U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 333-45241
ELITE PHARMACEUTICALS, INC.
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(Name of small business issuer in its charter)
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Delaware 22-3542636
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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165 Ludlow Avenue, Northvale, New Jersey 07647
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(Address of principal offices) (Zip Code)
Issuer's telephone number: (201) 750-2646
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:: NONE
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(Title of Class)
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $150,412
The approximate aggregate market value of the voting and non-voting
common equity(not including options and warrants exercisable for voting equity)
held by non-affiliates(affiliates defined to include officers, directors and 10%
shareholders) computed by reference to the average bid and asked price of that
portion of the common equity that is publicly traded as of June 15, 1999, and
presuming that the per-share market value of common equity which is not publicly
traded is equal to per-share market value of the company's publicly traded
common equity...................................................... $19,772,868
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes __x __ No ______
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date: 7,237,613
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy information statement; (3) any prospectus filed pursuant
to Rule 424(b) or (c) of the Securities At of 1933 ("Securities Act"). The list
of documents should be clearly described for information purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (check one): Yes___No x
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ELITE PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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Item No Page
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Part I
1. Description of Business 1
2. Properties 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
Part II
5. Market for registrant's Common Equity and Related Stockholder Matters 6
6. Management's Discussion and Analysis or Plan of Operation 7
7. Financial Statements and Supplementary Data 10
8. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure 10
Part III
9. Directors and Executive Officers, Promotors and Control Persons,
Compliance with Section 16(a) of the Exchange Act 10
10. Executive Compensation 12
11. Security Ownership of Certain Beneficial Owners and Management 13
12. Certain Relationships and Related Transactions 14
Signatures 15
13. Exhibits, Financial Statements, and Reports on Form 8-K 15
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18
FORWARD LOOKING STATEMENTS
This Annual Report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Annual Report which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
the attainment of pharmaceutical development milestones or the receipt of
regulatory approval or the entering into of licensing or partnership
arrangements and other similar matters, are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties which could cause actual results
to differ materially from the Company's expectations, including the risk factors
discussed below and elsewhere in this Annual Report and other factors, many of
which are beyond the control of the Company. Consequently, all of the
forward-looking statements made in this Annual Report are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations. The Company assumes no
obligation to update publicly any such forward-looking statements, whether as a
result of new information, future events or otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Elite Pharmaceuticals, Inc. ("EPI"), the registrant, is the sole owner
of Elite Laboratories, Inc.("ELI"). EPI and ELI may be referred to collectively
in this report as "Elite" or "the Company".
Business Development.
EPI was incorporated in the State of Delaware on October 1, 1997. EPI's
predecessor, Prologica International, Inc. ("Prologica"), was incorporated in
the State of Pennsylvania on April 20, 1984. From the time of its incorporation,
and the completion of its initial public offering in August 1988, until the date
of its merger with EPI, Prologica engaged in no business other than searching
for suitable acquisitions. Except for ELI, it located no such acquisitions. EPI
was incorporated for the purpose of merging with Prologica in order to change
the name and state of incorporation of Prologica. EPI survived the merger with
Prolgoica; Prologica ceased to exist at the time of the merger on October 24,
1997. Contemporaneous with the merger of EPI and Prologica, Elite Laboratories,
Inc. ("ELI") (the business of which is described below) merged with a wholly
owned subsidiary of Prologica, HMF Enterprises, Inc. ("HMF"). HMF was
incorporated on August 1, 1997 for the purpose of providing a vehicle into which
ELI could merge. ELI and HMF merged on October 30, 1997. ELI survived the merger
with HMF and HMF ceased to exist subsequent to the merger. The net result of the
two mergers is that Prolgoica and HMF ceased to exist, and EPI owns one hundred
percent of the stock of ELI. Such stock ownership is EPI's sole business. At the
present time, EPI has no plans to conduct any other business apart from the
ownership of ELI.
ELI was incorporated in the State of Delaware on August 23, 1990. On
October 30, 1997, one hundred percent of the stock of ELI was acquired by EPI
via the merger between ELI and HMF. With that exception, no acquisition or
disposition of any material assets, nor any material changes in the method of
conducting business have incurred since its incorporation.
Products and Markets
ELI primarily engages in researching, developing, licensing,
manufacturing, and marketing proprietary drug delivery systems and products.
ELI's drug delivery technology involves releasing a drug into the bloodstream or
delivering it to a target site in the body over an extended period of time or at
predetermined times. Such products are designed to allow drugs to be
administered less frequently, with reduced side effects and, in certain
circumstances, in reduced dosages. ELI has concentrated on developing orally
administered controlled release products. ELI's primarily targets existing
controlled release drugs that are reaching the end of their exclusivity period,
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and works to develop cheaper generic controlled-release versions of those drugs.
Nine of these controlled release products developed by ELI are either at the
development or testing stage. The products include drugs which provide
therapeutic benefits for angina and hypertension, a nonsteroidal analgesic drug,
and one which appears to lower blood glucose by stimulating insulin from the
pancreas. None of these products have yet been approved by the Food and Drug
Administration ("FDA"), and Elite therefore does not yet market any products.
ELI also engages in contract research and development activities sponsored by
other pharmaceutical companies.
Controlled drug delivery of a pharmaceutical compound is a relatively
new concept which offers a safer and more effective means of administering drugs
through releasing a drug into the bloodstream or delivering it to a certain site
in the body at predetermined rates or predetermined times. Its goal is to
provide more effective drug therapy while reducing or eliminating many of the
side effects associated with conventional drug therapy.
ELI spent approximately $1,273,445 in fiscal year ending March 31,
1999, and $541,164 in fiscal year ending March 31, 1998 on research and
development activities.
The Company is presently in the process of acquiring pharmaceutical
manufacturing equipment with the intention of eventually manufacturing products
developed by ELI as well as manufacturing products on a contract basis. There is
no assurance that the Company's present facility will be approved by the FDA for
manufacturing or that contracts will be obtained.
Competition
ELI competes in two related but distinct markets: It performs contract
research and development work regarding controlled-release drug technology for
large pharmaceutical companies, and it seeks to develop and market (either on
its own or by licensure to other companies) proprietary controlled-release
pharmaceutical products. In both arenas, Elite's competition consists of those
companies which perceived to be able to develop controlled-release drugs.
