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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1999
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)
765 Old Saw Mill River Road
Tarrytown, New York 10591
(Address of principal executive offices) (Zip Code)
(914) 347-2220
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock--$.01 par value
Preferred Stock Purchase Rights
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 at least the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of November 30, 1999, the aggregate market value of registrant's common
stock held by non-affiliates was approximately $270,000,000, based on a closing
sale price of $18.875 per share, and 14,489,284 shares of registrant's common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 ("Amendment No. 1") on form 10-K/A to the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999 (the "10-K")
amends and restates in their entirety Item 7 "Management's Discussion and
Analysis of Financial Conditions and Results of Operations," Item 8 "Financial
Statements and Supplementary Data" and Item 11 "Executive Compensation" of the
10-K. The purpose of Amendment No. 1 is to include in the 10-K the updated
information regarding Item 7, Item 8 and Item 11 included in the Company's Proxy
Statement and Annual Report to Stockholders which were mailed to stockholders on
or about December 8, 1999. This updated information reflects the completion by
the Company on November 2, 1999 of a public offering of 2,300,000 shares of its
common stock and certain other updated information.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" (Item 7) and the notes to the
Company's audited financial statements (Item 8) in this Form 10-K/A 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 the Company's technology; the timing of the
development and commercialization of the Company's products; potential products
that may be developed using Emisphere's technology; the potential market size,
advantages or therapeutic uses of the Company's liquid oral heparin formulation
or any other product; and the sufficiency of the Company's available capital
resources to meet its funding needs. 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: the success of the Company's oral heparin product and the
Company's ability to find a marketing partner to help the Company commercialize
it; the viability of the Company's product candidates, most of which, other than
liquid oral heparin, are in the early stages of development; the need to obtain
regulatory approval for the Company's liquid oral heparin and other product
candidates; the Company's dependence on collaborative partners to develop and
commercialize products and the Company's ability to fund such efforts with or
without partners; the risk of technological obsolescence and risks associated
with the Company's highly competitive industry; the Company's absence of
profitable operations and need for additional capital; the Company's dependence
on patents and proprietary rights; the Company's dependence on others to
manufacture the Company's 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 decisions of management and other personnel; uncertain availability of
third-party reimbursement for commercial medical products; general business and
economic conditions; and other factors referenced or incorporated by reference
herein.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Emisphere Technologies, Inc. is a biopharmaceutical company specializing in
the oral delivery of therapeutic 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 no
product sales to date. The major sources of the Company's working capital have
been proceeds from various public and private equity and debt financings,
reimbursement of expenses and other payments from corporate partners, and income
earned on the investment of available funds. Neither inflation nor seasonality
significantly affect the Company's operations.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
The Company's contract research revenues were $10.2 million in fiscal 1999,
a decrease of $5.7 million, or 35.8%, compared to fiscal 1998. The decrease was
the result of the Company's discontinuing its joint venture with Elan for the
development of oral heparin and the completion of the research and development
funding portion of the ongoing Lilly collaboration. In addition, revenues in
fiscal 1998 included a $4.0 million milestone payment from Lilly. The Company
received no milestone payments in fiscal 1999.
Total operating expenses were $41.7 million in fiscal 1999, an increase of
$17.1 million, or 70%, compared to fiscal 1998. The details of the increase are
as follows:
Research and development costs were $22.9 million in fiscal 1999, an
increase of $7.7 million, or 50%, compared to fiscal 1998. This increase is
mainly attributable to increased costs related to oral heparin Phase II clinical
studies, costs associated with initiating Phase III clinical trials, including
purchases of heparin, contract manufacturing of the Company's carriers, and a
number of toxicology studies. In addition, during fiscal 1999, the Company
expanded its laboratory and analytical capabilities in connection with its oral
heparin development program and its collaboration with Novartis. This resulted
in an increase in scientific personnel and associated laboratory supply costs.
The Company also experienced an increase in rental expense from a lease of
laboratory and administrative office space entered into in fiscal 1998. The
Company expects that its research and development spending will increase as its
liquid oral heparin enters into Phase III clinical trials in the fourth quarter
of calendar 1999.
The $9.7 million non-cash charge incurred in fiscal 1999 for acquired
in-process research and development is related to the Company's acquisition of
Elan's ownership interest in Ebbisham, Ltd. (the Company's former joint venture
with Elan). The loss in Ebbisham was $3.1 million in fiscal 1999, a decrease of
$1.0 million, or 24%, compared to fiscal 1998. This decrease is primarily
attributable to the lower level of joint development efforts with Elan preceding
the change of control. All oral heparin development expenses are now classified
as research and development expenses.
General and administrative expenses were $6.1 million in fiscal 1999, an
increase of $0.7 million, or 13%, compared to fiscal 1998. This increase is
primarily the result of an increase in personnel and related expenses associated
with an increase in management and administrative staff positions, severance in
connection with the departure of a senior executive officer, contract systems
consulting services, and real estate taxes in connection with the new facility.
As a result of these factors, the Company's operating loss was $31.5
million in fiscal 1999, an increase of $22.8 million, compared to an operating
loss of $8.7 million in fiscal 1998.
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The Company's other income and expenses were $0.8 million in fiscal 1999, a
decrease of $0.8 million, or 50%, from fiscal 1998. This decrease is primarily
the result of interest expense on the Company's senior convertible notes and a
$20.0 million note payable.
Based on the above factors, the Company sustained a net loss of $30.7
million in fiscal 1999, an increase of $23.6 million, compared to a net loss of
$7.1 million in fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
The Company's contract research revenues were $15.9 million in fiscal 1998,
an increase of $10.5 million, compared to $5.4 million fiscal 1997. The increase
was the result of the Company receiving research and development funding from
its collaborators over a greater part of the fiscal year.
Total operating expenses were $24.6 million in fiscal 1998, an increase of
$10.9 million, or 80%, compared to fiscal 1997. The details of the increase are
as follows:
Research and development costs were $15.2 million in fiscal 1998, an
increase of $7.5 million, or 97%, compared to fiscal 1997. This increase is
mainly attributable to increased personnel and laboratory supply costs in
connection with the collaborations with Novartis, Lilly and the ongoing clinical
work for heparin. The Company also increased its 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 rental expense in
connection with a new lease for laboratory space.
The loss in Ebbisham was $4.0 million in fiscal 1998, an increase of $1.5
million, or 59%, compared to fiscal 1997. This increase is attributable to
increased costs associated with ongoing clinical development of oral heparin.
General and administrative expenses were $5.3 million in fiscal 1998, an
increase of $1.9 million, or 56%, compared to fiscal 1997. This increase is
primarily the result of an increase in contract system consulting services in
connection with an ongoing information technology project. The Company also
experienced an increase in rental expense in connection with payments for a new
lease for administrative office space and an increase in personnel and related
expenses associated with an increase in administrative staff positions. This
increase was partially offset by a decrease in legal and professional fees paid
in connection with the finalization of the Ebbisham joint venture and the
agreement with Lilly during fiscal 1997. In connection with the relocation of
its operations, the Company incurred a charge of $0.3 million, which represented
the write-down of leasehold improvements on its old facility.
As a result of these factors, the Company's operating loss was $8.7 million
in fiscal 1998, an increase of $0.4 million, or 5%, compared to fiscal 1997.
The Company's other income and expense was $1.6 million in fiscal 1998, an
increase of $0.7 million, or 70%, compared to fiscal 1997. This increase was
primarily the result of increased returns on the Company's larger investment
portfolio. This increase was partially offset by interest expense related to the
Company's $13.5 million senior convertible notes issued in fiscal 1998.
Based on the above factors, the Company sustained a net loss of $7.1
million in fiscal 1998, a decrease of $0.3 million or 3%, compared to fiscal
1997.
Liquidity and Capital Resources
As of July 31, 1999, the Company had working capital of $13.4 million.
Total cash, cash equivalents and marketable securities were $17.8 million, a
decrease of $17.0 million compared to July 31, 1998. The decrease was primarily
due to the increased rate of spending on the oral heparin Phase II study and
Phase III clinical development costs, including those incurred by its former
joint venture, and capital expenditures during the fiscal year. The
4
<PAGE>
Company also repaid $1.1 million of its outstanding senior convertible notes
during fiscal 1999 and repaid the outstanding balance of $2.7 million in
September 1999.
The Company's operations over the last three years have been financed
primarily with $26.8 million in equity financing, $13.5 million in debt
financing and $31.4 million in research and development funding and milestone
payments. On November 2, 1999, the Company issued 2.3 million shares of common
stock for net proceeds of approximately $23.5 million. The proceeds from the
offering will be used to fund a portion of the Phase III clinical development
for the Company's oral heparin formulation, research and development and general
corporate purposes.
In connection with the termination of the joint venture, the Company issued
a $20.0 million, zero coupon note payable in July 2006 to an affiliate of Elan.
The note accrues interest at 15%, compounded semi-annually, and requires no
periodic cash interest payments. The $20.0 million principal amount, along with
accrued interest, can be paid in part or in full, at the Company's election,
after a new drug application for oral heparin has been filed with the FDA. Under
certain circumstances, the Company has the option to require Elan to subscribe
to Emisphere common stock at then-current market prices.
As part of the termination of the Ebbisham joint venture, Elan committed to
provide the Company with up to $15.0 million in loans, subject to various
conditions, including the Company attaining certain liquid oral heparin Phase
III milestones by October 31, 1999. The Company does not expect to meet these
milestones by that date or to receive any loans from Elan.
In September 1999, Novartis initiated a Phase I clinical study of a capsule
form of one of their protein macro molecules using the Company's oral drug
delivery technology. Novartis is funding the study, and may elect to enter into
a pre-negotiated licensing agreement with the Company at any time until March
2000. If this election is made, Novartis will be required to pay the Company a
predetermined milestone and purchase $5.0 million of common stock at a
previously negotiated market-based per share price, subject to the Company's
approval. The Novartis research collaboration will expire in December 1999, at
which time its quarterly research and development funding obligations will end.
Emisphere will receive royalties on sales of any oral products that may result
from the collaboration.
Novartis has an option to develop a second compound using the Company's
technology which, if exercised, would extend Novartis' research funding
obligation and result in a predetermined milestone payment to the Company.
Further development of a product using the second compound would result in a
second royalty-bearing license agreement and milestone payments and equity
investments similar to those for the first protein macromolecule.
In March 1998, Lilly executed license agreements for two proteins and
Emisphere received a $4.0 million milestone payment in connection with the
licenses. The research and development funding portion of the ongoing Lilly
collaboration was completed in February 1999. The Company has supplied Lilly
with carriers for both therapeutic proteins. These carriers are undergoing
preclinical evaluations at Emisphere and Lilly. During fiscal 1999, Lilly
suspended development of one of the proteins pending further review by them of
the injectable version of the protein. The Company is awaiting further direction
from Lilly with respect to both compounds. The Company could receive future
payments in the event certain milestones are achieved, and royalty payments if a
commercial product results from the collaboration.
