<PAGE> 1
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 January 31, 1998
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)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be 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
----- -----
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of March 6, 1998 was: 10,717,748
Page 1 of 16
Exhibit Index on Page 15
<PAGE> 2
EMISPHERE TECHNOLOGIES, INC.
TABLE OF CONTENTS
January 31, 1998
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 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
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
2
<PAGE> 3
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, January 31,
Assets: 1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,398,967 $ 17,683,667
Marketable securities 11,291,255 10,061,899
Receivable due from Ebbisham Ltd. 648,786 3,523,010
Prepaid expenses and other current assets 448,114 635,348
------------ ------------
Total current assets 34,787,122 31,903,924
Equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization 2,046,087 4,257,713
Other assets 64,243 64,243
------------ ------------
Total assets $ 36,897,452 $ 36,225,880
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 254,715 $ 1,703,177
Accrued compensation 215,000 266,000
Accrued professional fees 288,000 140,105
Accrued expenses 166,858 69,971
Investment deficiency in Ebbisham Ltd. 2,539,958 4,734,580
------------ ------------
Total current liabilities 3,464,531 6,913,833
Deferred lease liability 34,542 290,243
------------ ------------
Total liabilities 3,499,073 7,204,076
------------ ------------
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; 10,733,877
shares issued (10,690,377 outstanding) at July 31,
1997; 10,758,249 shares issued (10,714,749 outstanding) at
January 31, 1998 107,339 107,583
Additional paid-in capital 83,516,461 84,133,116
Accumulated deficit (50,057,115) (55,035,398)
Net unrealized gain on marketable securities 24,507 9,316
------------ ------------
33,591,192 29,214,617
Less, common stock held in treasury, at cost; 43,500 shares (192,813) (192,813)
------------ ------------
Total stockholders' equity 33,398,379 29,021,804
------------ ------------
Total liabilities and stockholders' equity $ 36,897,452 $ 36,225,880
============ ============
</TABLE>
See accompanying notes to financial statements. The July 31, 1997 Condensed
Balance Sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
3
<PAGE> 4
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
January 31, January 31,
-------------------------------- --------------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract research revenues $ 535,066 $ 3,408,563 $ 2,529,516 $ 5,124,223
------------ ------------ ------------ ------------
Costs and expenses:
Research and development 1,864,530 3,973,263 3,526,077 6,639,781
Loss in Ebbisham Ltd. 305,611 1,280,538 1,297,545 2,194,622
General and administrative expenses 1,044,706 1,247,386 1,648,351 2,210,582
------------ ------------ ------------ ------------
Total operating expenses 3,214,847 6,501,187 6,471,973 11,044,985
------------ ------------ ------------ ------------
Operating (loss) (2,679,781) (3,092,624) (3,942,457) (5,920,762)
------------ ------------ ------------ ------------
Other income:
Investment income 251,100 456,597 507,419 942,479
------------ ------------ ------------ ------------
Net (loss) $ (2,428,681) $ (2,636,027) $ (3,435,038) $ (4,978,283)
============ ============ ============ ============
Net (loss) per share-basic and diluted $ (0.26) $ (0.25) $ (0.36) $ (0.47)
============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements
4
<PAGE> 5
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the six months ended January 31, 1998
<TABLE>
<CAPTION>
Net
Unrealized
Additional (Loss)Gain 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, 1997 10,733,877 $107,339 $83,516,461 $(50,057,115) $ 24,507 43,500 $(192,813) $33,398,379
Sale of common stock under
employee stock purchase
plans and exercise of options 24,372 244 321,655 321,899
Issuance of stock options in
exchange for services rendered 295,000 295,000
Change in net unrealized
gain (loss) on marketable
securities (15,191) (15,191)
Net loss for the six months
ended January 31, 1998 (4,978,283) (4,978,283)
---------- -------- ----------- ------------ -------- ------ --------- -----------
Balance, January 31, 1998 10,758,249 $107,583 $84,133,116 $(55,035,398) $ 9,316 43,500 $(192,813) $29,021,804
========== ======== =========== ============ ======== ====== ========= ===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
January 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,435,038) $ (4,978,283)
------------ ------------
Adjustments to reconcile net loss to net cash (used in
operating activities:
Loss in Ebbisham Ltd. 1,297,545 2,194,622