In recent years, an increasing number of pharmaceutical companies have
become interested in the development and commercialization of products
incorporating advanced or novel drug delivery systems. The Company expects that
competition in the field of drug delivery will significantly increase in the
future since smaller specialized research and development companies are
beginning to concentrate on this aspect of the business. Some of the major
pharmaceutical companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery companies. Many
of these companies have greater financial and other resources as well as more
experience than the Company in commercializing pharmaceutical products. A
comparatively small number of companies have a track record of success in
developing controlled-release drugs. Significant among these are Alza
Corporation, Andrx, Elan Corporation, Biovail Corporation, Faulding, Schering,
KV Pharmaceutical, Forest Laboratories, etc. Each of these companies have
developed expertise in certain types of drug delivery systems, although such
expertise does not carry over to developing a controlled-release version of all
drugs. Such companies may develop new drug formulations and products or may
improve existing drug formulations and products more efficiently than the
Company. While the Company's product development capabilities and patent
protection may help the Company to maintain its market position in the field of
advanced drug delivery, there can be no assurance that others will not be able
to develop such capabilities or alternative technologies outside the scope of
the Company's patents if any, or that even if patent protection is obtained,
such patents will not be successfully challenged in the future. In addition, it
must be noted that almost all of the Company's competitors have vastly greater
resources than the Company.
Patents, Trademarks, Royalty Agreements etc..
ELI has received Notices of Allowance from the U.S. Patent and
Trademark Office for the following trademarks: Albulite CR, Nifelite CR,
Diltilite CD, Ketolite CR, Verelite CR and Glucolite CR.
On February 16, 1999,ELI was awarded a patent on its controlled-release
formulation of nefedipine (U.S.Patent No. 5,871,776). The United States market
for controlled-release nifedipine is approximately one billion dollars. On
May 11, 1999, Dr. Mehta was awarded a patent for method of preparation
of controlled release nefedipine formulations (U.S. Patent No. 5,902,632),and
on November 18, 1998,he was awarded a patent for the pulsed-release delivery
system for methyphenidate (U.S. Patent No. 5,837,284).This latter patent was
assigned to Celgne Corporation; however, ELI retained certain manufacturing
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rights for methylphenidate, as well as rights for the pulsed-release technology
with regard to all non-methylphenidate drugs.
The Company intends to apply for patents for other products in the
future; however, there can be no assurance that these or any future patents will
be granted. The Company believes that future patent protection of its
technologies and processes and of its products may be important to its
operations. The success of the Company's products may depend, in part, upon the
Company's ability to obtain strong patent protection. There can be no assurance,
however, that these patents, if issued, or any additional patents will prevent
other companies from developing similar or functionally equivalent dosage forms
of products. Furthermore, there can be no assurance that (i) any additional
patents will be issued to the Company in any or all appropriate jurisdictions,
(ii) the Company's patents will not be successfully challenged in the future,
(iii) the Company's processes or products do not infringe upon the patents of
third parties or (iv) the scope and validity of the Company's patents will
prevent third parties from developing similar products. Although a patent has a
statutory presumption of validity in the United States, there can be no
assurance that patents issued covering the Company's technologies will not be
infringed or successfully avoided through design innovation or by the challenge
of that presumption of validity. Finally, there can be no assurance that
products utilizing the Company's technologies, if and when issued, will not
infringe patents or other rights of third parties. It is also possible that
third parties will obtain patents or other proprietary rights that might be
necessary or useful to the Company. In cases where third parties are first to
invent a particular product or technology, it is possible that those parties
will obtain patents that will be sufficiently broad so as to prevent the Company
from using such technology or from marketing such products. In addition, the
Company consistently enters into confidentiality agreements with its employees
and business partners.
Patents and other proprietary rights are important to the Company's
business. It is the Company's policy to seek patent protection for its
inventions, and also to rely upon trade secrets, know-how, continuing
technological innovations, and licensing opportunities to develop and maintain
its competitive position.
Prior to the enactment in the United States of new laws adopting
certain changes mandated by the General Agreement on Tariffs and Trade ("GATT"),
the exclusive rights afforded by a U.S. Patent were for a period of 17 years
measured from the date of grant. Under these new laws, the term of any U.S.
Patent granted on an application filed subsequent to June 8, 1995, would
terminate 20 years from the date on which the patent application was filed in
the United States or the first priority date, whichever occurs first. Future
patents granted on an application filed before June 8, 1995, will have a term
that terminates 20 years from such date, or 17 years from the date of grant,
whichever date is later.
Under the Drug Price Competition and Patent Term Restoration Act of
1984, a U.S. Product patent or use patent may be extended for up to five years
under certain circumstances to compensate the patent holder for the time
required for FDA regulatory review of the product. The benefits of this act are
available only to the first approved use of the active ingredient in the drug
product and may be applied only to one patent per drug product. There can be no
assurance that the Company will be able to take advantage of this law.
The Company's success will depend, in part, on its ability to obtain
and enforce patents, protect trade secrets, obtain licenses to technology owned
by third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical and
biotechnology firms, including the Company, can be uncertain and involve complex
legal and factual questions. In addition, the coverage sought in a patent
application can be significantly reduced before the patent is issued.
Consequently, the Company does not know whether any of its pending
applications will result in the issuance of patents or, if any patents are
issued, whether they will provide significant proprietary protection or
commercial advantage, or will be circumvented by others. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first to make the inventions covered by each of its pending patent
applications, or that it was the first to file patent applications for such
inventions. In the event a third party has also filed a patent for any of its
inventions, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine priority
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of invention, which could result in the loss of any opportunity to secure patent
protection for the invention and the loss of any right to use the invention, and
even if the eventual outcome is favorable to the Company, such interference
proceedings could result in substantial cost to the Company. Protection of
patent applications and litigation to establish the validity and scope of
patents, to assert patent infringement claims against others and to defend
against patent infringement claims by others can be expensive and
time-consuming. There can be no assurance that in the event that any claims with
respect to any of the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation could cause the Company to lose exclusivity relating
to such patent claims. If a third party is found to have rights covering
products or processes used by the Company, then the Company could be forced to
cease using the technologies covered by the disputed rights, could be subject to
significant liabilities to such third party, and could be required to license
technologies from such third party. Also, different countries have different
procedures for obtaining patents, and patents issued by different countries
provide different degrees of protection against the use of a patented invention
by others. There can be no assurance, therefore, that the issuance to the
Company in one country of a patent covering an invention will be followed by the
issuance in other countries of patents covering the same invention, or that any
judicial interpretation of the validity, enforceability, or scope of the claims
in a patent issued in one country will be similar to the judicial interpretation
given to a corresponding patent issued in another country. Furthermore, even if
the Company's patents are determined to be valid, enforceable, and broad in
scope, there can be no assurance that competitors will not be able to design
around such patents and compete with the Company using the resulting alternative
technology.
The Company also relies upon unpatented proprietary and trade secret
technology that it seeks to protect, in part, by confidentiality agreements with
its collaborative partners, employees, consultants, outside scientific
collaborators, sponsored researchers, and other advisors. There can be no
assurance that these agreements provide meaningful protection or that they will
not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by the Company, others
have not and will not obtain access to the Company's proprietary technology.