During the two fiscal years ending July 31, 1999, the Company spent $12.3
million in leasehold improvements and scientific equipment, (approximately $3.7
million and $8.6 million during fiscal 1999 and 1998, respectively). These
purchases were in connection with the build-out of the Company's newly leased
research and administrative facility in Tarrytown, New York, as well as the
acquisition of laboratory equipment to support its increased research
activities. Purchases of laboratory equipment included pilot scale manufacturing
equipment to enable the development of tablet and capsule dosage form
prototypes. In connection with the new lease, the lessor reimbursed the Company
$1.3 million for leasehold improvements. With the completion of this facility,
the Company expects capital expenditure levels to decrease in fiscal 2000 to
below $2.0 million.
The Company expects to incur a substantial increase in liquid oral heparin
clinical development expenses in fiscal 2000 as the product enters into Phase
III clinical trials, the most expensive phase of the clinical development
process, and will no longer receive funding from its former joint venture
partner, Elan. As a result, the Company expects to
5
<PAGE>
continue to incur increasing operating losses and will require substantial
resources to continue its liquid oral heparin clinical development program and
ongoing research and development efforts.
In order to assure funding for its future operations, the Company will need
to obtain a marketing partner for its oral heparin product and may be required
to obtain additional financing for Phase III development on its own until a
partner is found. However, no assurances can be given that the Company will be
successful in attracting a marketing partner or in raising additional capital.
In the event that a marketing partner for the oral heparin product is not found,
the Company expects that cash, cash equivalents, and marketable securities
on-hand, combined with and contingent upon either additional financing and/or
delaying clinical trials and curtailment of operations, will be adequate to meet
its liquidity requirements into the second quarter of fiscal 2001.
Year 2000 Compliance
The "Year 2000" problem relates to many currently installed computers,
software, and other equipment that are not capable of distinguishing 21st
century dates from 20th century dates. As a result, some systems used by many
companies, in a very wide variety of applications, will experience operating
difficulties unless they are modified, upgraded, or replaced to adequately
process information involving, related to or dependent upon the century change.
If a business system used by the Company or a third party dealing with the
Company fails because of the inability of the business system to properly read a
21st century date, the results could have a material adverse effect on the
Company.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 business systems failures and has established a
team to address Year 2000 risk. The team has reviewed the Company's internal
infrastructure and believes that it has identified substantially all of the
major business systems used in connection with its internal operations. The
Company has completed the process of identifying and correcting the major
business systems that needed to be modified, upgraded, or replaced. Costs
incurred to date to correct Year 2000 problems have not been material to our
results of operations.
The Company also recognizes the risk that suppliers of products, services,
and collaborators with whom the Company transacts business on a worldwide basis
may not comply with Year 2000 requirements. The Company has initiated formal
communications with significant suppliers and collaborators to determine the
extent to which the Company is vulnerable if these third parties fail to
remediate their own Year 2000 issues. The review is ongoing and the Company is
unable to determine, at this time, the probability that any material supplier or
collaborator will not be able to correct any Year 2000 problem in a timely
manner. In the event any such third parties cannot provide the Company with
products, services, or continue the collaborations with the Company, the
Company's results of operations could be materially adversely affected.
Based on the above, the Company does not believe it needs to develop a
comprehensive contingency plan with respect to the Year 2000 problem. The
Company will continue to monitor its own business systems and, to the extent
possible, evaluate the business systems of its third party suppliers and
collaborators to ensure progress on this critical matter. However, if the
Company identifies significant risk related to the Year 2000 compliance, or
progress deviates from anticipated timelines, the Company will develop
contingency plans as deemed necessary at that time.
Impact of the Future Adoption of Recently Issued Accounting Standards
Management believes that future adoption of recently issued accounting
standards will not have a material impact on the Company's financial statements.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and financial statement schedules are set forth
starting on page F-1 hereof.
6
<PAGE>
ITEM 11. Executive Compensation
The following table sets forth information regarding the aggregate
compensation paid by the Company for the three fiscal years ended July 31,
1999 to the Company's Chief Executive Officer and the four other most highly
compensated executive officers whose total compensation exceeded $100,000
during the last fiscal year.
SUMMARY COMPENSATION TABLE
Fiscal Annual Stock Other
Name and Principal Position Year Compensation (1) Option Grants (2)
--------------------------- ------ --------------- -------------- -------
Michael M. Goldberg, M.D.... 1999 $369,215 7,445 shares $10,000
Chairman of the Board and 1998 388,506 6,687 shares 9,792
Chief Executive Officer 1997 359,880 4,985 shares(3) 4,750
Robert A. Baughman, Jr.,
Pharm.D, Ph.D.............. 1999 $212,260 79,022 shares $ 8,907
Senior Vice President and 1998 175,000 2,844 shares 7,000
Director of Development 1997 195,337 22,724 shares 4,750
Lewis H. Bender............. 1999 $180,250 3,427 shares $ 7,420
Senior Vice President, 1998 180,096 3,052 shares 7,000
Business Development 1997 144,479 51,843 shares 2,748
Barry B. Kanarek, M.D.,
Ph.D. (4).................. 1999 $273,000 5,071 shares $ 1,667
Senior Vice President,
Clinical 1998 65,625 126,611 shares --
Affairs and Chief Medical
Officer
Charles H. Abdalian, Jr.
(5)........................ 1999 $ 75,410 100,708 shares $ --
Vice President,
Chief Financial Officer and
Secretary
- --------
(1) Annual compensation consists solely of base salary except that (i) Drs.
Goldberg and Baughman and Mr. Bender were also paid in lieu of earned
vacations $0, $15,385 and $0, respectively, during fiscal 1999, $40,190, $0
and $10,096, respectively, during fiscal 1998 and $31,280, $22,212 and $0,
respectively, during fiscal 1997 and (ii) the Company forgave a loan in the
amount of $48,000 to Dr. Kanarek, which was originally made in connection
with him joining the Company. As to each individual named, the aggregate
amounts of all perquisites and other personal benefits, securities and
property not included in the summary compensation table above or described
below do not exceed the lesser of $50,000 or 10% of their annual
compensation.
(2) Other compensation consists solely of matching contributions made by the
Company under a defined contribution plan available to substantially all
employees.
(3) Does not include options to purchase 562,315 shares of common stock
granted to Dr. Goldberg in 1992 in connection with his employment
agreement. During fiscal 1997, the Board of Directors deemed 262,315 of
the options to have been granted under the Company's 1991 Stock Option
Plan and 300,000 of the options to have been granted under the Company's
1995 Non-Qualified Stock Option Plan. The Board also extended from July
1997 to July 2002 the expiration dates for such options.
(4) Dr. Kanarek became an executive officer of the Company in June 1998.
(5) Mr. Abdalian became an executive officer of the Company in April 1999.
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The following table sets forth certain information relating to stock option
grants to the executive officers named above during fiscal 1999.
STOCK OPTION GRANTS DURING THE FISCAL YEAR ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Potential Realizable
Number of Value at Assumed
Shares Percent of Total Annual Rates of
Underlying Option Shares Stock Price
Options Granted Granted to Exercise Price Expiration Appreciation for
Name (1) Employees (2) per Share (1) Date Option Term
- ---- --------------- ---------------- -------------- ---------- ---------------------
5% 10%
---------------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Goldberg..... 1,429 * $ 9.69 2/1/99 $ 2,443 $ 2,443
2,342 * 7.25 5/1/99 2,997 2,997
2,136 * 6.59 8/1/99 2,443 2,443
1,538 * 9.00 11/1/99 2,443 2,443
Robert A. Baughman,
Jr. ................... 75,000 10.5% $ 9.50 12/14/08 $ 448,087 $ 1,135,542
677 * 9.69 2/1/99 1,158 1,158
1,099 * 7.25 5/1/99 1,406 1,406
1,157 * 6.59 8/1/99 1,324 1,324
1,089 * 9.00 11/1/99 1,731 1,731
Lewis H. Bender......... 677 * $ 9.69 2/1/99 $ 1,158 $ 1,158
905 * 7.25 5/1/99 1,158 1,158
1,073 * 6.59 8/1/99 1,228 1,228
772 * 9.00 11/1/99 1,228 1,228
Barry B. Kanarek........ 870 * $ 9.69 2/1/99 $ 1,489 $ 1,489
1,163 * 7.25 5/1/99 1,489 1,489
1,301 * 6.59 8/1/99 1,489 1,489
1,737 * 9.00 11/1/99 2,759 2,759
Charles H. Abdalian,
Jr. ................... 100,000 13.9% $10.63 3/23/09 $ 668,201 $ 1,693,351
708 * 9.00 11/1/99 1,125 1,125
</TABLE>
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*Less than 1%
(1) Options that expired or will expire in 1999 were all granted under the
Company's Employee Stock Purchase Plan or Non-Qualified Employee Stock
Purchase Plan at exercise prices equal to the lower of the fair market
value on the date of grant or 85% of the fair market value on the date of
exercise. Options expiring in 2008 and 2009 were all granted under the
Company's 1991 Stock Option Plan at prices equal to the fair market value
on the date of grant. The number of shares and the exercise price per
share set forth for the options expiring on November 1, 1999 assume that
the closing price on the date of exercise will be no lower than $10.59 per
share.
(2) The total number of option shares granted during the 1999 fiscal year to
employees includes 114,248 shares under the Company's Employee Stock
Purchase Plan or Non-Qualified Employee Stock Purchase Plan and 603,375
shares under the Company's 1991 Stock Option Plan.
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The following table sets forth information as to the exercise of options
during fiscal 1999 and the number and value of unexercised options held by the
executive officers named above as of July 31, 1999.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Exercises During Shares Underlying Value of Unexercised
the Fiscal Year Unexercised Options In-the-Money Options (1)
------------------------------ --------------------------- -------------------------
Number of
Name Shares Acquired Value Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Michael M. Goldberg..... 2,161 $ 4,862(2) 1,483,353(7) 150,000 $ 1,535 --
2,631 2,863(3)
2,639 30,283(4)
1,505 15,404(4)
1,429 10,092(5)
2,342 4,099(6)
Robert A. Baughman,
Jr..................... 822 $ 1,850(2) 160,268 50,000 $11,635 --
1,064 1,158(3)
677 4,781(5)
1,099 1,923(6)
Lewis H. Bender......... 1,085 $ 2,441(2) 80,576 61,400 $56,342 $8,400
1,064 1,158(3)
677 4,781(5)
905 1,583(6)
Barry B. Kanarek........ 1,611 $ 1,753(3) 25,000 100,000 -- --
870 6,144(5)
1,163 2,035(6)
Charles H. Abdalian,
Jr..................... -- -- -- 100,000 -- --
</TABLE>
- --------
(1) Based on a closing price of $7.50 on July 31, 1999 on the Nasdaq National
Market.