Depreciation and amortization 204,100 235,885
Decrease (increase) in deferred lease liability (5,141) 255,701
Realized gain on sale of marketable securities (248) (14,123)
Noncash compensation in connection with
issuance of equity securities 295,000
Change in assets and liabilities:
Receivable due from Ebbisham Ltd. (880,743) (2,874,224)
Prepaid expenses and other current assets (204,580) (187,234)
Accounts payable and accrued expenses (63,077) 69,289
Investment in Ebbisham Ltd. (9,998)
------------ ------------
Total adjustments 337,858 (25,084)
------------ ------------
Net cash (used in) operating activities (3,097,180) (5,003,367)
------------ ------------
Cash flows from investing activities:
Capital expenditures (170,853) (1,262,120)
Purchase of marketable securities (8,447,406) (3,557,975)
Proceeds from sales of marketable securities 3,867,313 4,786,263
------------ ------------
Net cash (used in) investing activities (4,750,946) (33,832)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of options and employee stock purchases 859,441 321,899
------------ ------------
Net cash provided by financing activities 859,441 321,899
------------ ------------
Net (decrease) in cash and cash equivalents (6,988,685) (4,715,300)
Cash and cash equivalents, beginning of period 11,904,674 22,398,967
------------ ------------
Cash and cash equivalents, end of period $ 4,915,989 $ 17,683,667
============ ============
Supplemental disclosure of non-cash items:
Equipment and leasehold improvements included in
accounts payable and accrued expense $ 1,185,391
============
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
EMISPHERE TECHNOLOGIES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS:
The interim Condensed Statements of Operations for the three months and
six months ended January 31, 1997 and 1998 and Condensed Statements of
Cash Flows for the six months ended January 31, 1997 and 1998, and the
Condensed Balance Sheets as of July 31, 1997 and January 31, 1998, 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, 1997.
2. ELAN-EMISPHERE 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.
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 and six months ended January 31,
1998 totaled approximately $1,784,000 and $2,874,000, respectively, as
compared to $386,000 and $2,381,000, respectively, for the three and
six months ended January 31, 1997.
Selected financial data of the Venture as of January 31, 1998 and for
the three and six months ended January 31, 1998 and 1997 is as follows:
Balance Sheet Data
<TABLE>
<S> <C>
Cash $ 725,000
Accounts payable 5,694,000
Subordinated debt 4,500,000
Stockholders' deficit (9,489,000)
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Data Three Months Ended Six Months Ended
January 31, January 31, January 31, January 31,
1997 1998 1997 1998
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Revenue $ 34,000 $ 8,400 $ 45,000 $ 16,400
Total Expenses 645,000 2,569,400 2,640,000 4,405,400
-------- ---------- ---------- ----------
Net Loss $611,000 $2,561,000 $2,595,000 $4,389,000
======== ========== ========== ==========
</TABLE>
7
<PAGE> 8
3. NOVARTIS PHARMA AG
During December, 1997 (the "Effective Date"), the Company and Novartis
Pharma AG ("Novartis") entered into a Research Collaboration to
investigate Emisphere's technology for oral delivery of two selected
Novartis compounds. The initial term of the Novartis Agreement is
twelve months from the Effective Date, with an option for an extension
of an additional twelve months.
In addition, Novartis has the right to purchase, in four tranches up to
$16 million of the Company's Common Stock. Subject to certain
limitations as to potential price variability with respect to the price
for the first tranche, the Common Stock purchased by Novartis will be
based on market prices. The Company may, in its sole discretion, waive
Novartis's right as to any or all of the four tranches.
During the initial term, and if applicable, the extension period,
Novartis will provide quarterly payments to the Company for work
performed by the Company in connection with the collaboration. For the
period ended January 31, 1998, revenue recognized from the Novartis
agreement totaled $1,000,000. In addition, the agreement provides for
future payments in the event certain milestones are achieved.
Either party may terminate the Novartis agreement upon written notice
to the other party that such party has breached the Agreement if,
within 60 days of receipt of such notice, such breach has not been
cured.
4. NET LOSS PER SHARE
For the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). As required by SFAS 128, the prior year loss per share data have
been restated to conform to the provisions of SFAS No. 128; however,
the impact of the restatement was not material.