Government Regulation and Approval
The design, development and marketing of pharmaceutical compounds, on
which the Company's success depends, are intensely regulated by governmental
regulatory agencies, including the Food and Drug Administration. Non-compliance
with applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunction actions and criminal
prosecution based on products or manufacturing practices that violate statutory
requirements. In addition, administrative remedies can involve voluntary
withdrawal of products, as well as the refusal of the Government to enter into
supply contracts or to approve abbreviated new drug applications ("ANDAs") and
new drug applications ("NDAs"). The FDA also has the authority to withdraw
approval of drugs in accordance with statutory due process procedures.
Before a drug may be marketed, it must be approved by the FDA. FDA
approval procedure for an ANDA relies on bio-equivalency tests which compare the
applicant's drug with an already approved reference drug, rather than with
clinical studies. Because ELI has concentrated, during the first few years of
its business operations, on developing products which are intended to be
bio-equivalent to existing controlled-release formulations, the Company expects
that most of its drug products will require ANDA filings.
The FDA approval procedure for an NDA is a two-step process. During the
Initial Product Development stage, an investigational new drug ("IND") for each
product is filed with the FDA. A 30-day waiting period after the filing of each
IND is required by the FDA prior to the commencement of initial (Phase I)
clinical testing in healthy subjects. If the FDA does not comment on or question
the IND within such 30-day period, initial clinical studies may begin. If,
however, the FDA has comments or questions, the questions must be answered to
the satisfaction of the FDA before initial clinical testing can begin. In some
instances this process could result in substantial delay and expense. Phase I
studies are intended to demonstrate the functional characteristics and safety of
a product.
After Phase I testing, extensive efficacy and safety studies in
patients must be conducted. After completion of the required clinical testing,
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an NDA is filed, and its approval, which is required for marketing in the United
States, involves an extensive review process by the FDA. The NDA itself is a
complicated and detailed document and must include the results of extensive
clinical and other testing, the cost of which is substantial. While the FDA is
required to review applications within 180 days of their filing, in the process
of reviewing applications, the FDA frequently requests that additional
information be submitted and starts the 180-day regulatory review period anew
when the requested additional information is submitted. The effect of such
request and subsequent submission can significantly extend the time for the NDA
review process. Until an NDA is actually approved, there can be no assurance
that the information requested and submitted will be considered adequate by the
FDA to justify approval. The packaging and labeling of all Company developed
products are also subject to FDA regulation. It is impossible to anticipate the
amount of time that will be needed to obtain FDA approval to market any product.
The time to obtain FDA approval of the ANDA may range from approximately 12 to
36 months while that for an NDA may range from 12 to 24 months.
Whether or not FDA approval has been obtained, approval of the product
by comparable regulatory authorities in any foreign country must be obtained
prior to the commencement of marketing of the product in that country. All
marketing in territories other than the United States shall be conducted through
other pharmaceutical companies based in those countries. The approval procedure
varies from country to country, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general each
country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, there can be substantial delays in obtaining
required approvals from both the FDA and foreign regulatory authorities after
the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
All facilities and manufacturing techniques used for the manufacture of
products for clinical use or for sale must be operated in conformity with Good
Manufacturing Practice ("GMP") regulations. In the event the Company shall
engage in manufacturing, it will be required to operate its facilities in
accordance with GMP regulations. If the Company shall hire another company to
perform contract manufacturing for it, it must take steps to ensure that its
contractor's facilities conform to GMP regulations.
Under the Generic Drug Enforcement Act, ANDA applicants (including
officers, directors and employees) who are convicted of a crime involving
dishonest or fraudulent activity (even outside the FDA regulatory context) are
subject to debarment. Debarment is disqualification from submitting or
participating in the submission of future ANDAs for a period of years or
permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse
to accept ANDAs from any company which employs or uses the services of a
debarred individual. The Company does not believe that it receives any services
from any debarred person.
The Company is governed by federal, state, and local laws of general
applicability, such as laws relating to working conditions and environmental
protection. The Company estimates that it spends approximately $3,000.00 per
year in order to comply with applicable environmental laws. The Company is also
licensed by, registered with, and subject to periodic inspection and regulation
by the DEA and New Jersey state agencies, pursuant to federal and state
legislation relating to drugs and narcotics. Certain drugs that the Company may
develop in the future may be subject to regulation under the Controlled
Substances Act and related Statutes. At such time as the Company being
manufacturing products, it may become subject to the Prescription Drug Marketing
Act, which regulates wholesale distributors of prescription drugs.
Sources and Availability of Raw Material.
The Company is not yet in the manufacturing phase of any product and
therefore does not have a requirement for significant amounts of raw materials.
It currently obtains what limited raw materials it needs from over twenty
suppliers.
Dependence on One or a Few Major Customers.
Each year, the Company has had some customers that have accounted for a
large percentage of its sales. It is the intention of the Company to expand its
business to service a greater number of customers at one time.
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Employees.
As of June 1, 1999, the Company has eight full-time employees and three
part-time employees. Its full-time employees are engaged in administrative,
research and development; its part-time employees are engaged in research and
development. The Company believes its employee relations to be satisfactory; it
is not a party to any labor agreements and none of its employees are represented
by a labor union.
Reports to Security Holders.
The Company files reports with the Securities and Exchange Commission,
including Forms 10-QSB and 10-KSB The public may read and copy any materials
filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street NW,
Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers such as the Company that
file electronically with the SEC. The Company's Internet address is:
www.elitepharma.com.
ITEM 2 PROPERTIES
The Company owns a piece of real property and improvements, suitable
for use as a laboratory and offices, and located at 165 Ludlow Avenue,
Northvale, New Jersey. As noted previously, it is intended that the property
will be used for manufacturing in the future. The Company's operations are not
dependent on any specific location.
ITEM 3. LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings. The Company
believes it is currently in substantial compliance with all federal, state and
local environmental laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
EPI's Common Stock is listed on the over-the-counter bulletin board
under the symbol "ELIP," and its Warrants are listed on the over-the-counter
bulletin board under the symbol "ELIPZ." EPI's common stock first began trading
on July 23, 1998, and its warrants on September 11,1998. (The common stock of
EPI's predecessor, Prologica, were listed on the pink sheets, but no active
trading had occurred in those securities in the preceding two fiscal years.) To
the best of the Company's knowledge, the following table sets forth, for the
periods, indicated the intra-day high and low sale prices per share of Common
Stock on the over-the-counter bulletin board(1):
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Common Stock Warrants
f/y/e 3/31/1999 High Low High Low
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Fourth Quarter $4 3/8 $3 1/2 $ 1 $ 13/16
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Third Quarter $6 1/8 $3 1/2 $ 13/16 $ 1/2
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Second Quarter $4 1/4 $ 2 $ 5/8 $ 1/2
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First Quarter $n/a $n/a $n/a $n/a
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(1) The above is based information found on the Internet at
www.bloomberg.com/markets/ wei.html, and reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Holders.
