000,000 shares
authorized; 9,450,760 shares issued
(9,407,260 outstanding) at July 31,
1996; 9,568,933 shares issued (9,525,433 outstanding)
at April 30, 1997 94,508 95,690
Additional paid-in capital 62,129,161 63,177,233
Accumulated deficit (42,735,810) (48,245,132)
Net unrealized (loss) on marketable securities (28,291) (10,405)
------------- -------------
19,459,568 15,017,386
Less, common stock held in treasury, at cost; (192,813) (192,813)
------------- -------------
Total stockholders equity 19,266,755 14,824,573
------------ -------------
Total liabilities and stockholders equity $ 20,039,365 $ 17,644,289
============ =============
</TABLE>
See accompanying notes to financial statements. The July 31, 1996 Condensed
Balance Sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
April 30, April 30,
---------------------------- --------------------------
1996 1997 1996 1997
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Contract revenues $ -- $ 1,595,078 $ 3,033,333 $ 4,124,594
------------ ------------- ----------- -----------
Costs and expenses:
Research and development 1,817,015 2,010,506 4,700,890 5,536,583
Loss in Elan-Emisphere Venture 689,524 1,987,069
General and administrative 656,653 1,190,752 1,883,379 2,839,103
----------- ----------- ---------- ----------
Total operating expenses 2,473,668 3,890,782 6,584,269 10,362,755
----------- ----------- ---------- ----------
Operating loss (2,473,668) (2,295,704) (3,550,936) (6,238,161)
------------ ------------ ------------ -----------
Other income:
Investment income 147,153 221,420 441,761 728,839
----------- ----------- ----------- ----------
Net loss $ (2,326,515) $(2,074,284) $(3,109,175) $(5,509,322)
============== ============ ============ ============
Net loss per share $ (0.28) $ (0.22) $ (0.38) $ (0.58)
============== ============ ============ ============
Weighted average number of
shares outstanding 8,352,458 9,518,876 8,140,262 9,484,117
============= ============ ============ ===========
</TABLE>
See accompanying notes to the financial statements
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
For the nine months ended April 30, 1997
<TABLE>
<CAPTION>
Net
Unrealized
(Loss)
Additional on Common Stock
Common Stock Paid-in Accumulated Marketable Held In Treasury
----------------- ------------------
Shares Amount Capital Deficit Securities Shares Amount Total
------- ------- ----------- ----------- ----------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1996 9,450,760 $ 94,508 $62,129,161 $(42,735,810) $ (28,291) 43,500 $(192,813) $ 19,266,755
Exercise of options and
employee stock purchases 118,173 1,182 1,048,072 1,049,254
Change in net unrealized
(loss) on marketable
securities 17,886 17,886
Net loss for the nine
months ended April 30,1997 (5,509,322) (5,509,322)
--------- --------- ----------- ----------- ---------- ------ ---------- -----------
Balance, April 30, 1997 9,568,933 $ 95,690 $63,177,233 $(48,245,132) $ (10,405) 43,500 $(192,813) $14,824,573
========== ========= =========== ============= ========== ====== ========== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR the nine months
ended
April 30,
---------------------------
1996 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,109,175) $ (5,509,322)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss in Elan-Emisphere Venture 1,987,069
Depreciation and amortization 414,906 312,310
Decrease in deferred lease liability (7,709) (7,711)
Realized gain on sale of marketable
securities (16,121) (29)
Change in assets and liabilities:
Receivable due from Elan-Emisphere Venture (662,730)
Prepaid expenses and other current assets (165,831) (82,777)
Accounts payable and accrued expenses 27,740 77,746
Investment in Elan-Emisphere Venture (9,998)
----------- -----------
Total adjustments 252,985 1,613,880
----------- -----------
Net cash (used in) operating activities (2,856,190) (3,895,442)
----------- -----------
Cash flows from investing activities:
Capital expenditures (261,508) (278,278)
Purchase of marketable securities (12,721,210) (9,952,421)
Proceeds from sales of marketable securities 8,555,926 7,294,913
----------- -----------
Net cash (used in) investing activities (4,426,792) (2,935,786)
------------ -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock
and warrants to Elan Internationl Services Ltd. 7,463,000
Net proceeds from issuance of common stock in
a public offering 9,954,578
Proceeds from exercise of options and
employee stock purchases 313,560 1,049,254
----------- -----------
Net cash provided by financing activities 17,731,138 1,049,254
----------- -----------
Net increase (decrease) in cash
and cash equivalents 10,448,156 (5,781,974)
Cash and cash equivalents, beginning of period 2,226,156 11,904,674
----------- ------------
Cash and cash equivalents, end of period $ 12,674,312 $ 6,122,700
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Statements:
THE interim Condensed Statements of Operations for the three months and nine
months ended April 30, 1996 and 1997 and Condensed Statements of Cash Flows for
the nine months ended April 30, 1996 and 1997, and the Condensed Balance Sheets
as of July 31, 1996 and April 30, 1997, of Emisphere Technologies, Inc. (the
"Company"), have been prepared in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all
information and disclosures necessary for a presentation of the Company's
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, these
financial statements reflect all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for such periods. The results of
operations for any interim period are not necessarily indicative of the results
for the full year. These financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company`s
Annual Report on Form 10-K for the fiscal year ended July 31, 1996.