(2) Based on a closing price of $9.69 on August 3, 1998, the date of exercise,
on the Nasdaq National Market.
(3) Based on a closing price of $7.25 on November 2, 1998, the date of
exercise, on the Nasdaq National Market.
(4) Based on a closing price of $13.125 on December 28, 1998, the date of
exercise, on the Nasdaq National Market.
(5) Based on a closing price of $16.75 on February 1, 1999, the date of
exercise, on the Nasdaq National Market.
(6) Based on a closing price of $9.00 on May 3, 1999, the date of exercise, on
the Nasdaq National Market.
(7) Includes 130,000 shares with respect to which Dr. Goldberg has transferred
options to members of his family and with respect to which Dr. Goldberg
disclaims beneficial interest.
Employment Agreements
The Company has entered into an employment agreement with Michael M.
Goldberg expiring on July 31, 2000. Pursuant to the agreement, Dr. Goldberg is
to serve as Chairman and Chief Executive Officer of the Company at an annual
salary of $391,400 for the 2000 fiscal year and is to be nominated to serve as
a member of the Board of Directors. Also pursuant to the agreement, Dr.
Goldberg was granted an option to purchase 750,000 shares of the Common Stock
at an exercise price of $8.625 per share.
The agreement provides that, upon termination by the Company either without
cause or for any reason following a Change of Control (as defined in the
agreement) or upon termination by Dr. Goldberg following an uncured breach or
bankruptcy by the Company, the Company will make severance payments equal to
the greater of the compensation payable under the agreement from the date of
termination to July 31, 2000 or one year's compensation under the agreement.
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Sam J. Milstein served as President, Chief Scientific Officer and Secretary
of the Company until January 1999. The Company paid Dr. Milstein $124,064 for
his service as an officer of the Company through January 4, 1999 and paid or
accrued for the payment of $489,309 to Dr. Milstein in connection with his
departure from the Company.
Compensation of Directors
Directors receive no cash compensation in their capacity as directors.
Directors who are not employees of the Company receive, pursuant to the
Company's Stock Option Plan for Outside Directors (the "Directors Plan"),
options to purchase shares of the Common Stock. Messrs. Hutt and Pack and Drs.
Goyan and Greene have each received an initial option to purchase 70,000
shares under the Directors Plan in effect prior to January 29, 1997. Under the
Directors Plan as currently in effect, Dr. Robinson and Mr. Levenson have each
received an initial option to purchase 35,000 shares and Messrs. Hutt and Pack
and Dr. Goyan have each received an additional option to purchase 21,000
shares. The exercise prices are $13.00 per share for the initial options
granted to Messrs. Hutt and Pack and Dr. Goyan, $8.625 for the initial option
granted to Dr. Greene, $23.50 for the initial option granted to Dr. Robinson,
$6.125 for the initial option granted to Mr. Levenson and $13.75 for the
additional options granted to Messrs. Hutt and Pack and Dr. Goyan. In the
event the holder of an option ceases to serve as a director of the Company,
the option may be exercised with respect to the fully vested shares within six
months thereafter and will terminate immediately with respect to all unvested
shares.
In addition, for each meeting of the Board or a committee thereof attended,
directors have a right to receive, pursuant to the Directors Deferred
Compensation Stock Plan, a number of shares of the Common Stock, based on the
closing price of the Common Stock on the date of the meeting and an amount
determined by the Board as compensation for the meeting. For meetings attended
during the 1999 fiscal year, Drs. Goyan, Greene and Robinson and Messrs.
Levenson and Pack each earned the right to receive 487 shares and Mr. Hutt
earned the right to receive 343 shares.
During the 1999 fiscal year Dr. Robinson was granted, pursuant to a
consulting agreement with the Company, an option to purchase 30,000 shares of
the Common Stock for $10.00 per share.
10
<PAGE>
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) A list of the financial statements filed as a part of this report is
set forth on page F-1 hereof. A list of the exhibits filed as a part of this
report is set forth in the Exhibit Index starting immediately after the
financial statements.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
December 8, 1999
By: /s/ CHARLES H. ABDALIAN, JR.
----------------------------
Charles H. Abdalian, Jr.
Vice President, Chief Financial
Officer and Secretary
/s/ JOSEPH D. POVEROMO
----------------------
Joseph D. Poveromo
Controller and Chief Accounting
Officer
12
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
Index
<TABLE>
<CAPTION>
Emisphere Technologies, Inc. Page(s)
- ---------------------------- -----------
<S> <C>
Report of Independent Accountants.................................. F-2
Financial Statements:
Balance Sheets as of July 31, 1999 and 1998...................... F-3
Statements of Operations for the fiscal years ended July 31,
1999, 1998 and 1997............................................. F-4
Statements of Cash Flows for the fiscal years ended July 31,
1999, 1998 and 1997............................................. F-5
Statements of Stockholders' Equity for the fiscal years ended
July 31, 1999, 1998 and 1997.................................... F-6
Notes to Financial Statements.................................... F-7 - F-19
<CAPTION>
Ebbisham Limited
- ----------------
<S> <C>
Report of Independent Accountants.................................. F-20
Financial Statements:
Balance Sheet as of July 31, 1998................................ F-21
Statements of Operations for the period from August 1, 1998 to
July 2, 1999, the fiscal year ended July 31, 1998, the period
from September 26, 1996 (inception) to July 31, 1997, and the
cumulative period from September 26, 1996 (inception) to July 2,
1999............................................................ F-22
Statements of Stockholders' Deficit for the cumulative period
from September 26, 1996 (inception) to July 2, 1999 including
the period from August 1, 1998 to July 2, 1999, the fiscal year
ended July 31, 1998, and the period from September 26, 1996
(inception) to July 31, 1997.................................... F-23
Statements of Cash Flows for the period from August 1, 1998 to
July 2, 1999, the fiscal year ended July 31, 1998, the period
from September 26, 1996 (inception) to July 31, 1997, and the
cumulative period from September 26, 1996 (inception) to July 2,
1999............................................................ F-24
Notes to Financial Statements.................................... F-25 - F-27
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Emisphere Technologies, Inc. :
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Emisphere Technologies, Inc., at
July 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1999 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
September 30, 1999, except Note 15
as to which the date is November 2, 1999
F-2
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
BALANCE SHEETS
July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 11,461,126 $ 21,358,308
Marketable securities........................... 6,343,515 13,469,733
Receivable due from Ebbisham Ltd................ -- 7,710,056
Prepaid expenses and other current assets....... 694,366 729,587
------------ ------------
Total current assets.......................... 18,499,007 43,267,684
Equipment and leasehold improvements, at cost, net
of accumulated depreciation and amortization..... 11,500,767 9,619,856
Purchased technology, net of accumulated
amortization of $46,902.......................... 8,395,415 --
Deferred financing costs, net of accumulated
amortization of $137,718 and $67,500............. 21,015 742,500
Other assets...................................... 60,164 59,970
------------ ------------
Total assets.................................. $ 38,476,368 $ 53,690,010
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................ $ 834,959 $ 724,848
Accrued expenses................................ 1,656,388 1,002,233
Senior convertible notes, current portion....... 2,647,603 3,500,000
Investment deficiency in Ebbisham Ltd........... -- 6,583,670
------------ ------------
Total current liabilities..................... 5,138,950 11,810,751
Note payable...................................... 20,000,000 --
Senior convertible notes.......................... -- 10,000,000
Deferred lease liability.......................... 2,050,042 598,111
------------ ------------
Total liabilities............................. 27,188,992 22,408,862
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding.. -- --
Common stock, $.01 par value; authorized
40,000,000 shares; issued 12,181,468 shares
(12,137,968 outstanding) in 1999 and 11,037,238
shares (10,993,738 outstanding) in 1998........ 121,815 110,372
Additional paid-in capital...................... 99,161,980 88,481,742
Accumulated deficit............................. (87,804,852) (57,123,403)
Accumulated other comprehensive income.......... 1,246 5,250
------------ ------------
11,480,189 31,473,961
Less, common stock held in treasury, at cost;
43,500 shares in 1999 and 1998................. (192,813) (192,813)
------------ ------------
Total stockholders' equity.................... 11,287,376 31,281,148
------------ ------------
Total liabilities and stockholders' equity.... $ 38,476,368 $ 53,690,010
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the fiscal years ended July 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Contract research revenues............ $ 10,179,925 $15,868,310 $ 5,400,880
------------ ----------- -----------
Costs and expenses:
Research and development............ 22,849,687 15,189,811 7,723,995
Acquisition of in-process research
and development.................... 9,685,794 -- --
Loss in Ebbisham Ltd................ 3,092,125 4,043,712 2,549,956
General and administrative
expenses........................... 6,051,215 5,344,665 3,416,061
------------ ----------- -----------
41,678,821 24,578,188 13,690,012
------------ ----------- -----------
Operating loss.................... (31,498,896) (8,709,878) (8,289,132)
------------ ----------- -----------
Other income and expense:
Investment income................... 1,466,216 1,879,840 967,827
Rental income....................... 218,376 -- --
Interest expense.................... (867,145) (236,250) --
------------ ----------- -----------
817,447 1,643,590 967,827
------------ ----------- -----------
Net loss.......................... $(30,681,449) $(7,066,288) $(7,321,305)
============ =========== ===========
Net loss per share, basic and
diluted.............................. $ (2.63) $ (0.66) $ (0.77)
============ =========== ===========
Weighted average shares outstanding,
basic and diluted.................... 11,668,893 10,777,728 9,519,028
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the fiscal years ended July 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(30,681,449) $(7,066,288) $(7,321,305)
------------ ----------- -----------
Adjustments to reconcile net loss to
net cash used in operating
activities:
Acquired in-process research and
development....................... 9,685,794 -- --
Loss in Ebbisham Ltd............... 3,092,125 4,043,712 2,549,956
Depreciation and amortization...... 1,586,412 953,615 441,768
Increase (decrease) in deferred
lease liability................... 1,451,931 563,569 (10,281)
Non-cash compensation.............. 275,000 295,000 250,000
Non-cash interest expense.......... 258,333 -- --
Amortization of deferred financing
cost.............................. 137,718 67,500 --
Amortization of discount on
marketable securities............. 69,717 13,440 --
Amortization of purchased
technology........................ 46,902 -- --
Net realized gain on sale of
marketable securities............. (1,254) (14,123) (60)
Write-off of leasehold
improvements...................... -- 337,961 --
Changes in assets and liabilities:
Decrease (increase) in receivable
due from
Ebbisham Ltd...................... 7,710,056 (7,061,270) (648,786)
Decrease (increase) in prepaid
expenses and other current
assets............................ 35,221 (281,473) (158,345)
(Increase) in deferred financing
cost.............................. -- (810,000) --
(Increase) in investment in
Ebbisham Ltd...................... (7,225,440) -- (9,998)
(Increase) decrease in other
assets............................ (194) 4,273 (3,000)
Increase in accounts payable and
accrued expenses.................. 505,934 539,018 196,786
------------ ----------- -----------