As of June 7, 1999, there were approximately 171 holders of record of
the Company's Common Stock, and approximately 110 holders of record of the
Company's Warrants. On information and belief, approximately 1,045,516 of such
shares and 31,500 of such warrants are held by Cede & Company as nominee for the
Depository Trust Company and such shares are held for the account of numerous
other persons. Not all of the Common Stock and Warrants have been registered
with the SEC and that which has not is subject to restrictions on transfer.
Dividends
The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain any future earnings for funding
growth and therefore, does not anticipate paying any cash dividends on its
common stock in the foreseeable future.
Securities Sold During Fiscal Year Ending March 31, 1999. None.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The Company has developed six oral controlled release pharmaceutical
products to varying stages of the development process, and three other products
are in the testing phase. The rights under an option previously granted to a
multinational company have reverted back to the Company. To date, the Company
owns rights to all products developed by it other than d-methylphenidate or
methylphenidate pulsed release formulation which has been assigned to Celgene
Corporation, but over which Elite retains certain manufacturing rights.
Elite Labs has also conducted several research and development projects
on behalf of several large pharmaceuticals companies. These activities have
generated only limited revenue for Elite Labs to date.
The Company plans to focus its efforts on the following areas: (i) to
receive FDA approval for one or all nine of the oral controlled release
pharmaceutical products already developed, either directly or through other
companies; (ii) to commercially exploit these drugs either by licensure and the
collection of royalties, or through the manufacturing of tablets and capsules
using the formulations developed by the Company, and (iii) to continue the
development of new products and the expansion of its licensing agreements with
other large multinational pharmaceutical companies including contract research
and development projects.
To effectively achieve its goals, the Company has recently purchased an
office and laboratory facility in Northvale, New Jersey, and has moved its
operations to this facility. This facility is larger and better suited to
Elite's needs than its prior, leased, space, and will increase the space
available to conduct further research and development and scale-up, and possibly
for the eventual manufacturing of its products.
Results of Consolidated Operations
Year Ended March 31, 1999 vs. Year Ended March 31, 1998.
Elite's revenues for the year ended March 31, 1999 were $150,412, an
increase of $98,454, or approximately 189%, over the comparable period of the
prior year. Net revenues primarily consisted of license fees of $150,000
- 7 -
<PAGE>
(compared with $20,000 for the comparable period of the prior year), and
consulting and test fees of $412 (compared with $ 31,968 for the comparable
period of the prior year).
General and administrative expenses for the year ended March 31, 1999
were $621,712, an increase of $285,649, or approximately 85% from the comparable
period of the prior year. The increase in general and administrative expenses
was substantially due to legal fees, consulting fees, salaries and interest paid
on a capital lease. General and administrative expenses expressed as a
percentage of revenues was approximately 413% for the year ended March 31, 1999
as compared to 647% for the comparable period of the prior year.
Research and development costs for the year ended March 31, 1999, were
$1,273,445, an increase of $732,281, or approximately 135%, from the comparable
period of the prior year. The increase in research and development costs can be
attributed to increases in salaries, laboratory raw materials and supplies and
payments for biostudies on drug technologies developed by the Company. These
increases have been made possible principally because of the Company raising
equity in its recent private placement offering, and reflects increased efforts
to develop drug release products and technology in accordance with management's
plan of operations.
Elite's net loss for year ended March 31, 1999 was $1,661,881, as
compared to $ 788,591 for the comparable period of the prior year. The increase
in the net loss was primarily due to increased internal research and development
costs and general and administrative expenses
Liquidity and Capital Resources
From inception through March 31, 1998, cash flow from financing
activities principally came from the issuance of common stock, initially from a
private placement on August 15, 1991. Subsequently, the Company raised
additional funds from common stock issuance and received a loan from a related
party in the amount of $100,000. This loan was subsequently repaid during the
eight months ended November 30, 1997.
During the fiscal year ended March 31, 1998, the Company raised an
additional $5,232,061 (net of offering costs of $767,939) in cash flows from
financing activities through the issuance of common stock and warrants in a
private placement offering beginning on September 15, 1997 and concluding on
November 30, 1997.
The Company estimates that the net proceeds from the private placement
offering will be sufficient to meet its cash requirements for a period of
between 18 and 24 months following the date of the closing of the private
placement offering. However, there can be no assurance that unexpected future
developments may result in the Company requiring additional financing or, that
if required, additional financing will be available to the Company.
For the year ended March 31, 1999, net cash of $1,455,607 was used in
operating activities due to the Company's net loss of $1,661,881; net cash
decreased by decreases in the Company's contract revenues receivable and by
increases in accrued expenses and other liabilities. For the year ended March
31, 1998, net cash of $739,199 was used in operating activities as a result of
the Company's net loss of $788,591.
Year 2000 Computer Systems Compliance
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 (Y2K) to mean
the year 1900 instead. If not corrected, those programs could cause date-related
transaction failures. The Company, in conjunction with outside vendors is in the
process of evaluating its Y2K readiness, and remediating or replacing the
Company's systems. The Company's computer systems are comprised principally of
microcomputers and laboratory equipment utilizing microprocessors and/or
software or firmware. The Company believes that an assessment as to the
date-sensitive nature of the laboratory computers will be complete with a plan
to replace those machines if necessary by the end of 1999. The Company
anticipates spending less than $100,000 on the systems upgrades.
- 8 -
<PAGE>
Because the Company's Y2K compliance is dependent upon key third parties also
being Year 2000 compliant on a timely basis, there can be no guarantee that the
Company's efforts will prevent a material adverse impact on its results of
operations, financial condition or cash flows. If the Company's systems or those
of key third parties are not fully Y2K functional, disruptions in operations
could occur. Such disruptions could result in delays in the distribution of
product, errors in customer order taking, disruption of clinical activities or
delays in product development. These consequences could have a material adverse
impact on the Company's results of operations, financial condition and cash
flows. The Company is in the process of developing contingency plans aimed at
ameliorating such disruptions, to the extent practicable.
The statements contained in the foregoing Year 2000 readiness
disclosure are subject to protection under the Year 2000 Information and
Readiness Disclosure Act.
Subsequent Events
Bond Financing Offering.