2. Elan-Emisphere Joint Venture:
During October 1996, the equally owned joint venture formed by the Company and
Elan Corporation plc (the "Elan-Emisphere Venture" or the "Venture") commenced
operations. The Company accounts for its investment in the Venture in
accordance with the equity method of accounting. Since the Venture's inception
(September 1996), the Company has contributed capital to the Venture of
approximately $10,000. For the three months ended April 30, 1997, the Venture
incurred an aggregate net loss of approximately $1,380,000, and for the period
from the Venture s inception (September 1996) to April 30, 1997, $3,975,000.
The Company's 50% share of the respective losses was approximately $690,000 and
$1,987,000.
Contract revenue from the Venture, with respect to services provided by the
Company to the Venture, is recognized as the related services are rendered.
Such revenue for the three months ended April 30, 1997 totaled approximately
$970,000 and for the period from the Venture s inception (September 1996) to
April 30, 1997, $3,351,000.
<PAGE>
Selected financial data of the Venture as of April 30, 1997 is as follows:
Balance Sheet Data
Assets:
Cash $ 1,643,000
============
Liabilities and Stockholders Deficit:
Accounts payable (1) 1,097,000
Subordinated debt 4,500,000
Stockholders' deficit (3,954,000)
------------
$1,643,000
===========
(1) Includes $662,730 due the Company.
Statement of Operations Data
For the three Inception
months ended (September 1996)to
April 30, 1997 April 30, 1997
-------------- -----------------
Total revenue $ 26,000 $ 71,000
Total expenses (2) 1,406,000 4,046,000
-------------- -------------
Net loss $ 1,380,000 $ 3,975,000
============== =============
(2) Includes $970,000 and $3,351,000 related to services performed
by the Company on behalf of the Venture for the three and
nine months ended April 30, 1997, respectively.
3. Agreement with Eli Lilly and Company
During February 1997, the Company and Eli Lilly and Company ("Lilly") entered
into a strategic alliance (the "Lilly Strategic Alliance"). The terms of the
Lilly Strategic Alliance provide for Lilly to fund certain research conducted by
the Company on behalf of Lilly. Lilly has agreed to fund this research for a
period of 18 to 24 months. Lilly has a right to license the Company's
technology and should the Company's research be successful, the Company would be
entitled to receive fees, milestone payments and royalties.
4. New Operating Lease for Office and Laboratory Space
THE Company entered into a ten-year noncancellable lease for new office and
laboratory space commencing August 1997. The annual minimum rental is to be
approximately $1,300,000.
<PAGE>
5. Impact of the Future Adoption of Recently Issued Accounting Standard
During February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 will
require the Company to replace the current presentation of "primary" per share
data with " basic" and "diluted" per share data. Since the impact of outstanding
common stock equivalents on per share data is antidilutive, the future adoption
of SFAS 128 will not have a material impact on the Company's per share data.