Total adjustments.................. 17,628,255 (1,348,778) 2,608,040
------------ ----------- -----------
Net cash used in operating
activities........................ (13,053,194) (8,415,066) (4,713,265)
------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures................. (3,730,814) (8,601,855) (1,036,993)
Purchases of marketable securities... (3,346,350) (14,938,128) (13,550,937)
Proceeds from sales of marketable
securities.......................... 10,400,101 12,741,076 8,645,357
------------ ----------- -----------
Net cash provided by (used in)
investing activities.............. 3,322,937 (10,798,907) (5,942,573)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of options and
employee stock purchases............ 957,213 610,814 1,179,609
Redemption of senior convertible
notes............................... (1,124,138) -- --
Proceeds from issuance of long-term
debt................................ -- 13,500,000 --
Net proceeds from issuance of common
stock............................... -- 4,062,500 19,970,522
------------ ----------- -----------
Net cash (used in) provided by
financing activities.............. (166,925) 18,173,314 21,150,131
------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents.................. (9,897,182) (1,040,659) 10,494,293
Cash and cash equivalents, beginning of
year.................................. 21,358,308 22,398,967 11,904,674
------------ ----------- -----------
Cash and cash equivalents, end of
year.................................. $ 11,461,126 $21,358,308 $22,398,967
============ =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid........................ $ 158,671
============
Non-cash investing and financing
activities:
Note issued for purchased
technology........................ $ 20,000,000
============
Conversion of debt to equity....... $ 9,459,468
============
Capital expenditures in accounts
payable........................... $ 263,490
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the fiscal years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated Common Stock
Common Stock Other Held In Treasury
------------------- Additional Accumulated Comprehensive ----------------
Shares Amount Paid-in Capital Deficit Income (Loss) 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
------------
Net loss................ (7,321,305) (7,321,305)
Unrealized gain on
securities............. 52,798 52,798
------------
Comprehensive loss...... (7,268,507)
------------
Sale of common stock
under employee stock
purchase plans and
exercise of options.... 133,117 1,331 1,178,278 1,179,609
Issuance of common stock
in connection with a
public offering, net of
expenses............... 1,150,000 11,500 19,959,022 19,970,522
Issuance of stock
options in exchange for
services rendered...... 250,000 250,000
---------- -------- ----------- ------------ -------- ------ --------- ------------
Balance, July 31, 1997.. 10,733,877 107,339 83,516,461 (50,057,115) 24,507 43,500 (192,813) 33,398,379
------------
Net loss................ (7,066,288) (7,066,288)
Unrealized loss on
securities............. (19,257) (19,257)
------------
Comprehensive loss...... (7,085,545)
------------
Sale of common stock
under employee stock
purchase plans and
exercise of options.... 53,361 533 610,281 610,814
Exercise of warrants by
Elan International
Services Ltd........... 250,000 2,500 4,060,000 4,062,500
Issuance of stock
options in exchange for
services rendered...... 295,000 295,000
---------- -------- ----------- ------------ -------- ------ --------- ------------
Balance, July 31, 1998.. 11,037,238 110,372 88,481,742 (57,123,403) 5,250 43,500 (192,813) 31,281,148
------------
Net loss................ (30,681,449) (30,681,449)
Unrealized loss on
securities............. (4,004) (4,004)
------------
Comprehensive loss...... (30,685,453)
------------
Sale of common stock
under employee stock
purchase plans and
exercise of options.... 144,628 1,447 955,766 957,213
Conversion of senior
convertible debt, net
of costs............... 999,602 9,996 9,449,472 9,459,468
Issuance of stock
options in exchange for
services rendered...... 275,000 275,000
---------- -------- ----------- ------------ -------- ------ --------- ------------
Balance, July 31, 1999.. 12,181,468 $121,815 $99,161,980 $(87,804,852) $ 1,246 43,500 $(192,813) $ 11,287,376
========== ======== =========== ============ ======== ====== ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
July 31, 1999
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations. Emisphere Technologies, Inc. (the "Company")
is a biopharmaceutical company specializing in the oral delivery of therapeutic
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 no product sales to date.
The Company expects to incur a substantial increase in oral heparin clinical
development expenses in fiscal 2000 as the product enters into Phase III
clinical trials, the most expensive phase of the clinical development process,
and will no longer receive funding from its former joint venture partner, Elan
Corporation. As a result, management believes that the Company will continue
to incur increasing operating losses and will require substantial financial
resources to continue its oral heparin clinical development program and on
going research and development efforts.
In order to assure funding for its future operations, the Company will need
to obtain a marketing partner for its oral heparin product and may be required
to obtain additional financing for Phase III development on its own until a
partner is found. However, no assurances can be given that the Company will be
successful in attracting a marketing partner or in raising additional capital.
In the event that a marketing partner for the oral heparin product is not found,
the Company expects that cash, cash equivalents, and marketable securities
on-hand, combined with either additional financing and/or delaying clinical
trials and curtailment of operations will be adequate to meet its liquidity
requirements into the second quarter of fiscal 2001.
Concentration of Credit Risk. Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist of cash
equivalents and marketable securities. The Company invests excess cash in
accordance with a policy objective seeking to preserve both liquidity and
safety of principal. The Company generally invests its excess funds in
obligations of the U.S. government and its agencies, bank deposits, mortgage-
backed securities, and investment grade debt securities issued by corporations
and financial institutions. The Company holds no collateral for these
financial instruments.
Cash and Cash Equivalents. The Company considers all highly liquid,
interest-bearing debt instruments with a maturity of three months or less when
purchased to be cash equivalents.
Equipment and Leasehold Improvements. Equipment and leasehold improvements
are stated at cost. Depreciation and amortization are provided for on the
straight-line basis over the estimated useful life of the asset. Leasehold
improvements are amortized over the life of the lease or of the improvements,
whichever is shorter. Expenditures for maintenance and repairs that do not
materially extend the useful lives of the respective assets are charged to
expense as incurred. The cost and accumulated depreciation or amortization of
assets retired or sold are removed from the respective accounts and any gain
or loss is recognized in operations.
Purchased Technology. Purchased technology is amortized on a straight-line
basis over a period of 15 years, the average life of the related patents.
Impairment of Long-Lived Assets. The Company reviews its long-lived assets
for impairment whenever events or changes in circumstances, such as the manner
in which an asset is used, indicate that their carrying amount may not be
recoverable. Impairment losses are recognized when a long-lived asset's
carrying value exceeds the expected
F-7
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
undiscounted cash flows related to that asset. The amount of the impairment loss
is the difference between the carrying value and the fair market value of the
asset. The fair market value of an asset is determined based upon discounted
cash flows.
Deferred Financing Costs. Direct costs incurred in connection with obtaining
financing have been capitalized and are being amortized on a basis that
approximates the interest method over the term of the financing.
Deferred Lease Liabilities. Various leases entered into by the Company
provide for rental holidays and escalations of the minimum rent during the
lease term, as well as additional rent based upon increases in real estate
taxes and common maintenance charges. The Company records rent expense from
leases with rental holidays and escalations using the straight-line method,
thereby prorating the total rental commitment over the term of the lease.
Under this method, the deferred lease liability represents the differences
between the minimum cash rental payments and the rent expense computed on a
straight-line basis.
Revenue Recognition. The Company is currently engaged in contract research
and development of its proprietary technology. Revenue derived from contract
research and feasibility studies is recognized as the related services are
performed. Revenue earned upon the achievement of research and development
milestones is recorded when such milestones are achieved.
Patent Costs. As a result of research and development efforts conducted by
the Company, it has received, applied for, or is in the process of applying
for a number of patents to protect proprietary inventions. Costs incurred in
connection with patent applications have been expensed as incurred.
Purchased In-Process Research and Development. Purchased in-process research
and development represents the value assigned in a purchase business
combination to research and development projects of the acquired business that
were commenced but not yet completed at the date of acquisition and which, if
unsuccessful, have no alternative future use. Amounts assigned to purchased
in-process research and development are charged to expense at the consummation
date of the purchase business combination.
Income Taxes. Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. These liabilities and assets are
determined based on differences between the financial reporting and tax basis
of assets and liabilities measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Stock-Based Employee Compensation. The accompanying financial position and
results of operations of the Company have been prepared in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.25"). Under
APB No. 25, generally no compensation expense is recognized in connection with
the awarding of stock option grants to employees, provided that, as of the grant
date, all terms associated with the award are fixed and the quoted market price
of the Company's stock as of the grant date is equal to or less than the option
exercise price.
Disclosure required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, has been included in Note 9.
The fair value of options and warrants granted to non-employees for goods or
services are included in the financial statements and expensed as the goods
are utilized or the services performed.
Net Loss Per Share. Net loss per share, basic and diluted, is computed using
the weighted average number of shares of the Company's common stock outstanding
during the period. Had the Company been in a net income position, diluted
earnings per share would have included the shares used in the computation of
basic net loss per share, as well as
F-8
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
an additional 2,559,295, 4,029,129, and 4,128,298 shares for the fiscal years
ended July 31, 1999, 1998, and 1997, respectively, relating to outstanding
options (after application of the Treasury Stock Method).
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments. The carrying amounts for cash, cash
equivalents, accounts payable, and accrued expenses approximate fair value
because of their short-term nature. The carrying amounts for the Company's
debt instruments approximate fair value.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the current year presentation.
Impact of the Future Adoption of Recently Issued Accounting
Standards. Management believes that the future adoption of recently issued
accounting standards will not have a material impact on the Company's
financial statements.
2. Marketable Securities
The Company considers its marketable securities to be available-for-sale,
as defined by Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Accordingly, unrealized holding gains and losses are excluded from operations
and reported as a net amount in a separate component of stockholders' equity.