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of Common shares
outstanding. For the three months and six months ended January 31, 1998
and 1997, the Company reported net losses and, therefore, no common
stock equivalents were included in the computation of diluted net loss
per share since such inclusion would have been antidilutive. The
calculations of basic and diluted loss per share are as follows:
<TABLE>
<CAPTION>
Net Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------- ------
<S> <C> <C> <C>
Three months ended January 31, 1997-
basic and diluted $(2,428,681) 9,489,732 $(0.26)
=========== ========== ======
Three months ended January 31, 1998-
basic and diluted $(2,636,027) 10,708,546 $(0.25)
=========== ========== ======
Six months ended January 31, 1997-
basic and diluted $(3,435,038) 9,467,632 $(0.36)
=========== ========== ======
Six months ended January 31, 1998-
basic and diluted $(4,978,283) 10,702,008 $(0.47)
=========== ========== ======
</TABLE>
8
<PAGE> 9
Options and warrants which have been excluded from the diluted per
share amounts because their effect would have been antidilutive include
the following:
<TABLE>
<CAPTION>
Three months ended January 31, Six months ended January 31,
1997 1998 1997 1998
-------------------- -------------------- -------------------- ------------------
Wtd. Wtd. Wtd. Wtd.
Avg Avg Avg Avg
Exercise Exercise Exercise Exercise
Number Price Number Price Number Price Number Price
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options and warrants with an
exercise price below the average
fair market value of the
Company's common stock 3,998,210 $10.32 4,158,067 $10.49 3,738,310 $ 9.91 4,313,839 $10.78
========= ====== ========= ====== ========= ====== ========= ======
Options and warrants with an
exercise price above the average
fair market value of the
Company's common stock 88,150 $21.53 253,422 $19.63 348,050 $17.60 97,650 $21.44
========= ====== ========= ====== ========= ====== ========= ======
</TABLE>
5. IMPACT OF THE FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130. "Reporting Comprehensive Income" ("SFAS
No. 130") in June 1997. Comprehensive Income represents the change in
net assets of a business enterprise as a result of nonowner
transactions. Management does not believe that the future adoption of
SFAS No. 130 will have a material effect on the Company's financial
position and results of operations. The Company will adopt SFAS No. 130
for the year ending July 31, 1999.
9
<PAGE> 10
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 statement" 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 companies to develop, manufacture
and commercialize products using the Company's drug delivery technologies; the
Company's dependence on the success of its joint venture with Elan Corporation
plc (the "Elan Joint Venture" or "Ebbisham Ltd.") for the development and
commercialization of oral heparin and low molecular weight heparin product and
the strategic alliance with Eli Lilly & Company ("Lilly") (the "Lilly Strategic
Alliance") for the development and commercialization of certain of Lilly's
therapeutic protein; and its research collaboration with Novartis Pharma AG
("Novartis") to investigate Emisphere's technology for oral delivery of two
selected Novartis compounds (the "Novartis Collaboration"); the risk of
technological obsolescence and risks associated with the Company's highly
competitive industry; 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; the quality, judgement and strategic
decisions of management and other personnel; uncertain availability of
third-party reimbursement for commercial medical products; and general business
and economic conditions; and other factors referenced in Emisphere's report on
Form 10-K for the fiscal year ended July 31, 1997.
GENERAL
Emisphere is a drug delivery company focused on the discovery and
application of proprietary synthetic chemical compounds that enable the oral
delivery of 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
offerings, private equity financing, reimbursement of expenses and other
payments from corporate partners, and income earned on the investment of
available funds. The Company's operations are not significantly affected by
inflation or seasonality.
RESULTS OF OPERATIONS
The 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 to develop its lead products, in conjunction with the Elan Joint Venture
and the Lilly Strategic Alliance or to develop other products in conjunction
with other partners. 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.
10
<PAGE> 11
THREE MONTHS ENDED JANUARY 31, 1998 VS. THREE MONTHS ENDED JANUARY 31, 1997:
For the three months ended January 31, 1998, the Company recognized $3,409,000
of contract revenue compared to $535,000 for the three months ended January 31,
1997. Research and development revenue for the three months ending January 31,
1998 consisted of the recognition of revenues from Ebbisham, Ltd. of
approximately $1,784,000, payments 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,
and Novartis Pharma AG under the research collaboration and option agreement
(the "Novartis Agreement") to investigate the Company's carrier technologies
with two selected Novartis compounds. For the three months ending January 31,
1997 revenue consisted of the recognition of revenues from Ebbisham, Ltd. of
approximately $386,000 and payments from two pharmaceutical companies for which
the Company performed feasibility studies.