SFAS 128 will be adopted by the Company for periods ending after December 15
1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and elsewhere in this report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: uncertainties related to future
test results and viability of the Company's product candidates, which are in the
early stages of development; the need to obtain regulatory approval for the
Company's product candidates; the Company's dependence on partnerships with
pharmaceutical and other companies to develop, manufacture and commercialize
p r oducts using the Company's drug delivery technologies; the Company's
dependence on the success of its joint venture with Elan Corporation plc
("Elan") for the development and commercialization of an oral heparin product
and its strategic alliance with Eli Lilly and Company ("Lilly") for the
development and commercialization of certain of Lilly's therapeutic proteins;
the risk of technological obsolescence and risks associated with the Company's
highly competitive industry; the Company's dependence on patents and proprietary
rights; the Company's absence of profitable operations and need for additional
capital; the Company's dependence on others to manufacture the Company's
chemical compounds; the risk of product liability and policy limits of product
liability insurance; potential liability for human clinical trials; the
Company's dependence on key personnel and the quality, judgment and strategic
d e cisions of management and other personnel; uncertain availability of
third-party reimbursement for commercial medical products; general business and
economic conditions; and other factors referenced in the Company's report on
Form 10-K for the fiscal year ended July 31, 1996.
GENERAL
Emisphere is a drug delivery company focused on the discovery and application of
proprietary synthetic chemical compounds that enable the oral delivery of
t h e rapeutic macromolecules and other compounds that are not currently
deliverable by oral means. Since its inception in 1986, the Company has devoted
substantially all of its efforts and resources to research and development
conducted on its own behalf and through collaborations with corporate partners
and academic research institutions. The Company has had no product sales to
date. The major sources of the Company's working capital have been proceeds
from its initial public offering in 1989, a second public offering in February
1993, private equity financing, the latest of which occurred with an affiliate
of Elan in October 1995, reimbursement of expenses and other payments from
corporate partners, the registered sale of one million shares of common stock to
two institutional investors in April 1996, and income earned on the investment
of available funds. The Company's operations are not significantly affected by
inflation or seasonality.
<PAGE>
On February 27, 1997, the Company and Lilly announced that they entered into a
strategic alliance (the "Lilly Strategic Alliance") to utilize Emisphere's
technologies for the improved delivery of certain Lilly therapeutic
proteins with a focus on oral delivery. The major therapeutic focus of the
collaboration is in the area of endocrinology, including growth disorders.
Initially, Lilly is committing limited funds to the Company for research on
delivery of two proteins. The Lilly Strategic Alliance contemplates that Lilly
may ultimately exercise options to license the applicable carriers and market
the products utilizing the combined technologies. If the options are exercised,
the Company may receive from Lilly milestone and other payments aggregating,
together with initial funding, up to $60 million, as well as future royalty
payments. The Lilly Strategic Alliance also contemplates that the Company could
receive further payments for other delivery applications if the focus of the
Lilly Strategic Alliance is expanded beyond the two specified therapeutic
proteins or to non-oral applications.
Results of Operations
T h e Company has since its inception generated significant losses from
operations. The Company does not expect to achieve profitability in the
foreseeable future. Profitability will ultimately depend on the Company's
ability, either alone or in conjunction with third parties, to develop and
commercialize products utilizing the Company's technology. There can be no
assurance that the development will be completed or if completed, any regulatory
agency will approve the final product. Even if final products are developed and
approved, there is no assurance that sales will be sufficient to achieve
profitability. If development of such products is not achieved or approval not
granted, the Company's prospects will be materially affected.
The ability of the Company to reduce its operating losses in the near term will
be dependent upon, among other things, its ability to attract new pharmaceutical
and other companies who are willing to provide funding to the Company for a
portion of the Company's research and development with respect to specific
projects. While the Company is constantly engaged in discussions with
pharmaceutical and other companies, there can be no assurance that the Company
will enter into any additional agreements or that the agreements will provide
research and development revenues to the Company.
Three Months Ended April 30, 1997 vs. Three Months Ended April 30, 1996:
FOR the three months ended April 30, 1997, the company recognized $1,595,000 of
contract revenue compared to no contract revenue for the three months ended
April 30, 1996. The majority of contract revenue for the three months ended
April 30, 1997 consisted of recognition of revenues from the Elan- Emisphere
Joint Venture and the balance from Lilly under the research collaboration and
option agreement (the Lilly Agreement ) to combine Lilly s therapeutic protein
and formulation capabilities with the Company s carrier technologies.