The following table summarizes the amortized cost basis and aggregate fair
value of marketable securities, and the unrealized holding gains and losses,
at July 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Unrealized Holding
-----------------------
Amortized
Cost Basis Fair Value Gains (Losses) Net
----------- ----------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
1999
Maturities less than one
year:
Corporate debt securities.. $ 3,848,268 $ 3,849,615 $4,294 $(2,948) $1,347
Maturities between one and
three years:
U.S. government
securities................ 994,001 993,900 -- (101) (101)
Corporate debt securities.. 1,500,000 1,500,000 -- -- --
----------- ----------- ------ ------- ------
$ 6,342,269 $ 6,343,515 $4,294 $(3,049) $1,246
=========== =========== ====== ======= ======
1998
Maturities less than one
year:
Corporate debt securities.. $ 4,300,701 $ 4,301,393 $1,161 $ (469) $ 692
Maturities between one and
three years:
Corporate debt securities.. 9,163,782 9,168,340 6,058 (1,500) 4,558
----------- ----------- ------ ------- ------
$13,464,483 $13,469,733 $7,219 $(1,969) $5,250
=========== =========== ====== ======= ======
</TABLE>
Realized gains and losses are included as a component of investment income.
For the fiscal years ended July 31, 1999, 1998, and 1997, gross realized gains
and losses were not significant. In computing realized gains and losses, the
Company determines the cost of its marketable securities on a specific
identification basis. Such cost includes the direct costs to acquire the
securities, adjusted for the amortization of any discount or premium. The fair
value of marketable securities has been estimated based on quoted market
prices.
F-9
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
3. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
Useful Lives
in Years 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
Equipment............................... 3-7 $ 6,133,395 $ 4,674,232
Leasehold improvements.................. Life of lease 11,167,029 9,269,339
----------- -----------
17,300,424 13,943,571
Less, Accumulated depreciation and
amortization........................... 5,799,657 4,323,715
----------- -----------
$11,500,767 $ 9,619,856
=========== ===========
</TABLE>
During May 1998, the Company relocated its operations and subleased certain
office and laboratory space. In connection with the sublease, the Company
recorded a charge of approximately $300,000 to general and administrative
expenses, which represented the writedown of leasehold improvements, net of
accumulated amortization, at the subleased space offset by the excess of
sublease rental income over related rental expense.
4. Accrued Expenses
Accrued expenses consist of the following as of July 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Compensation....................................... $ 343,500 $ 266,000
Professional fees.................................. 379,000 203,000
Interest........................................... 292,164 168,750
Other.............................................. 641,724 364,483
---------- ----------
$1,656,388 $1,002,233
========== ==========
</TABLE>
5. Senior Convertible Notes Payable
In 1998, the Company issued $13.5 million of its 5% Senior Convertible
Notes, due May 1, 2001 (the "Notes"). Interest is payable annually in arrears
and at the Company's option can be made either in cash or, subject to certain
conditions, in shares of the Company's common stock. At July 31, 1999 and
1998, the Company had accrued $33,830 and $168,750, respectively, of interest
on the Notes.
In connection with the issuance of the Notes, the Company incurred direct
costs to obtain the financing of approximately $800,000. Such amount has been
classified as deferred financing costs. Amortization of these costs totaled
$137,718 and $67,500 for the fiscal years ended July 31, 1999 and 1998,
respectively.
During 1999, the note holders converted principal and interest of
approximately $9.7 million and $315,000, respectively, into 999,602 shares of
the Company's common stock. Deferred financing costs of $583,767 were recorded
as a reduction to additional paid-in-capital upon conversion of the notes. In
addition, the Company repaid $1.1 million of the Notes in cash. In June 1999,
certain terms and covenants were modified, including increasing the amount of
additional indebtedness allowed and changing the due date to September 15, 1999.
The remaining balance of approximately $2.7 million and interest thereon were
repaid on that date.
As of July 31, 1999, the estimated fair value of the Notes approximated
their carrying value, based on near term maturity.
6. Commitments
F-10
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
Leases. The Company leases office and laboratory space under noncancelable
leases expiring in various years through 2008. As of July 31, 1999, future
minimum rental payments are as follows:
<TABLE>
<CAPTION>
Minimum
Years Ending July 31, Rental Payments
--------------------- ---------------
<S> <C>
2000..................................................... $ 1,034,120
2001..................................................... 1,187,864
2002..................................................... 1,121,826
2003..................................................... 1,308,544
2004..................................................... 1,333,200
Thereafter............................................... 4,110,700
-----------
$10,096,254
===========
</TABLE>
As described in Note 3, in July 1998, the Company entered into a sublease
(the "Sublease") for a portion of its former premises, which extends to
January 2002.
As of July 31, 1999, future minimum rentals to be received under the
Sublease are as follows:
<TABLE>
<CAPTION>
Minimum
Rentals to
Years Ending July 31, be Received
--------------------- -----------
<S> <C>
2000......................................................... $272,200
2001......................................................... 218,866
2002......................................................... 111,995
--------
$603,061
========
</TABLE>
Rent expense for the fiscal years ended July 31, 1999, 1998 and 1997 was
approximately $1,078,692, $1,230,000 and $256,000, respectively. Additional
charges for real estate taxes and common maintenance charges for the fiscal
years ended July 31, 1999 and 1998, were $240,000 and $459,000, respectively.
Other. The Company, for the fiscal years ended July 31, 1999, 1998 and 1997,
made payments for research totaling approximately $578,000, $847,000 and
$847,000, respectively, to several universities and a research organization
(the "Entities"). Certain members of the Company's Board of Directors are
affiliated with these Entities.
7. Income Taxes
As of July 31, 1999, the Company has available, for tax reporting purposes,
unused net operating loss carry-forwards of approximately $72.0 million, which
will expire in various years from 2001 to 2013. The Company's research and
experimental tax credit carry-forwards expire in various years from 2001 to
2013. Future ownership changes may limit the future utilization of these net
operating loss and research and development tax credit carry- forwards as
defined by the Internal Revenue Code. The tax effect of temporary differences,
net operating loss carry-forwards, and research and experimental tax credit
carry-forwards as of July 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets and valuation allowance:
Accrued liabilities........................ $ 980,130 $ 356,194
Equipment and leasehold improvements....... 722,317 70,132
Net operating loss carry-forwards.......... 29,415,588 19,404,873
Research and experimental tax credit carry-
forwards.................................. 2,936,205 2,454,215
Valuation allowance........................ (34,054,240) (22,285,414)
------------ ------------
$ -- $ --
============ ============
</TABLE>
F-11
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
8. Stockholders' Equity
a. During 1999, the Company's shareholders voted to increase the number of
common shares authorized from 20.0 million to 40.0 million shares.
b. The Company's certificate of incorporation provides for the issuance of
1,000,000 shares of preferred stock with the rights, preferences,
qualifications, and terms to be determined by the Company's Board of
Directors. As of July 31, 1999 and 1998, there were no shares of preferred
stock outstanding.
c. In 1996, the Board of Directors (the "Board") adopted a stockholder
rights plan in which Preferred Stock Purchase Rights (the "Rights") were
granted at the rate of one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock ("A Preferred Stock") at an exercise
price of $80 for each share of the Company's common stock.
The Rights are not exercisable, or transferable apart from the common stock,
until the earlier of (i) ten days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding common stock of the Company or
(ii) ten business days (or such later date, as defined) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person, or group, of 20% or more of the outstanding common
stock of the Company.
Furthermore, if the Company enters into consolidation, merger, or other
business combinations, as defined, each Right would entitle the holder upon
exercise to receive, in lieu of shares of A Preferred Stock, a number of
shares of common stock of the acquiring company having a value of two times
the exercise price of the Right, as defined. The Rights contain antidilutive
provisions, are redeemable at the Company's option, subject to certain defined
restrictions, for $.01 per Right, and expire on February 23, 2006.
As a result of the Rights dividend, the Board designated 200,000 shares of
preferred stock as A Preferred Stock. A Preferred Stockholders will be
entitled to a preferential cumulative quarterly dividend of the greater of
$1.00 per share or 100 times the per share dividend declared on the Company's
common stock. Shares of A Preferred Stock have a liquidation preference, as
defined, and each share will have 100 votes and will vote together with the
common shares.
d. The Company adopted the provision of Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). The statement
establishes standards for the reporting and display of comprehensive income
and its components. The disclosures required by SFAS 130 have been included
within the statement of stockholders' equity. The effects of income taxes on
comprehensive loss was not material.
9. Stock Plans
Stock Option Plans. Under the Company's 1991 Stock Option Plan and the 1995
Non-Qualified Stock Option Plan (individually, the "91 Plan" and "95 Plan,"
respectively, or collectively, the "Plans") a maximum of 2,500,000 and
2,350,000 shares of the Company's common stock, respectively, are available
for awards to employees, consultants, and other individuals who render
services to the Company. The 91 Plan provides for the grant of either
incentive stock options ("ISOs"), as defined by the Internal Revenue Code, or
options which do not qualify as ISOs. An independent committee of the Board,
which determines option terms including exercise price and vesting period,
awards the options. Generally, the options expire within a five to ten-year
period as determined by the committee and as defined by the Plans. The terms
of the 95 Plan provide for the granting to officers and other key employees
the option to purchase the Company's common stock. The number and terms of
each grant will be determined by an independent committee of the Board, which
will determine option exercise price, termination date, vesting, and
expiration date. Options granted under the Plans generally vest over a five-
year period. As of July 31, 1999, shares available for future grants under the
Plans amounted to 734,065.
F-12
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
The following table summarizes stock option information for the Plans as of
July 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life in Years Exercise Price Exercisable Exercise Price
-------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.50 86,737 5.76 $ 1.50 67,977 $ 1.50
$2.63 3,937 5.78 $ 2.63 3,787 $ 2.63
$4.00-
$4.40 71,124 4.81 $ 4.01 70,324 $ 4.01
$6.13-
$9.00 1,630,175 6.70 $ 8.33 1,223,000 $ 8.63
$9.50-
$13.75 1,766,134 4.46 $11.67 1,347,214 $12.03
$15.13-
$21.25 454,322 7.75 $17.17 157,138 $17.74
$23.00-
$23.25 8,000 5.92 $23.09 4,000 $23.19
--------- ---------
$1.50-
$23.25 4,020,429 5.78 $10.60 2,873,440 $10.45
========= =========
</TABLE>
Transactions involving stock options awarded under the Plans during fiscal
1997, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996... 1,981,418 $ 8.90 506,962 $ 9.75
1997
Granted................ 1,260,531 $12.43
Canceled............... (43,000) $13.75
Exercised.............. (33,323) $ 9.86
---------
Balance outstanding
July 31, 1997......... 3,165,626 $10.23 1,868,085 $10.98
1998
Granted................ 340,272 $17.08
Canceled............... (6,350) $15.50
Exercised.............. (15,819) $ 5.98
---------
Balance outstanding
July 31, 1998......... 3,483,729 $10.85 2,012,463 $10.95
1999
Granted................ 603,375 $ 8.84
Canceled............... (57,420) $10.90
Exercised.............. (9,255) $ 2.59
---------
Balance outstanding
July 31, 1999......... 4,020,429 $10.60 2,873,440 $10.45
=========
</TABLE>
Outside Directors' Plan The Company has adopted a stock option plan for
outside directors who are neither officers nor employees of the Company nor
holders of more than 5% of the Company's common stock (the "Outside Directors'
Plan"). This plan, as amended, provides for the granting of options to
directors (i) to purchase 35,000 shares of the Company's common stock on the
date of initial election or appointment to the Board and (ii) to purchase
21,000 shares on the fifth anniversary thereof and every three years
thereafter. The options have an exercise price equal to the fair market value
of the Company's common stock on the date of grant, vest at the rate of 7,000
shares per year, and expire ten years after the date of grant.