On May 3, 1999, the Company entered into an underwriter/private
placement agreement with an investment banking firm for the issuance of
tax-exempt bonds by the New Jersey Economic Development Authority (NJEDA) in the
aggregate principal amount of up to $3,000,000. The net proceeds of the bonds
(approximately $2,700,000) are to be used by the Company to defray the cost of
purchasing the land and building it currently occupies in Northvale, New Jersey
and for the purchase of certain manufacturing equipment and related building
improvements. The bonds will be underwritten on a best efforts basis with a
minimum offering amount of $2,000,000 and a maximum offering amount of
$3,000,000.
Private Placement of Securities
Subject to a confidential private offering memorandum dated May 17,
1999, the Company offered 13 units ("units") of its securities at $350,000 per
unit. Each unit consists of 100,000 shares of common stock, $.01 par value and
50,000 Class A Redeemable Callable Common Stock Purchase Warrants. Each warrant
entitles the holder to purchase one share of common stock at an exercise price
of $5.00 during the five-year period commencing on the closing date of the
offering. The offering is being conducted without registration under SEC
exemption afforded by Section 4(6) of the Securities Act and Rule 506 of
regulations promulgated thereunder. The Company has received subscriptions for
13.00 Units, and is in the process of reviewing them. It anticipates accepting
12.75 of the Units; upon acceptance of 12.75 Units, the Company would net
proceedsof approximately $4,452,500, after legal and filing fees, of which
$4,202,500 will be used to fund the working capital of the Company and the
remaining $250,000 will fund fees to advisors and consultants of the Company.
Recently Issued Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Accounts," requires an entity to measure all derivative at fair value and to
recognize them in the balance sheet as an asset or liability, depending on the
entity's rights or obligations under the applicable derivative contract. SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. The adoption of SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial condition, results of operations
or cash flows.
SFAS No. 132, "Employer's Disclosures about Pensions and Other Post
Retirement Benefits," revises disclosures about pensions and other post
retirement benefit plans. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997. The adoption of SFAS No. 132 did not have a material
impact on the Company's consolidated financial condition, results of operations
or cash flows.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements for fiscal years beginning December 15, 1997. The adoption
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<PAGE>
of SFAS No. did not have a material impact on the Company's consolidated
financial condition, results of operations or cash flows.
SFAS No. 130, "Reporting Comprehensive Income," requires an entity to
report comprehensive income and its components in a full set of financial
statements, and is effective for fiscal years beginning after December 15, 1997.
Comprehensive income is the change in equity of a business enterprise during a
period from transactions and other events and circumstances form non-owner
sources. The adoption of SFAS No. 130 did not have a material impact on the
Company's consolidated financial condition, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1), identifies the characteristics of
internal use software and provides guidelines on new cost recognition
principles. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's consolidated financial condition,
results of operations or cash flows.
American Institute of Certified Public Accountants Statement of
Position No. 97-2, "Software Revenue Recognition" (SOP 97-2), provides guidance
on when revenue should be recognized and in what amounts for licensing, selling,
leasing or otherwise marketing computer software. SOP 97-2 is effective for
financial statements for fiscal years beginning after December 15, 1997. The
adoption of SOP 97-2 did not have a material impact on the Company's
consolidated financial condition, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of
Position No. 96-1, "Environmental Remediation Liabilities," establishes specific
criteria for the recognition and measurement of environmental remediation
liabilities. The adoption of the statement in 1998 did not have a material
impact on the Company's consolidated financial condition, results of operations
or cash flows.
ITEM 7. FINANCIAL STATEMENTS
See Part III, Item 13 of this Report.
<TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Identification of Directors and Executive Officers.
The directors and executive officers of the Elite Pharmaceuticals and Elite Labs
are identical, and are:
<CAPTION>
<S> <C> <C> <C>
Name Age Position
Atul M. Mehta 50 President, Chief Executive Officer and Director
Barri M. Blauvelt 45 Director
John W. Jackson 54 Director
Mark Gittelman 39 Treasurer
Michael Freedman 36 Secretary
</TABLE>
Atul M. Mehta has been a director of Elite Labs since its inception in
1990, and a director of Elite Pharmaceuticals since 1997. Barri Blauvelt has
served as a director of Elite Labs since 1992, and as a director of Elite
Pharmaceuticals since 1997. John Jackson has served as a director of Elite Labs
since 1995, and as a director of Elite Pharmaceuticals since 1997. There are no
- 10 -
<PAGE>
arrangements between any director or executive officer and any other person,
pursuant to which the director or officer is to be selected as such. There is no
family relationship between the directors, executive officers, or persons
nominated or chosen by the Company to become directors or executive officers.
Dr. Mehta, the founder of Elite Labs, has been employed as the
President of Elite Labs since 1990, and President of Elite Pharmaceuticals since
1997. Prior to that, he was Vice President at Nortec Development Associates, a
company specializing in the development of food, pharmaceutical and chemical
specialty products, from 1984 to 1989. From 1981 to 1984, he was associated with
Ayerst Laboratories, a division of American Home Products Corporation in the
solids formulation section as Group Leader. His responsibilities included
development of formulations of ethical drugs for conventional and
controlled-release dosage forms for both USA and international markets. He
received his B.S. degree in Pharmacy with honors from Shivaii University,
Kolhapur, India, and a BS, MS, and a Doctorate of Philosophy in Pharmaceutics
from the University of Maryland in 1981. Other than Elite Labs, no company with
which Dr. Mehta was affiliated in the past was a parent, subsidiary or other
affiliate of the Company.
Barri M. Blauvelt, Director of Elite, has been employed since 1983 as
the President of Innovara, Inc., a company engaged in pharmaceutical marketing
and management. Prior to forming Innovara, Inc. in 1983, Mrs. Blauvelt had ten
years of marketing and management experience at Pfizer (USA) and American
Cyanamid Company (International). Mrs. Blauvelt holds an MBA in Marketing from
Columbia University, and was an instructor in the Pharmaceutical Degree Program,
Graduate School of Business, at Farleigh Dickensen University. Other than Elite
Labs, no company with which Ms. Blauvelt was affiliated in the past was a
parent, subsidiary or other affiliate of the Company.
John W. Jackson, Director of Elite, is Chairman and CEO of Celgene
Corporation, a reporting company under the Securities Exchange Act
(Nasdaq:CELG), and has been employed as such since 1996. Celgene Corporation
uses proprietary expertise in small molecule chemistry to serve the
pharmaceutical, agricultural and allied industries. From 1991 to 1996 he was
President of Gemini Medical, a company engaged in providing consulting to
medical companies, inventors and investors. From 1986 to 1991 he was President
of Medical Device Division of American Cyanamid Company and from 1978-1986 he
was VP International for Medical Products. From 1971-1978 he worked for Merck &
Company in international marketing. Mr. Jackson obtained an MBA from the
European Institute of Business Administration, France, a BA in Political Science
from Yale University and graduated from Gordonstoun School in Scotland. Other
than Elite Labs, no company with which Mr. Jackson was affiliated in the past
was a parent, subsidiary or other affiliate of the Company.