Total operating expenses for the three months ended April 30, 1997, increased by
$1,417,000, or 57%, as compared to the three months ended April 30, 1996. The
details of this increase are as follows:
Research and development costs increased by approximately $193,000, or 11%, in
the three months ended April 30, 1997, as compared to the three months ended
April 30, 1996. This increase is mainly attributable to an increase in
personnel and related expenses and lab supplies associated with the Company s
development of an oral heparin formulation and work performed in connection with
the Lilly agreement. The Company also experienced an increase in funding of
outside consultants and universities engaged to conduct studies to help advance
the Company s scientific research efforts. The Company believes that this level
of research and development spending will continue for the foreseeable future
and may increase if operations are expanded.
<PAGE>
The increase of $690,000 in the loss in Elan-Emisphere Venture represents the
Company s pro-rata portion of the Venture s loss for the period. No loss was
experienced in the comparable period as the Venture did not commence operations
until September 1996.
General and administrative expenses increased by approximately $534,000, or 81%,
in the three months ended April 30, 1997, as compared to the three months ended
April 30, 1996. This increase is primarily the result of increased legal and
professional fees incurred in connection with the finalization of the Elan-
Emisphere Joint Venture, the agreement with Lilly and the cost incurred in
connection with the registration of 2.5 million shares of common stock.
The Company's other income in the three months ended April 30, 1997 increased by
approximately $74,000, or 50%, as compared to the three months ended April 30,
1996. The increase was primarily due to better returns on the Company's larger
investment portfolio.
Based on the above factors, the Company s net loss for the third quarter of
fiscal 1997 totaled $2,074,000 as compared to $2,327,000 for the 1996 fiscal
quarter.
Nine Months Ended April 30, 1997 vs. Nine Months Ended April 30, 1996:
FOR the nine months ended April 30, 1997, the Company recognized $4,125,000 of
contract revenue compared to $3,033,000 for the nine months ended April 30,
1996. The majority of contract revenue for the nine months ended April 30,1997
consisted of recognition of revenues from the Elan-Emisphere Joint Venture in
connection with the development of an oral formulation of heparin, and a payment
from the Lilly agreement, and from two pharmaceutical companies for which the
Company performed feasibility studies. Research and development revenue for the
nine months ended April 30, 1996 consisted of recognition of payments under the
Company s agreements with Elan ($3,000,000) and Pasteur Merieux ( Pasteur )
($33,000). The recognition of the revenue from Elan was for work Emisphere
performed on the development of an oral formulation of heparin prior to entering
into the strategic alliance with Elan. Revenue recognized from Pasteur was a
payment for Emisphere s completion of a defined milestone called for in its
feasibility agreement with Pasteur.
Total operating expenses for the nine month period ended April 30, 1997,
increased by approximately $3,778,000, or 57%, as compared to the nine month
period ended April 30, 1996. The details of this increase are as follows:
Research and development costs increased by approximately $836,000, or 18%, for
the nine months ended April 30, 1997, as compared to the nine months ended April
30, 1996. This increase is mainly attributable to increased personnel and
related expenses associated with the Company s development of an oral heparin
formulation and work performed in connection with the Lilly agreement. The
Company also experienced an increase in funding of outside consultants and
universities engaged to conduct studies to help advance the Company s scientific
research efforts. The Company believes that this level of research and
development spending will continue for the foreseeable future and may increase
if operations are expanded.
The increase of $1,987,000 in the loss in Elan-Emisphere Joint Venture
represents the Company s pro-rata portion of the Venture s loss for the period.
No loss was experienced in the comparable period as the Venture did not commence
operations until September 1996.
<PAGE>
General and administrative expenses increased by approximately $956,000, or 51%,
for the nine months ended April 30, 1997, as compared to the nine months ended
April 30, 1996. This increase is attributable to an increase in legal and
professional fees incurred in connection with the finalization of the Elan-
Emisphere Joint Venture, the agreement with Lilly and costs incurred in
connection with the registration of 2.5 million shares of common stock. This was
partially offset by a decrease in payments made to an outside consultant who
assisted the Company in discussions and negotiations with pharmaceutical
companies.
The Company's other income in the nine months ended April 30, 1997 increased by
approximately $287,000, or 65%, compared to the nine months ended April 30,
1996. This was primarily the result of a larger investment portfolio and better
returns. Based on the above factors, the Company sustained a net loss for the
nine months ended April 30, 1997 of $5,509,000 as compared to a net loss of
$3,109,000 for the nine months ended April 30, 1996.