The following table summarizes stock option information for the Outside
Directors' Plan as of July 31, 1999:
F-13
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life in Years Exercise Price Exercisable Exercise Price
-------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$6.13-
$8.63 105,000 7.16 $ 7.80 70,000 $ 8.63
$13.00-
$13.75 273,000 3.90 $13.17 252,000 $13.13
$23.50 35,000 7.51 $23.50 14,000 $23.50
------- -------
$6.13-
$23.50 413,000 5.04 $12.68 336,000 $12.62
======= =======
</TABLE>
Transactions involving stock options awarded under the Outside Directors'
Plan during fiscal 1997, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996... 280,000 $11.91 196,666 $12.63
1997
Granted................ 98,000 $17.23
-------
Balance outstanding
July 31, 1997......... 378,000 $13.29 243,333 $12.40
-------
1998
Balance outstanding
July 31, 1998......... 378,000 $13.29 291,332 $12.51
1999
Granted................ 35,000 $ 6.13
-------
Balance outstanding
July 31, 1999......... 413,000 $12.68 336,000 $12.62
=======
</TABLE>
Directors' Deferred Compensation Stock Plan Pursuant to the Directors'
Deferred Compensation Stock Plan (the "Directors' Deferred Plan") adopted
during the 1998 fiscal year, outside directors have a right to receive for
each meeting of the Board or a committee thereof attended a number of shares
of the Company's common stock equal to the amount determined by the Board as
compensation for the meeting divided by the fair market value of the Company's
common stock on the date of the meeting. An aggregate of 25,000 shares of the
Company's common stock has been reserved for issuance under the Directors'
Deferred Plan. During fiscal 1999 and 1998, the outside directors earned the
rights to receive an aggregate of 2,778 shares and 570 shares, respectively.
Under the terms of the Directors' Deferred Plan, shares are to be issued to a
director within six months after he or she ceases to serve on the Board.
Non-Plan Options The Company's Board of Directors has issued options to an
executive officer ("Executive"), and a former executive officer, the Emisphere
Charitable Foundation, and a consultant not covered by the Plans or the
Outside Directors' Plan ("Non-Plan Options"). The respective employment
agreement for the Executive also contains provisions whereby the Executive is
allowed to borrow defined amounts from the Company in connection with exercise
of options. Outstanding loans bear interest at rates, as defined. The Board
determines the number and terms of each grant (option exercise price, vesting,
and expiration date). Non-Plan Options generally vest over a five-year period.
The following table summarizes stock option information for the Non-Plan
Options as of July 31, 1999:
F-14
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life Exercise Price Exercisable Exercise Price
-------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$8.00-$ 9.75 387,822 1.82 $8.65 387,822 $8.65
</TABLE>
Transactions involving awards of Non-Plan Options during fiscal 1997, 1998
and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996... 1,470,853 $11.28 496,822 $9.59
1997
Canceled............... (987,031) $12.61
Exercised.............. (60,000) $ 8.23
---------
Balance outstanding
July 31, 1997......... 423,822 $ 8.62 423,822 $8.62
1998
Canceled............... (1,000) $18.50
---------
Balance outstanding
July 31, 1998......... 422,822 $ 8.59 422,822 $8.59
1999
Exercised.............. (35,000) $ 8.00
---------
Balance outstanding
July 31, 1999......... 387,822 $ 8.65 387,822 $8.65
=========
</TABLE>
Employee Stock Purchase Plans The Company has adopted two employee stock
purchase plans (the "Purchase Plans") -- the 1994 Employee Stock Purchase Plan
(the "Qualified Plan") and the 1994 Non-Qualified Employee Stock Purchase Plan
(the "Non-Qualified Plan"). The Purchase Plans provide for the grant to all
employees of options to purchase the Company's common stock. These options are
granted for dollar amounts of up to 15% of an employees' quarterly
compensation. The exercise price per share is equal to the lesser of the fair
market value of the Company's common stock on the date of grant or 85% of the
fair market value on the date of exercise. Options are granted automatically
on the first day of each fiscal quarter and expire six months after the date
of grant. The Qualified Plan is not available for employees owning more than
5% of the Company's common stock and imposes certain other quarterly
limitations on the option grants. Options under the Non-Qualified Plan are
granted to the extent that the option grants are restricted under the
Qualified Plan. The Purchase Plans provide for the issuance of up to 500,000
shares of the Company's common stock under the Qualified Plan and 100,000
shares under the Non-Qualified Plan.
Purchases of common stock during the fiscal years ended July 31, 1999, 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan
---------------------- -----------------------
Shares Shares
Purchased Price Range Purchased Price Range
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
1999........................ 92,276 $4.83-$ 9.68 8,097 $ 6.16-$ 9.68
1998........................ 34,851 $8.23-$17.21 2,749 $13.76-$16.47
1997........................ 31,348 $6.30-$17.75 8,111 $6.26-$ 13.18
</TABLE>
At July 31, 1999, shares reserved for future purchases under the Qualified and
Non-Qualified Plans were 201,568 and 58,591, respectively.
Pro Forma Operating Results The following tables summarize the Company's pro
forma operating results had compensation costs for the Plans, Outside Directors'
Plan, Directors' Deferred Plan, the Non-Plan Options, and the Purchase Plans
been determined in accordance with the fair value-based method of accounting for
stock-based compensation as prescribed by SFAS No. 123. Since option grants
awarded during 1999, 1998 and 1997 vest over several years and additional awards
are expected to be issued in the future, the pro forma results shown below are
not likely to be representative of the effects, on the future years of the
application of the fair value-based method. Except as noted above, the options
exercise price equals the quoted market price of the Company's common stock on
the date of grant.
F-15
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
<TABLE>
<CAPTION>
Fiscal Years Ended July 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss................. $35,446,893 $10,409,698 $15,408,336
Pro forma net loss per share....... $ (3.04) $ (0.97) $ (1.53)
</TABLE>
For the purpose of the above pro forma calculation, the fair value of each
option granted was estimated on the date of grant using the Black-Scholes
option pricing model. The weighted-average fair value of the options granted
during 1999, 1998 and 1997 was $5.94, $10.96 and $6.82, respectively. The
following assumptions were used in computing the fair value of options
granted: expected volatility of 80%, expected lives of five years (except for
the Purchase Plans where the expected lives are six months), zero divided
yield, and weighted-average risk-free interest rate of 5.2% in 1999, 5.9% in
1998, and 6.4% in 1997.
10. Retirement Plan
The Company has a defined contribution retirement plan (the "Plan"), the
terms of which, as amended, allow eligible employees who have met certain age
and service requirements to participate, by electing to contribute a
percentage of their compensation to be set aside to pay their future
retirement benefits as defined by the Plan. The Company has agreed to make
discretionary contributions to the Plan. For the fiscal years ended July 31,
1999, 1998 and 1997 the Company made contributions to the Plan totaling
approximately $183,000, $139,000 and $58,000, respectively.
11. Net Loss Per Share
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 fiscal years ended July 31, 1999, 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.
12. The Emisphere Charitable Foundation, Inc.
During 1993, the Board authorized the incorporation of The Emisphere
Charitable Foundation, Inc. (the "Foundation"). The Foundation has since been
incorporated and intends to seek tax exempt status under section 501(c)(3) of
the Internal Revenue Code. The Foundation's charitable purpose is to grant
financial assistance to pay expenses incurred by persons or their families who
are suffering from serious, debilitating, or prolonged illnesses. The Company
intends to contribute cash and Company stock options to the Foundation. Two
officers of the Company are directors of the Foundation. The Foundation
currently has 15,000 options to acquire an equal number of shares of the
Company's common stock at an exercise price of $9.75 per share.
13. Ebbisham Limited
Ebbisham Limited ("Ebbisham"), an Irish corporation owned jointly by Elan
Corporation, plc ("Elan") and the Company until July 1999 when it became a
wholly subsidiary of the Company, was formed in September 1996 to develop and
market heparin products using technologies contributed by Elan and the Company.
Elan provided the initial funding of $4.5 million. Thereafter, Elan and the
Company provided funding equally. During the year ended July 31, 1999, Elan and
the Company each contributed approximately $7.5 million to fund Ebbisham's
operations.
In fiscal 1996, the Company issued and sold to an affiliate of Elan 600,000
shares of the Company's common stock and warrants to purchase an additional
250,000 shares, at $16.25 per share, for a total of $7.5 million. In fiscal
1998, Elan exercised the warrants.
F-16
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
Pursuant to agreements with Elan and Ebbisham, the Company performed certain
research and development services on behalf of Ebbisham. In connection
therewith, the Company recognized contract research revenues during each of
the three fiscal years ended July 31, 1999 of approximately $5.7 million, $7.1
million, and $4.0 million, respectively. As of July 31, 1998, amounts due from
Ebbisham for services rendered totaled approximately $7.7 million.
In July 1999, Emisphere acquired Elan's ownership interest in Ebbisham, in
exchange for a seven year $20.0 million zero coupon note (the "Ebbisham Note")
carrying a 15% interest rate, compounding semi-annually, plus royalties on
oral heparin product sales, subject to an annual maximum, and certain
milestone payments. Under certain conditions, Elan has agreed to subscribe to
the Company's common stock. This transaction resulted in Ebbisham becoming a
wholly owned subsidiary of the Company.
The acquisition of Elan's ownership interest in Ebbisham has been accounted
for in accordance with the purchase method of accounting. The purchase price
of approximately $18.1 million ($20.4 million, including transaction costs,
net of purchase accounting adjustments for accrued funding liabilities in
excess of actual funding requirements of $2.3 million) has been allocated $9.7
million and $8.6 million to acquired in-process research and development,
which was expensed at the date of acquisition, and purchased technology,
respectively.