Total operating expenses for the fiscal quarter ended January 31, 1998,
increased by $3,286,000 or 102%, as compared to the fiscal quarter ended January
31, 1997. The details of this increase are as follows:
Research and development costs increased by approximately $2,109,000, or 113%,
in the fiscal quarter ended January 31, 1998, as compared to the fiscal quarter
ended January 31, 1997. This increase is mainly attributable to increased
personnel and laboratory supply costs in connection with the collaborations with
Lilly, Novartis and the ongoing clinical trials work for heparin. 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, perform services related to the manufacturing of the Company's
carriers, and consult on the Company's ongoing clinical studies with heparin.
The Company also experienced an increase in rent expense in connection with
payments for a new lease for laboratory space. 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 loss in Ebbisham Ltd., increased by approximately $975,000, or 319%, in the
fiscal quarter ended January 31, 1998, as compared to the fiscal quarter ended
January 31, 1997. This increase is attributable to the timing of costs
associated with ongoing clinical development of heparin. The costs associated
with Ebbisham may increase substantially depending upon the agreed timing and
scope of future research and development efforts.
General and administrative expenses increased by approximately $203,000, or 19%,
in the fiscal quarter ended January 31, 1998, as compared to the fiscal quarter
ended January 31, 1997. This increase is primarily the result of costs
associated with the ongoing computer consulting. The Company also experienced an
increase in rent expense in connection with payments for a new lease for office
space. This was partially offset by a decrease in legal and professional fees
paid in connection with the finalization of the Ebbisham, Ltd. joint venture and
the agreement with Lilly.
The Company's other income in the quarter ended January 31, 1998 increased by
approximately $205,000, or 82%, as compared to the fiscal quarter ended January
31, 1997. The increase was primarily due to the Company's larger investment
portfolio.
Based on the above, the Company sustained a net loss for the second fiscal
quarter of 1998 of $2,636,000, an 9% increase of the 1997 second fiscal quarters
loss of $2,429,000.
SIX MONTHS ENDED JANUARY 31, 1998 VS. SIX MONTHS ENDED JANUARY 31, 1997:
For the six months ended January 31, 1998, the Company recognized $5,124,000 of
research and development revenue compared to $2,530,000 for the six months ended
January 31, 1997. Research and development revenue for the six months ending
January 31, 1998 consisted of the recognition of revenues from Ebbisham, Ltd. of
approximately $2,874,000 and payments 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, Novartis Pharma AG under the research collaboration and option
agreement (the "Novartis Agreement") to investigate the Company's carrier
technologies with two selected Novartis compounds. For the six months ending
January 31, 1997 revenue consisted of the recognition of revenues from Ebbisham,
Ltd. of approximately $2,381,000 and payments from two pharmaceutical companies
for which the Company performed feasibility studies.
11
<PAGE> 12
Total operating expenses for the six month period ended January 31, 1998,
increased by approximately $4,573,000, or 71%, as compared to the six month
period ended January 31, 1997. The details of this increase are as follows:
Research and development costs increased by approximately $3,114,000,
or 88%, for the six months ended January 31, 1998, as compared to the six months
ended January 31, 1997. This increase is mainly attributable to increased
personnel and laboratory supply costs in connection with the collaborations with
Lilly, Novartis and the ongoing clinical trials work for heparin. 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, perform services related to the manufacturing of the Company's
carriers, and consult on the Company's ongoing clinical studies with heparin.
The Company also experienced an increase in rent expense in connection with
payments for a new lease for office and laboratory space. 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 loss in Ebbisham Ltd., increased by approximately $897,000 or 69%, in the
six months ended January 31, 1998, as compared to the six months ended January
31, 1997. This increase is attributable to the timing of costs associated with
ongoing clinical development of heparin. The costs associated with Ebbisham may
increase substantially depending upon the agreed timing and scope of future
research and development efforts.