Liquidity and Capital Resources
As of April 30, 1997, the Company had working capital of approximately
$15,361,000 as compared with approximately $17,799,000 at July 31, 1996. Cash
and cash equivalents and marketable securities were approximately $15,131,000 as
of April 30, 1997, as compared to approximately $18,237,000 at July 31, 1996.
The decrease in the Company's cash and cash equivalents and marketable
securities was primarily due to cash used to fund operations, partially offset
by the exercise of options and reimbursement from the Elan-Emisphere Venture for
certain development costs.
The Company entered into a ten-year noncancellable lease for new office and
laboratory space commencing August 1997. The annual minimum rental is to be
approximately $1,300,000.
The Company expects to continue to incur substantial research and development
expenses associated with the development of the Company's oral drug delivery
system. As a result of the ongoing research and development efforts of the
Company, management believes that the Company will continue to incur operating
losses and that, potentially, such losses could increase. The Company expects
to need substantial resources to continue its research and development efforts.
In addition, the Company is obligated to fund one-half of the Elan-Emisphere
Venture s cash needs upon the Venture s request. The Company expects to
commence funding the Venture during the next quarter. Funding requirements are
established to initially be $500,000 over the next three months and $1.5 million
over the ensuing nine months. The Company and Elan are sharing the financial
benefits and expense obligations of the Venture on a 50/50 basis. The Company
expects the research funding from Lilly to approximate the costs to be incurred
by the company in connection with the development of the Lilly therapeutic
proteins. Under present operating assumptions, the Company expects that cash,
cash equivalents and marketable securities will be adequate to meet its
liquidity and capital requirements through the third quarter of fiscal 1998.
Thereafter, the Company would need to seek additional funds, primarily in the
public and private equity markets and, to the extent necessary and available,
through debt financing. The Company has no firm agreements with respect to any
additional financing and there can be no assurance that the Company would be
able to obtain adequate funds on acceptable terms. If adequate funds were not
available, the Company would be required to delay, scale back , or eliminate one
or more of its research and development programs, or obtain funds, if available,
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates,
or products that the Company would not otherwise relinquish. The Company does
not maintain any credit lines with financial institutions.
<PAGE>
Impact of the Adoption of Recently Issued Accounting Standards:
THE Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123") in October 1995. FAS 123 requires companies to estimate the fair value
o f common stock, stock options, or other equity instruments ("Equity
Instruments") issued to employees using pricing models which take into account
various factors such as current price of the common stock, volatility and
expected life of the Equity Instrument. FAS 123 permits companies to either
provide pro forma note disclosure or adjust operating results for the
amortization of the estimated value of the Equity Instrument, as compensation
expense, over the vesting period of the Equity Instrument. The Company has
elected to provide pro forma note disclosure which will appear in its financial
statements for the year ending July 31, 1997 and, therefore, there will be no
effect on the Company s financial position or results of operations.
During February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 will
require the Company to replace the current presentation of "primary" per share
data with " basic" and "diluted" per share data. Since the impact of outstanding
common stock equivalents on per share data is antidilutive, the future adoption
of SFAS 128 will not have a material impact on the Company's per share data.
SFAS 128 will be adopted by the Company for periods ending after December 15
1997.
<PAGE>
Part II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company s Annual Meeting of Stockholders was held on March 20, 1997. The
matters voted upon at the meeting were (i) the election of seven directors of
the Company (constituting all of the members of the Board of Directors), (ii)
the approval and adoption of the amendment to the 1991 Stock Option Plan
increasing the maximum number of shares available for issuance thereunder by
200,000 (iii) The approval and adoption of the amendment to the Company s 1995
Non-Qualified Stock Option Plan increasing the maximum number of shares
available for issuance thereunder by 100,000 (iv) the approval and adoption of
the amendment to the Company s Stock Option Plan for outside Directors providing
for additional option grants to directors after five years of continuous service
and reserving 170,000 additional shares for issuance thereunder and (v) the
ratification of the Board of Directors selection of Coopers & Lybrand L.L.P. to
serve as the Company s independent auditors for the fiscal year ending July 31,
1997. The number of votes cast for and against or withheld with respect to each
matter voted upon at the meeting and the number of abstentions and broker non-
votes are as follows:
<TABLE>
<CAPTION>
Votes
Withheld
or Broker
Votes For Against Abstentions Non-votes
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Election of Directors
Michael M. Goldberg, M.D 7,955,452 168,599
Jere E. Goyan, Ph.D 7,955,452 168,599
Peter Barton Hutt 7,955,452 168,599
Sam J. Milstein, PhD 7,955,352 168,699
Howard M. Pack 7,953,052 170,999
Mark I. Greene 7,955,108 168,943
Joseph R. Robinson 7,955,452 168,549
Amendment of the Companys
1991 Stock Option Plan 6,118,537 1,956,972 48,542
1995 Non-Qualified Stock
Option Plan 6,189,873 1,885,936 48,542
Stock Option Plan for
Outside Directors 6,307,523 1,768,236 48,292
Ratification of the selection
of Coopers & Lybrand L.L.P 8,079,643 8,086 36,322
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Computation of Per Share Data for the three months
ended April 30, 1996 and 1997
11.2 Statement of Computation of Per Share Data for the nine months
ended April 30, 1996 and 1997
(b) Reports
During the fiscal quarter ended April 30, 1997, the Company filed no
Current Reports on Form 8-K.