As of the acquisition date, it was determined that the acquired in-process
research and development had not reached technological feasibility and did not
have an alternative future use. Approximately 48%, 80%, and 80% of the
research and development effort remained to be completed for liquid heparin,
solid dosage heparin, and solid dosage low molecular weight heparin,
respectively, as of the acquisition date. Before these products can be
commercialized, the Company is required to complete Phase III clinical trials
for liquid heparin, initiate and complete Phase I through III clinical studies
for both solid dosage forms of heparin and low molecular weight heparin, and
file New Drug Applications with the United States Food and Drug
Administration. The Company currently estimates the cost to complete clinical
trials and obtain regulatory approval to be in excess of $30.0 million. The
Company expects to complete development of liquid heparin in fiscal 2002. In
valuing the acquired in-process research and development, the Company used
discounted cash flows over a 10-year period and risk adjusted discount rates
ranging from 20% to 45%, depending on the product's stage of development.
Purchased technology is being amortized using the straight-line method over
its expected useful life of approximately 15 years.
In conjunction with the above transaction, Elan committed to provide the
Company with up to $15.0 million in financial support for Phase III clinical
trials of oral heparin. The provision by Elan of these loans is subject to the
Company attaining certain clinical milestones and other conditions, including
the commencement of oral heparin Phase III clinical trials by October 31,
1999. The Company does not anticipate commencement of such trials within the
stipulated period.
The following unaudited pro forma information presents a summary of
consolidated results of operations assuming the acquisition had taken place at
the beginning of each fiscal year and excludes the write-off of acquired in-
process research and development of approximately $9.7 million:
<TABLE>
<CAPTION>
(Unaudited)
Fiscal
Years Ended July 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales......................................... $ 4,400,000 $ 8,800,000
Net loss...................................... $(25,500,000) $(14,800,000)
Net loss per share............................ $ (2.19) $ (1.37)
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that actually would have resulted had the acquisition occurred on the date
indicated or that may result in the future.
F-17
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
Selected financial data of Ebbisham, prior to acquisition, as of July 31,
1998, for the period from August 1, 1998 to July 2, 1999 (the acquisition
date), the fiscal year ended July 31, 1998, and the period from September 26,
1996 (inception) to July 31, 1997, are as follows:
Balance Sheet Data
<TABLE>
<CAPTION>
July 31, 1998
-------------
<S> <C>
Assets
Cash..................................................... $ 741,184
============
Liabilities and Stockholders' Deficit
Accounts payable (1)..................................... $ 9,408,518
Subordinated debt........................................ 4,500,000
Stockholders' deficit.................................... (13,167,334)
------------
Total liabilities and stockholders' deficit $ 741,184
============
</TABLE>
Statement of Operations Data
<TABLE>
<CAPTION>
Period from
Fiscal September 26,
Period from Year Ended (inception)
August 1, 1998 to July 31, to
July 2, 1999 1998 July 31, 1997
----------------- ----------- -------------
<S> <C> <C> <C>
Total revenue...................... $ 104,829 $ 32,760 $ 72,045
Total expenses (2)................. (6,289,084) (8,120,183) (5,171,956)
----------- ----------- -----------
Net loss........................... $(6,184,255) $(8,087,423) $(5,099,911)
=========== =========== ===========
</TABLE>
- --------
(1) Includes $7,710,056 due the Company at July 31, 1998.
(2) Includes $5,732,805, $7,061,270, and $3,999,733 related to services
performed by the Company on behalf of Ebbisham for the period from August
1, 1998 to July 2, 1999, the year ended July 31, 1998, and the period from
September 26, 1996 (inception) to July 31, 1997.
14. Strategic Alliances
The Company performs research and development for others pursuant to research
collaborations and feasibility studies. Under the research collaborations,
Emisphere will be reimbursed for development costs and may be entitled to
payments if certain development milestones are achieved. In addition, the
collaborations contain provisions, which require the Company to negotiate the
terms of a licensing agreement contemplating the exclusive worldwide use of the
Company's proprietary technology. All of the Company's research collaborations
are generally cancelable by the partners without significant financial penalty
to the collaborator. Feasibility studies are of short duration and are designed
to evaluate the applicability of the Company's drug delivery carriers to
specific drugs. Costs associated with research and development collaborations
and feasibility studies are expected to approximate the revenues recognized.
In December 1997, the Company and Novartis Pharma AG ("Novartis") entered
into a research collaboration to investigate the Company's technology for oral
delivery of two selected Novartis compounds. The agreement provides for an
initial research collaboration period expiring in December 1999 and two
options on the part of Novartis to acquire exclusive licenses to use the
Company's technologies for the development and commercialization of oral
formulations of the Novartis compounds.
In the event Novartis exercises its technology license options, it has the
obligation (subject to the Company's approval) to purchase up to $16 million
of the Company's Common Stock. This investment may be made in four tranches at
prices based on market prices at the time of exercise. The first tranche is
subject to certain price limitations.
Under the agreement, Novartis has made quarterly payments to the Company for
work performed by the Company in connection with the collaboration and is to
make future payments in the event certain milestones are achieved. In
September 1999, Novartis initiated clinical testing of a solid oral dosage
form of one of their compounds using the Company's oral drug delivery
technology.
F-18
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
July 31, 1999
In February 1997, the Company and Eli Lilly & Company ("Lilly") entered into
an agreement to combine Lilly's therapeutic protein and formulation
capabilities with the Company's carrier technologies. The agreement provided
for periodic payments to the Company to fund a research and development
program, which was completed during fiscal 1999. Under the agreement, the
Company granted to Lilly a series of options to acquire licenses to use the
Company's technologies. In fiscal 1998, Lilly exercised two of its options and
entered into two license agreements to use the Company's technologies in
connection with two proteins.
During fiscal year 1999, Lilly suspended development of one of the proteins
pending further review by them of the injectable version of the protein. With
respect to the second protein, Emisphere designed and supplied "carriers" to
Lilly for evaluation. As a result, Emisphere is awaiting further direction
from Lilly on both compounds. The above license agreements provide for future
payments, in the event certain milestones are achieved, as defined, as well as
royalty payments if a commercial product results from the collaboration. As of
July 31, 1999, these license agreements were in effect.
During the fiscal years ended July 31, 1999, 1998 and 1997, the agreements
with Novartis and Lilly generated revenues to the Company of $4.3 million,
$8.8 million (including milestone payments of $4.0 million from Lilly) and
$1.4 million, respectively.
15. Subsequent Event
On November 2, 1999, the Company issued 2.3 million shares of common stock for
net proceeds of approximately $23.5 million.
F-19
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Ebbisham Limited:
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Ebbisham Limited ("Ebbisham") (a
development stage enterprise) at July 31, 1998, and the results of its
operations and its cash flows for the period from September 26, 1996
(inception) to July 31, 1997, the year ended July 31, 1998, the period from
August 1, 1998 through July 2, 1999 and the cumulative period from September
26, 1996 (inception) to July 2, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Ebbisham's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 7 to the financial statements, in July 1999, Emisphere
Technologies, Inc. ("Emisphere") acquired Elan Corporation plc's 50% ownership
interest in Ebbisham and, therefore, Ebbisham became a wholly owned subsidiary
of Emisphere. These financial statements have been prepared as of and for the
periods prior to the Emisphere acquisition.
PricewaterhouseCoopers LLP
New York, New York
September 10, 1999
F-20
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
July 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash........................................................... $ 741,184
------------
Total assets..................................................... $ 741,184
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Due to Elan Corporation plc.................................... $ 1,698,462
Due to Emisphere Technologies, Inc. ........................... 7,710,056
Accrued expenses............................................... --
------------
Total current liabilities........................................ 9,408,518
Subordinated debt................................................ 4,500,000
------------
Total liabilities................................................ 13,908,518
------------
Stockholders' deficit:
"A" ordinary shares, par value $1.00 per share, 5,000,000
shares authorized, 10,000 shares issued and outstanding at
July 31, 1998. "B" ordinary shares, par value $1.00 per share,
5,000,000 shares authorized, 10,000 shares issued and
outstanding at July 31, 1998.................................. 20,000
Deficit accumulated during the development stage............... (13,187,334)
------------
Total stockholders' deficit...................................... (13,167,334)
------------
Total liabilities and stockholders' deficit...................... $ 741,184
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
period from Cumulative for
For the September 26, the period from
period from For the 1996 September 26,
August 1, fiscal year (inception) 1996
1998 to ended through (inception)
July 2, July 31, July 31, through
1999 1998 1997 July 2, 1999
----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Interest income....... $ 104,829 $ 32,760 $ 72,045 $ 209,634
Expenses:
Research and
development.......... (6,165,393) (8,120,183) (5,171,956) (19,457,532)
General and
administrative....... (123,691) -- -- (123,691)
----------- ----------- ----------- ------------
Net loss................ $(6,184,255) $(8,087,423) $(5,099,911) $(19,371,589)
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the period from September 26, 1996 (inception) to July 2, 1999,
including the period from August 1, 1998 to July 2, 1999,
the fiscal year ended July 31, 1998, and the period from September 26, 1996
(inception) to July 31, 1997
<TABLE>
<CAPTION>
Number of shares
-----------------
Ordinary Ordinary Ordinary Ordinary Accumulated
"A" "B" "A" "B" deficit Total
-------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ordinary shares issued
in consideration for
cash................... 10,000 10,000 $10,000 $10,000 $ $ 20,000
Net loss for the period
from September 26, 1996
(inception) to July 31,
1997................... (5,099,911) (5,099,911)
------ ------ ------- ------- ------------ ------------
Balance at July 31,
1997................... 10,000 10,000 10,000 10,000 (5,099,911) (5,079,911)
Net loss for the year
ended July 31, 1998.... (8,087,423) (8,087,423)
------ ------ ------- ------- ------------ ------------
Balance at July 31,
1998................... 10,000 10,000 10,000 10,000 (13,187,334) (13,167,334)
Net loss for the period
from August 1, 1998 to
July 2, 1999........... (6,184,255) (6,184,255)
------ ------ ------- ------- ------------ ------------
Balance at July 2,
1999................... 10,000 10,000 $10,000 $10,000 $(19,371,589) $(19,351,589)
====== ====== ======= ======= ============ ============
</TABLE>
F-23
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Cumulative
For the for the
For the period from period from
period from September 26, September
August 1, For the 1996 26, 1996
1998 fiscal (inception) (inception)
to year ended through through
July 2, July 31, July 31, July 2,
1999 1998 1997 1999
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $ (6,184,255) $(8,087,423) $(5,099,911) $(19,371,589)
Changes in assets and
liabilities:
Increase (decrease)
in payable to Elan
Corporation plc.... (1,698,462) 1,058,913 639,549 --
Increase (decrease)
in payable to
Emisphere
Technologies,
Inc................ (7,684,826) 7,061,270 648,786 25,230
Increase in accrued
expenses........... 10,408 -- -- 10,408
------------ ----------- ----------- ------------
Net cash (used in)
provided by operating
activities............. (15,557,135) 32,760 (3,811,576) (19,335,951)
Cash flows from
financing activities:
Proceeds from issuance
of share capital..... -- -- 20,000 20,000
Proceeds from issuance
of subordinated
debt................. 26,847,699 -- 4,500,000 31,347,699
Repayment of
subordinated debt.... (11,949,233) -- -- (11,949,233)
------------ ----------- ----------- ------------
Net cash provided by
financing activities... 14,898,466 -- 4,520,000 19,418,466
Net (decrease) increase
in cash................ (658,669) 32,760 708,424 82,515
Cash at beginning of
period................. 741,184 708,424 -- --
------------ ----------- ----------- ------------
Cash at end of period... $ 82,515 $ 741,184 $ 708,424 $ 82,515
============ =========== =========== ============
</TABLE>
F-24
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business:
Ebbisham Limited ("Ebbisham"), an Irish corporation, was formed as an
equally owned joint venture between Elan Corporation plc ("Elan") and
Emisphere Technologies, Inc. ("Emisphere") (collectively, the "Partners"), in
September 1996 to develop and market heparin products utilizing technologies
contributed by the Partners. In July 1999, Emisphere acquired 100% of Elan's
ownership interest in Ebbisham (see Note 7). As a development stage
enterprise, Ebbisham's primary efforts to date have been devoted to research
and development and raising capital.
