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EX-99.1 - EX-99.1 - EMISPHERE TECHNOLOGIES INC | b85758exv99w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 28, 2011
Emisphere Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 000-17758 | 13-3306985 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
240 Cedar Knolls Road, Suite 200, | ||
Cedar Knolls, New Jersey | 07927 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: 973-532-8000
Not Applicable
Former name or former address, if changed since last report
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
(b) On March 28, 2011, Management of Emisphere Technologies, Inc. (the Company), after consulting
with the Audit Committee of the Board of Directors and with McGladrey and Pullen, LLP
(McGladrey), its independent registered public accounting firm, concluded that the Companys
previously issued financial statements included in its quarterly interim period reports previously
reported on Forms 10-Q for the periods ended March 31, June 30, and September 30, 2009 and 2010,
and its annual report on Form 10-K for the period ended December 31, 2009 (the Financial Statement
Periods) should no longer be relied upon due to errors in the application of accounting guidance
regarding the determination of whether a financial instrument is indexed to its own stock. At the
time these financial statements were originally issued, the Company had reviewed its accounting for
the adoption of Financial Accounting Standards Board Accounting Codification Topic 815-40-15-5,
Evaluating Whether an Instrument Is Considered Indexed to an Entitys Own Stock (FASB
815-40-15-5 or the Guidance) and concluded it was in accordance with GAAP. The Companys
adoption of the Guidance was not straightforward because GAAP specifies the application of a level
interest method to amortize interest and debt discounts in accordance with FASB 835-30-35-2, The
Interest Method (FASB 835-30-35-2) . In adopting the guidance, the Company estimated the fair
value of the bifurcated conversion feature embedded in the Companys 11% senior secured convertible
notes in favor of MHR Institutional Partners IIA due September 26, 2012 (collectively, the MHR
Convertible Notes) as a derivative liability and developed an amortization schedule to recognize
non-cash interest expense and debt discounts over time. In accordance with the guidance, the
Company deducted the incremental value of the conversion feature from the book value of the
instrument at its inception. Because the fair value of the conversion feature was in excess of the
book value of the instrument, the Company believed it could not apply a level rate method to
determine the amortization schedule because the resulting book value would have been $0 and because
it is mathematically impossible to apply a level interest rate to amortize from a $0 balance.
Therefore, the Company developed an amortization schedule that it believed was consistent with the
adoption of the new accounting guidance and was still representative of the economic substance of
the financial instrument. This accounting treatment was reflected in the Companys financial
statements during the Financial Statement Periods.
McGladrey audited the Companys financial statements for 2009. The Companys Audit Committee and
Management discussed the results of the audit including a review of financial statements
for 2009 with McGladrey.
On
March 24, 2011, McGladrey notified the Company that the amortization schedule described above
was not in accordance with the level rate method required by GAAP and that it should be
recalculated accordingly. McGladrey further notified the Company that as a result of this error,
the financial statements did not reflect the proper amortization of non-cash interest expense and
debt discounts in connection with the bifurcated conversion feature embedded in the MHR Convertible
Notes as a derivative liability. McGladrey further notified the Company that it should make
disclosures and take appropriate actions to prevent future reliance on the financial statements
disclosed in the Financial Statement Periods.
After
discussions between Management, the Audit Committee and McGladrey, the Company reevaluated
its accounting for the adoption of the Guidance and for its assessment of the debt modification
entered into during June 2010 and determined that its original accounting was incorrect.
Consequently, the Company determined to restate its financial statements for the Financial
Statement Periods. The Company used the level rate method in accordance with FASB 835-30-35-2 to
revise its amortization schedule in accordance with GAAP. The Company assigned a beginning balance
nominally close to $0 to develop this amortization schedule. The restatements of financial
statements previously reported on Forms 10-Q for the periods ended March 31, June 30, and September
30, 2009 and 2010, and on Form 10-K for the period ended December 31, 2009 will reflect adjustments
primarily to correct for the revised amortization schedule and resulting overstatement of non-cash
interest charges and the recorded value of notes payable, which included the effects of the
accretion of debt discount resulting from the valuation of the embedded derivative associated with
the MHR Convertible Note. Additionally, after correcting the misapplication of guidance for
determining whether a financial instrument is indexed to its own stock, the Company reevaluated its
accounting for debt modification in connection with the Master Agreement and Amendment by and
between the Company and Novartis Pharma AG dated June 4, 2010 and the letter agreement entered
into with MHR in connection therewith and concluded that modifications to the MHR Convertible Notes
should have been accounted for as extinguishment of debt in
accordance with FASB ASC 470-50, Modifications and
Extinguishments, which resulted in a $17.0 million non-cash
adjustment to recognize the loss on extinguishment of debt.
The Company emphasizes that all reclassifications and related charges to
correct the misapplication of the relevant accounting pronouncement
and subsequent debt modification adjustment have no impact on the Companys
operating income, its cash position, its cash flows or its future cash requirements.
In addition to the description contained in this report, the Company plans to include the restated
financial information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010
(the 2010 Form 10-K). More detailed information about the restatements will be provided in the
Notes to the Financial Statements contained in the 2010 Form 10-K.
McGladrey provided a letter confirming its agreement with the disclosures contained herein, which
is attached hereto as exhibit 99.1.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
Exhibit No. | Description | |||
99.1 | Letter from McGladrey & Pullen, LLP to the Securities and Exchange Commission dated March 30, 2011 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
Emisphere Technologies, Inc. |
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March 30, 2011 | By: | /s/ Michael R. Garone | ||
Name: | Michael R. Garone | |||
Title: | Interim Chief Executive Officer and Chief Financial Officer | |||