<PAGE>
SIGNATURE
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.
Dated: June 13, 1997 /S/Michael M. Goldberg, M.D.
----------------------------
Michael M. Goldberg, M.D.
Chairman, and Chief Executive Officer
/S/Joseph D. Poveromo, C.P.A.
------------------------------
Joseph D. Poveromo, C.P.A.
Controller and Chief Accounting Officer
(Principal Financial and Accounting
Officer)
<PAGE>
Exhibit 11.1
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
</TABLE>
<TABLE>
<CAPTION>
For the three months ended
-------------------------------------------
April 30, 1996 April 30, 1997
--------------------- --------------------
Primary Fully Primary Fully
Diluted Diluted
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net (loss) income $ (2,326,515) $ (2,326,515) $(2,074,284) $(2,074,284)
Interest earned on excess
proceeds 115,138 79,099
------------ ----------- ----------- ----------
Adjusted net loss (2,326,515) (2,211,377) (2,074,284) (1,995,185)
============ ============ =========== ==========
Weighted average number of shares 8,352,458 8,352,458 9,518,876 9,518,876
Shares issuable upon
exercise of options and warrants 3,441,118 4,072,105
Shares assumed to be
repurchased under
the treasury stock method (1,869,133) (1,905,087 ) )
------------ ------------ ---------- ----------
8,352,458 9,924,443 9,518,876 11,685,894
============ ============ ========== ==========
NET (LOSS) INCOME PER SHARE $ (0.28) $ (0.22) $ (0.22) $ (0.17)
============ =========== ========== =========
</TABLE>
<PAGE>
Exhibit 11.2
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
For the nine months ended
------------------------------------------------
April 30, 1996 April 30, 1997
---------------------- ----------------------
Primary Fully Primary Fully
Diluted Diluted
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net loss $ (3,109,175) $(3,109,175) $(5,509,322) $(5,509,322)
Interest earned on excess
proceeds 166,175 363,128
------------- ------------ ------------ -----------
Adjusted net loss (3,109,175) (2,943,025) (5,509,322) (5,146,194)
============= ============ =========== ===========
Weighted average number of
shares 8,140,262 8,140,262 9,484,117 9,484,117
Shares issuable upon
exercise of options & warrants 2,937,350 3,969,743
Shares assumed to be
repurchased under
the treasury stock method (1,869,133) (1,905,087) ) )
------------ ------------ --------- -----------
8,140,262 9,208,479 9,484,117 11,548,773
=========== ============ ========== ===========
NET LOSS PER SHARE $ (0.38) $ (0.32) $ (0.58) $ (0.45)
=========== =========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIONEXTRACTED FROM THE
CONDENSED BALANCE SHEETS, CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 6122700
<SECURITIES> 9008240
<RECEIVABLES> 662730
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16166216
<PP&E> 1729140
<DEPRECIATION> 312310
<TOTAL-ASSETS> 17644289
<CURRENT-LIABILITIES> 805533
<BONDS> 0
0
0
<COMMON> 95690
<OTHER-SE> 14728883
<TOTAL-LIABILITY-AND-EQUITY> 17644289
<SALES> 0
<TOTAL-REVENUES> 4124594
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10362755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5509322)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5509322)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.45)
</TABLE>