2. Summary of Significant Accounting Policies:
Basis of Preparation
The accompanying financial statements of Ebbisham were prepared in
accordance with generally accepted accounting principles in the United States.
Cash
The carrying amount reported in the balance sheet for cash approximates its
fair value. Cash subjects Ebbisham to concentrations of credit risk.
Income Taxes
Ebbisham accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("SFAS 109"). SFAS 109 requires that Ebbisham recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined on the basis of the
difference between the tax bases of assets and liabilities and their
respective financial reporting amounts ("temporary differences") at enacted
tax rates in effect for the years in which the temporary differences are
expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-25
<PAGE>
3. Subordinated Debt:
Subordinated debt consists of the following:
<TABLE>
<CAPTION>
Due to Due to
Elan Emisphere
------------ -----------
<S> <C> <C>
Balance at July 31, 1998...................... $ 4,500,000 $ --
Current activity:
Loans....................................... 7,449,233 19,398,466
Repayments.................................. (11,949,233) --
------------ -----------
Balance at July 2, 1999....................... $ -- $19,398,466
============ ===========
</TABLE>
EBBISHAM LIMITED
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The subordinated debt is interest-free until Ebbisham has sufficient equity,
as defined, and has earned a profit after tax in the preceding financial year
of not less than $100,000.
The rate of interest in a given financial year is as follows:
. 5% if profits after tax for that financial year exceed $100,000 but do
not exceed $5,000,000.
. 10% if profits after tax for that financial year exceed $5,000,000 but
do not exceed $10,000,000.
. 15% if profits after tax for that financial year exceed $10,000,000.
The debt is subordinated to the claims of all other creditors of Ebbisham.
4. Stockholders' Deficit:
Ebbisham's certificate of incorporation provides for the issuance of five
million ordinary "A" shares and five million ordinary "B" shares. The rights
and terms of both types of shares are identical except that Elan held the
ordinary "A" shares through July 2, 1999 and by Emisphere subsequent to that
date, and Emisphere holds the ordinary "B" shares.
5. Income Taxes:
Ebbisham is subject to the provisions of tax laws in Ireland. Accordingly,
in the event that Ebbisham earns royalty income for its patents in the future,
such amounts may be exempt from income tax under certain circumstances. In
addition, in the event that taxable profits are derived from Ebbisham's
manufacture of products, a tax would be imposed on profits earned at tax rates
ranging from 10% to 32%. Ebbisham has available net operating loss
carryforwards of approximately $13 million, which, under certain
circumstances, may be available to offset taxable income arising in the
future. As a result of the uncertainty of whether Ebbisham will have future
taxable income and whether the net operating losses being carried forward will
be available to offset such taxable income, Ebbisham has established a
valuation allowance equal to the total deferred tax asset. The total deferred
tax asset, net of the valuation allowance, was not material.
6. Related Party Transactions:
On September 26, 1996 (inception), Ebbisham entered into certain agreements
with Elan and Emisphere relating to the research and development of an oral
heparin product under development. In accordance with these agreements, the
Partners perform certain research and development activities on behalf of
Ebbisham. For the period from August 1, 1998 through July 2, 1999, Ebbisham
incurred research and development expenses for work performed by Elan and
Emisphere in the amount of $432,588 and $5,732,805, respectively. For the year
ended July 31, 1998,
F-26
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Ebbisham incurred research and development expenses for work performed by Elan
and Emisphere in the amount of $1,058,913 and $7,061,270, respectively. For the
period from September 26, 1996 (inception) through July 31, 1997, Ebbisham
incurred research and development expenses for work performed by Elan and
Emisphere in the amount of $1,172,233 and $3,999,733, respectively.
Cumulatively, for the period from September 26, 1996 (inception) through July 2,
1999, Ebbisham incurred research and development expenses for work performed by
Elan and Emisphere of $2,663,734 and $16,793,808, respectively.
7. Ownership:
In July 1999, Emisphere acquired Elan's ownership interest in Ebbisham in
exchange for a seven-year $20 million zero coupon note. The acquisition, which
resulted in Ebbisham becoming a wholly owned subsidiary of Emisphere, will be
accounted for by Emisphere in accordance with the purchase method of accounting.
The accompanying financial statements are presented as of and for the periods
prior to Emisphere's acquisition. As such, the accompanying financial statements
do not reflect purchase accounting adjustments recorded by Emisphere relating to
this change in ownership.
8. Subsequent Event:
In September 1999, Emisphere initiated procedures to liquidate Ebbisham.
F-27
<PAGE>
EXHIBIT INDEX
Exhibit by Reference (1)
------- ----------------
3.1 --Restated Certificate of Incorporation of the A
Company dated June 13, 1997, as amended by the
Certificate of Amendment dated January 25, 1999
3.2 --By-Laws of the Company, as amended December 7,
1998
4.1 --Rights Agreement dated as of February 23, 1996 B
between the Company and Continental Stock Transfer
& Trust Company
4.2 --Note Purchase Agreement, dated July 2, 1999, C
between the Company and Elan International
Service, Ltd.
4.3 --Zero Coupon Note, dated July 2, 1999, issued by C
the Company to Elan International Services, Ltd.
For an initial principal amount of $20 million
10.1 --1991 Stock Option Plan, as amended(2) *
10.2 --Stock Option Plan for Outside Directors, as D(2)
amended
10.3 --Employee Stock Purchase Plan E(2)
10.4 --Non-Qualified Employee Stock Purchase Plan E(2)
10.5 --1995 Non-Qualified Stock Option Plan, as *
amended(2)
10.6 --Directors' Deferred Compensation Stock Plan F(2)
10.7 --Employment Agreement dated as of October 6, 1995 E(2)
between Michael M. Goldberg and the Company
10.8 --Stock Option Agreements dated as of January 1, E(2)(3)
1991, February 15, 1991, December 1, 1991, August
1, 1992 and October 6, 1995 between Michael M.
Goldberg and the Company
10.9 --Termination Agreement, dated July 2, 1999, among C
the Company, Elan Corporation, plc and Ebbisham
Limited, now a wholly owned subsidiary of the
Company
10.10 --Patent License Agreement, dated July 2, 1999, C
between the Company and Elan Corporation, plc
10.11 --Subscription Agreement, dated July 2, 1999 C
between the Company and Elan International
Management, Ltd.
10.12 --Registration Rights Agreement, dated July 2, 1999 C
between the Company and Elan International
Management, Ltd.
10.13 --Research Collaboration and Option Agreement dated G
as of December 3, 1997 between the Company and
Novartis Pharma AG
10.14 --Research Collaboration and Option Agreement dated H
as of February 26, 1997 between the Company and
Eli Lilly and Company
23.1 --Consent of PricewaterhouseCoopers LLP (Regarding **
the Company)
23.2 --Consent of PricewaterhouseCoopers LLP (Regarding **
Ebbisham Limited)
27.1 --Financial Data Schedule *
- --------
* Previously filed.
** Filed herewith.
(1) If not filed herewith, filed with a corresponding exhibit number as an
exhibit to the document referred to by letter as follows:
A. Quarterly Report on Form 10-Q for the quarterly period ended January 31,
1999.
B. Current Report on Form 8-K dated March 5, 1996.
C. Current Report on Form 8-K dated July 2, 1999.
D. Annual Report on Form 10-K for the fiscal year ended July 31, 1997.
E. Annual Report on Form 10-K for the fiscal year ended July 31, 1995.
F. Annual Report on Form 10-K for the fiscal year ended July 31, 1998.
G. Quarterly Report on Form 10-Q for the quarterly period ended October 31,
1997.
H. Quarterly Report on Form 10-Q/A (Amendment No.1) for the quarterly
period ended January 31, 1997.
(2) Management contract or compensatory plan or arrangement.
(3) Omitted in part pursuant to Instruction 2 of Item 601 of Regulation S-K.
E-1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-44516, 33-46026, 33-62226, 33-88598,
333-2751, 333-29981, 333-52547 and 333-75065) and Form S-3 (File Nos. 33-62224,
333-2323, 333-19815 and 333-23423) of Emisphere Technologies, Inc., of our
report dated September 30, 1999, except Note 15 as to which the date is November
2, 1999, relating to our audits of the financial statements of Emisphere
Technologies, Inc. as of July 31, 1999 and 1998, and for each of the three years
in the period ended July 31, 1999, which appears in this Form 10-K/A.
/S/ PRICEWATERHOUSECOOPERS LLP
------------------------------
New York, New York
December 3, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-44516, 33-46026, 33-62226, 33-88598,
333-2751, 333-29981, 333-52547 and 333-75065) and Form S-3 (File Nos. 33-62224,
333-2323, 333-19815 and 333-23423) of Emisphere Technologies, Inc., of our
report dated September 10, 1999 relating to our audits of the financial
statements of Ebbisham Limited as of July 31, 1998, and for each of the periods
from September 26, 1996 (inception) to July 31, 1997, the year ended July 31,
1998, the period from August 1, 1998 to July 2, 1999 and for the cumulative
period from September 26, 1996 (inception) to July 2, 1999, which appears in
this Form 10-K/A.
/S/ PRICEWATERHOUSECOOPERS LLP
------------------------------
New York, New York
December 3, 1999