Mark Gittelman, CPA, Treasurer of Elite, is the President of Gittelman
& Co., P.C., an accounting firm. Prior to forming Gittelman & Co.in 1984, he
worked as a certified public accountant with the international accounting firm
of KPMG Peat Marwick, LLP. Mr. Gittelman holds a B.S. in accounting from New
York University, and is currently completing his Masters of Science in Taxation
at Farleigh Dickinson University. He is a Certified Public Accountant licensed
in New Jersey and New York, and is a member of the American Institute of
Certified Public Accountants ("AICPA"), the Securities and Exchange Practice
Section of the AICPA, and the New Jersey State and New York States Societies of
CPAs. Other than Elite Labs, no company with which Mr. Gittelman was affiliated
in the past was a parent, subsidiary or other affiliate of the Company.
Michael Freedman, Secretary of Elite Pharmaceuticals, is an associate
with the law firm of Silverman, Collura, Chernis and Balzano, P.C. He has served
as the Secretary of Elite Pharmaceuticals since 1997.
Election of Directors
Each director holds office (subject to the Company's By-Laws) until the
next annual meeting of stockholders and until such director's successor has been
elected and qualified. All executive officers of the Company are serving until
the next annual meeting of directors and until their successors have been duly
elected and qualified. There are no family relationships between any of the
directors and executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the registrant under Rule 16a-3(e) during the most recent fiscal
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<PAGE>
year and Form 5 and amendments thereto furnished to the registrant with respect
to its most recent fiscal year, the Company is unaware of any person who during
the fiscal year was an officer, director, or beneficial owner of more than ten
percent of any class of equity securities of the registrant that failed to file
on a timely basis reports required by Section 16(a) of the Exchange Act during
the most recent fiscal year or prior fiscal years, and knows of no reports that
were not reported on a timely basis.
ITEM 10. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
Summary Executive Compensation Table for years 1996, 1997 and 1998.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a b c d e f g h i
Name and Calendar Base Bonus Other Restricted Securities LTIP All other
principal Year(1) Salary(2) Annual stock Underlying payouts compen-
position Compen- awards options sation
sation
Atul M. Mehta 1998 $200,000 $20,000 $3,220 (3) -- 300,000 -- --
President 1997 $180,000 $0 $1,795 (3) -- 545,214(4) -- --
1996 $165,000 $0 $1,795 (3) -- 100,000 -- --
</TABLE>
(1) Dr. Mehta's compensation is paid on a calendar year basis. The Company's
fiscal year is from April 1 through March 31. (2) In fiscal years 1998, 1998 and
1997, Dr. Mehta's salary was allocated 75% to research and development and 25%
to general administrative. (3) Represents use of a company car, and premiums on
life insurance Dr. Mehta's life for the benefit of his wife paid by the Company.
(4) 400,000 of the above options were initially to vest at the rate of 100,000
per year each year from 1996 through 2001; however, upon completion of the
Private Placement, they became 100% vested; the remaining 125,000 options were
initially to vest at the rate of 41,667 per year for each year from 1997 through
1999; however upon completion of the Private Placement, they became 100% vested.
<TABLE>
<CAPTION>
Executive Option Grants Table for fiscal year ended March 31, 1999.
<S> <C> <C> <C> <C> <C>
a b c d e
Number of Securities % Grant Represents Per-Share Exercise
Name Underlying Options of Options to Employees or Base Price Expiration date
Atul M. Mehta 300,000(1) 100% $6.00 12/31/03
</TABLE>
(1) The number of securities underlying the options vest at the following rate:
Options to purchase 100,000 shares vest December 31, 1998; options to purchase
100,000 shares vest December 31, 1999; and options to purchase 100,000 shares
vest December 31, 2000;
Aggregated Executive Option Exercises and Fiscal Year End Option/SAR Value Table
for fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
a b c d e
# of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options/
at FY-End at FY-End
Name Shares Acquired Value Exercisable/ Exercisable/
on Exercise Realized Unexercisable(1) Unexercisable
Atul M. Mehta None $0 620,214/200,000 $2,635,910/850,000(2)
</TABLE>
(1) The number of securities underlying 520,000 options were initially shares
of Elite Labs, but under the terms of the 1997 Private Placement, they were
replaced with shares of Elite Pharmaceuticals.
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<PAGE>
(2) The shares are unregistered, and their market value is unknown and
uncalculable. However, the registered common stock of the Company is trading for
$4.25 per share as of June 13, 1999. Based on that price, the maximum amount the
shares of Common Stock could be worth is $4.00. It is on this hypothetical value
that the figure in column (e) is calculated. This figure may have no relation to
the actual value of the unexercised options. <TABLE> <CAPTION>
Director Compensation for Fiscal Year Ending March 31, 1999
<S> <C> <C> <C> <C> <C> <C>
a b c d e f
Cash Compensation Security Grants
- -----------------------------------------------------------------------------------------------------------------
Annual Consulting or Number Number of Securities
Name Retainer Fee Meeting Fees Other Fees of Shares Underlying Options
Barri M. Blauvelt $0 $1,000(1) $0 0 0
John W. Jackson $0 $1,000(1) $0 0 0
</TABLE>
(1) Pursuant to a resolution of the Board of Directors of the company as of
February 11, 1998, under the terms of which all non-affiliated directors will
receive $1,000 as compensation for each meeting personally attended.
Employment Agreements and Termination of Employment Arrangements
The Company entered into an employment contract with Atul M. Mehta,
effective January 1, 1996. Pursuant to the employment agreement, as amended, Dr.
Mehta is employed full time as President and CEO of the company. The agreement
will remain in effect until December 31, 2000, and will then be renewed for an
additional five years unless notice is given by either party, in which case it
will be renewed for successive one year terms. Under the terms of the agreement,
Dr. Mehta agrees to devote a sufficient amount of his business time to
diligently perform his obligations. His base salary under the agreement is
$165,000 in calendar year 1996, $180,000 in calendar year 1997, $200,000 in
calendar year 1998, with a raise in 1999 and 2000 to be determined by the Board
of Directors, but not to be less than 5% of the preceding year's salary. (In
fiscal years 1998 and 1997, Dr. Mehta's salary was allocated 75% to research and
development and 25% to general administrative.) Under the agreement, Dr. Mehta
is entitled to a bonus equal to five percent of the net profits of the company;
to health insurance for him and his dependents; term life insurance in a minimum
amount of $300,000 for the benefit of his spouse or estate; and any benefits
provided to employees generally, including any incentive stock option plans. He
also became entitled to receive options on January 1 of each year beginning with
January 1, 1996 through January 1, 2001, to purchase 100,000 shares of Common
Stock at $2.00 per share; upon completion of the Private Placement, these
options immediately vested. The agreement provides that, in the event that Dr.