General and administrative expenses increased by approximately $562,000, or 34%,
for the six months ended January 31, 1998, as compared to the six months ended
January 31, 1997. This increase is primarily the result of costs associated with
the ongoing computer consulting. The Company also experienced an increase in
rent expense in connection with payments for a new lease for office and
laboratory space. This was partially offset by a decrease in legal and
professional fees paid in connection with the finalization of the Ebbisham, Ltd.
joint venture and the agreement with Lilly.
The Company's other income in the six months ended January 31, 1998 increased by
approximately $435,000, or 86%, compared to the six months ended January 31,
1997. This was primarily the result of a larger investment portfolio.
Based on the above, the Company sustained a net loss for the six months ending
January 31, 1998 of $4,987,000, a 45% increase over the net loss of $3,435,000
sustained in the six months ending January 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1998, the Company had working capital of
approximately $24,990,000 as compared with approximately $31,323,000 at July,
31, 1997. Cash and cash equivalents and marketable securities were approximately
$27,746,000 as of January 31, 1998, as compared to approximately $33,690,000 at
July 31, 1997. The decrease in the Company's cash and cash equivalents and
marketable securities was primarily due to cash used to fund operations in the
first half of fiscal 1998, partially offset by the exercise of options and
payments connected with the Company's agreements with Lilly and Novartis.
The Company entered into a ten-year noncancellable lease for new office and
laboratory space commencing August 1997. The annual minimum rental is
approximately $1,300,000. The Company has expended approximately $2,250,000 in
capital expenditures to date in connection with the occupation of the new space,
and anticipates approximately $4,000,000 in additional expenditures during the
next six months.
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
Joint 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 $3,000,000 over the next six months and depending
upon the agreed timing and scope of future research and development efforts may
increase substantially thereafter. Pursuant to the Elan Joint Venture, the
Company and Elan share 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 fiscal 1999. 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 or 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.
12
<PAGE> 13
IMPACT OF THE FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130. "Reporting Comprehensive Income" ("SFAS No. 130")
in June 1997. Comprehensive Income represents the change in net assets of a
business enterprise as a result of nonowner transactions. Management does not
believe that the future adoption of SFAS No. 130 will have a material effect on
the Company's financial position and results of operations. The Company will
adopt SFAS No. 130 for the year ending December 31, 1998.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on January 15, 1998. The
matters voted upon at the meeting were (i) the election of seven directors of
the Company, (ii) the approval and adoption of the amendment to the 1991 Stock
Option Plan (iii) the approval and adoption of the amendment to the Company's
1995 Non-Qualified Stock Option Plan (iv) the approval of the Company's
Directors Deferred Compensation Stock Plan (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, 1998. 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 9,362,916 363,849
Jere E. Goyan, Ph.D 9,643,976 82,789
Peter Barton Hutt 9,644,016 82,749
Sam J. Milstein, Ph.D 9,643,916 82,849
Howard M. Pack 9,640,276 86,489
Mark I. Greene 9,640,912 85,853
Joseph R. Robinson 9,644,047 82,718
Adoption of the Company's
1991 Stock Option Plan as
amended 7,844,217 1,850,118 32,430
1995 Non-Qualified Stock Option
Plan 7,951,001 1,754,709 21,055
Directors' Deferred Compensation
Stock Plan 9,525,117 167,237 34,411
Ratification of the selection of
Coopers & Lybrand L.L.P. 9,705,762 8,328 12,675
</TABLE>
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Reports
No reports on form 8-K were filed by the Registrant during the quarter
ended January 31, 1998.
15
<PAGE> 16
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: March 16, 1998 /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)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted 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> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 17,683,667
<SECURITIES> 10,061,899
<RECEIVABLES> 3,523,010
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,903,924
<PP&E> 7,525,738
<DEPRECIATION> 3,268,025
<TOTAL-ASSETS> 36,225,880
<CURRENT-LIABILITIES> 6,913,833
<BONDS> 0
0
0
<COMMON> 107,583
<OTHER-SE> 28,914,221
<TOTAL-LIABILITY-AND-EQUITY> 36,225,880
<SALES> 0
<TOTAL-REVENUES> 5,124,223
<CGS> 0
<TOTAL-COSTS> 11,044,985
<OTHER-EXPENSES> (942,479)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,978,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,978,283)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>