Mehta loses his job as a result of a change of control in the Company, he will
be entitled to the present value of all salary, bonuses and deferred
compensation through the earlier of May 22, 2001 or three years following his
termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the security ownership of certain
beneficial owners(1) and management as of the date of this prospectus with
respect to the beneficial ownership of the Companies Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock; (ii) each director of the Company; (iii) each executive
officer of the Company; and (iv) the officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
a b c d
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
Voting Common Atul M. Mehta, Director/Officer 2,332,814 (2) 29.6%
165 Ludlow Avenue
Northvale, NJ 07647
Voting Common John de Neufville, Trustee 925,000(3) 12.7%
Margaret deNeufville Revocable Trust
197 Meister Avenue
North Branch, NJ 08876
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<PAGE>
Voting Common Bakul and Dilip Mehta 630,000 8.7%
P.O. Box 438
Muscat, Sultanate of Oman
Voting Common Bridge Ventures, Inc. 535,918 (4) 7.2%
575 Lexington Avenue, Ste. 410
New York, NY 10022
Voting Common Vijay Patel 441,036(5) 6.0%
19139 Pebble Court
Woodbridge, CA 95258
Voting Common Barri M. Blauvelt, Director 300,000(6) 4.1%
175 Cherry Lane
Amherst, MA 01022
Voting Common John W. Jackson, Director 125,000(7) 1.7%
32 Gregory Lane
Warren, NJ 07059
Voting Common Mark Gittelman, Treasurer 10,000(8) under 1%
300 Colfax Avenue
Clifton, NJ 07013
Voting Common Michael Freedman 5,000 (9) under 1%
381 Park Avenue S, 16th Floor
New York, NY 10016
Voting Common Officers and Directors as a Group 2,782,814(10) 34.4%
</TABLE>
<PAGE>
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has the
right to acquire within 60 days of January 28, 1998. For purposes of computing
the percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or persons has or
have the right to acquire within such date is deemed to be outstanding but is
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnotes to this
table and pursuant to applicable community property laws, the Company believes
based on information supplied by such persons, that the persons named in this
table have sole voting and investment power with respect to all shares of Common
Stock which they beneficially own.
(2) Includes (i) 6,300 shares held by Dr. Mehta C/F Amar Mehta; (ii) 6,300
shares held by Dr. Mehta C/F Anand Mehta; and (iii) options to purchase 745,214
shares of Common Stock.
(3) Represents (i) 900,000 shares of Common Stock held by the Margaret de
Neufville Revocable Trust, of which Mr. de Neufville is Trustee, and (ii)
options held by Mr. de Neufville to purchase 25,000 shares of Common Stock
(4) Includes (i) 20,823 shares owned by SMACs Holding Company, an Affiliate of
Bridge Ventures, Inc., (ii) 55,000 shares owned by the Bridge Ventures, Inc.
defined benefit plan and (iii) warrants to purchase 380,750 shares of Common
Stock held by Bridge Ventures, Inc.
-14-
<PAGE>
(5) Includes options to purchase 18,750 shares of Common Stock and warrants to
purchase 117,286 shares of Common Stock.
(6) Includes (i) 10,000 shares of Common Stock held by G.C. and Barri Blauvelt
C/F Heather Blauvelt; (ii) 10,000 shares held by G.C. and Barri Blauvelt C/F
Meghaan Blauvelt; (iii) 10,000 shares held by G.C. and Barri Blauvelt C/F Chris
Blauvelt; and (iv) options to purchase 125,000 shares of Common Stock.
(7) Represents options to purchase 125,000 shares of Common Stock.
(8) Represents options to purchase 10,000 shares of Common Stock.
(9) Represents options to purchase 5,000 shares of Common Stock.
(10) Includes options to purchase 1,010,214 shares of Common Stock.
The Company is informed and believes that as of June 25, 1999, Cede &
Co. held 1,045,516 shares of the Company and 31,500 of of the Company's
warrants as nominee for Depository Trust Company, 55 Water Street, New York,
New York 10004, that Cede & Co. and Depository Trust Company both disclaim
any beneficial ownership thereof, and that such shares are held for the
account of numerous other persons, no one of whom is believed to beneficially
own five percent or more of the common stock of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Elite Laboratories, Inc. is a party to a three-year Consulting
Agreement entered into with Bridge Ventures, Inc. ("Bridge") on August 1, 1997,
under which Bridge provides the company with marketing and management consulting
services. Under the terms of the Consulting Agreement, ELI pays Bridge the sum
of $10,000 per month and reimburses Bridge for all out-of-pocket expenses
incurred on behalf of Elite Labs. Bridge is an owner of at least five percent of
the Elite Pharmaceuticals' Common Stock, as described in more detail in the
section entitled Security Ownership of Certain Beneficial Owners and Management.
Elite Pharmaceuticals, Inc. is a party to an agreement whereby fees are
paid to a company wholly owned by Mark Gittelman, the Company's Treasurer, in
consideration for services rendered by Mr. Gittelman in his capacity as
Treasurer. For the years ended March 31, 1999 and 1998, the fees paid to that
company were $50,414 and $18,338, respectively.
Other than as described above, the Company is not (and has not been in
the last two years) a party to any transaction in which any of the persons
described in Reg. Sec. 228.404(a) has or had a direct or indirect
material interest.
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<S> <C>
(a) See Index to Consolidated Financial Statements immediately following Exhibit Index.
(b) Exhibits. None.
- 15 -
<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.
ELITE PHARMACEUTICALS, INC.
By /s/ Atul M. Mehta
---------------------------
Atul M. Mehta
President and
Chief Executive Officer
By /s/ Mark I. Gittelman
---------------------------
Mark I. Gittelman
Chief Financial Officer
Date: June 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
------------ ------ -----
/s/ Atul M. Mehta President, Chief June ___, 1999
---------------------------- Executive Officer
Atul M. Mehta and Director
/s/ Barri M. Blauvelt Director June ___, 1999
----------------------------
Barri M. Blauvelt
</TABLE>
The foregoing constitutes a majority of the directors.
- 16 -
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
F-1
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED BALANCE SHEET (AS AT MARCH 31, 1999) F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-22
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Elite Pharmaceuticals, Inc.
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of Elite
Pharmaceuticals, Inc. and Subsidiary as of March 31, 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended March 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements of the Company referred to
above present fairly, in all material respects, the financial position as of
March 31, 1999 and the results of their operations and their cash flows for the
periods presented in conformity with generally accepted accounting principles.
MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
May 24, 1999
June 14, 1999 as to Note 12
F-3
<PAGE>
<TABLE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,559,443
Prepaid expenses and other current assets 52,605
------------
Total current assets 1,612,048
PROPERTY AND EQUIPMENT - net of accumulated
depreciation and amortization 1,250,237
INTANGIBLE ASSETS - net of accumulated amortization 17,759
OTHER ASSETS:
Security deposits 196,538
$ 3,076,582
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligation $ 47,021
Accounts payable 100,420
Accrued expenses and other current liabilities 100,043
------------
Total current liabilities 247,484
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 7,237,613 shares 72,376
Additional paid-in capital 6,815,362
Accumulated deficit (4,058,640)
------------
Total stockholders' equity 2,829,098
$ 3,076,582
</TABLE>
<TABLE>
The accompanying notes are an integral part of the consolidated financial statements
F-4
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
<S> <C> <C>
YEARS ENDED
MARCH 31,
-----------
1999 1998
- ------------------------------------------------------------------------------------------------- -------------
REVENUES:
Licensing fees $ 150,000 $ 20,000
Consulting and test fees 412 31,958
------------- -----------
Total revenues 150,412 51,958
------------- -----------
OPERATING EXPENSES:
Research and development 1,273,445 541,164
General and administrative 621,712 336,063
Depreciation and amortization 52,943 25,160
------------- -----------
1,948,100 902,387
LOSS FROM OPERATIONS (1,797,688) (850,429)
------------- -----------
OTHER INCOME (EXPENSE):
Interest income 142,872 86,794
Interest expense (6,965) (9,956)
------------- -----------
135,907 76,838
LOSS BEFORE PROVISION FOR INCOME TAXES (1,661,781) (773,591)
PROVISION FOR INCOME TAXES 100 15,000
------------- -----------
NET LOSS $ (1,661,881) $ (788,591)
============= ===========
BASIC LOSS PER COMMON SHARE $ (.23) $
============= ==========
(.13)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,237,613 5,858,238
============= ===========
</TABLE>
<TABLE>
The accompanying notes are an integral part of the consolidated financial statements
F-5
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C>
ADDITIONAL TOTAL
*COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------- ------- -------
BALANCE AT MARCH 31, 1997 4,767,613 $ 47,676 $ 1,632,972 $(1,608,168)
$ 72,480
Sale of securities 20,000 200 27,800 - 28,000
Sale of warrants - - 150 - 150
Sale of securities through
private placement 2,000,000 20,000 5,980,000 - 6,000,000
Offering costs in connection
with sale of securities - - (767,939) - (767,939)
Offering costs in connection
with registration of securities - - (32,078) - (32,078)
Common stock exchanged in connection
with merger 450,000 4,500 (4,500) - -
Net loss for the year ended
March 31, 1998 - - - (788,591) (788,591)
------------ --------- ------------ -------------- ------------
BALANCE AT MARCH 31, 1998 7,237,613 72,376 6,836,405 (2,396,759) 4,512,022
Offering costs in connection with
sale of securities - prior year - - (18,000) - (18,000)
Offering costs in connection with
registration of securities - prior year - - (3,043) - (3,043)
Net loss for the year ended
March 31, 1999 - - - (1,661,881) (1,661,881)
--------- --------- ---------- ----------- -----------
BALANCE AT MARCH 31, 1999 7,237,613 $ 72,376 $ 6,815,362 (4,058,640) $ 2,829,098
========= ========= ============ =========== ===========
* All references to shares and per share data have been restated for 1997 to
reflect a two for one stock split on August 21, 1997 and a reverse stock
split on March 30, 1998.
The accompanying notes are an integral part of the consolidated financial statements
F-6
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
MARCH 31,
-----------
1999 1998
- ------------------------------------------------------------------------------------------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,661,881) $ (788,591)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 51,536 23,883
Amortization of intangibles 1,407 1,277
Deferred income taxes - 14,800
Changes in assets and liabilities:
Consulting and test fees receivable 25,000 (12,792)
Prepaid expenses and other current assets (40,638) (9,812)
Other assets - security deposit 9,000 -
Accounts payable 86,750 10,957
Accrued expenses and other current liabilities 73,219 21,079
------------- ------------
NET CASH USED IN OPERATING ACTIVITIES (1,455,607) (739,199)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for patent and trademark filings (950) (2,100)
Payment of building deposit and related acquisition costs - (123,057)
Payment of deposit for manufacturing equipment (196,538) -
Purchases of property and equipment (1,071,235) (7,392)
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (1,268,723) (132,549)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable - related parties - (100,000)
Principal payments on capital lease (42,331) -
Proceeds from issuance of common stock and warrants - 28,150
Proceeds from issuance of common stock and warrants
in connection with private placement - 6,000,000
Payments of offering costs in connection
with private placement - prior year (18,000) (767,939)
Payments of offering costs in connection
with registration filing - prior year (3,043) (32,078)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (63,374) 5,128,133
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,787,704) 4,256,385
CASH AND CASH EQUIVALENTS - beginning 4,347,147 90,762
------------- ------------
CASH AND CASH EQUIVALENTS - ending $ 1,559,443 $ 4,347,147
============= ============
SCHEDULES OF NON-CASH ACTIVITIES:
Utilization of building deposit and related acquisition
costs towards purchase of building $ 123,057 $ -
Purchase of property and equipment by capital leases - 89,352
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 7,420 $ 11,240
Cash paid for income taxes 200 200
The accompanying notes are an integral part of the consolidated financial statements
F-7
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Elite
Pharmaceuticals, Inc. and its Subsidiary, ("Company"), which is
wholly-owned. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Nature of Business
------------------
Elite Pharmaceuticals, Inc. was incorporated on October 1, 1997 under the
Laws of the State of Delaware, and its wholly-owned subsidiary Elite
Laboratories, Inc. was incorporated on August 23, 1990 under the Laws of
the State of Delaware, in order to engage in research and development
activities for the purpose of obtaining Food and Drug Administration
approval, and, thereafter, commercially exploiting generic and new
controlled-release pharmaceutical products. The Company also engages in
contract research and development on behalf of other pharmaceutical
companies.
Merger Activities
-----------------
In October 1997, concurrent with its private placement offering, Elite
Pharmaceuticals, Inc. merged with Prologica International, Inc.
("Prologica") a Pennsylvania Corporation (see Note 7), a publicly traded
inactive corporation, with Elite Pharmaceuticals, Inc. surviving the
merger. In addition, in October 1997, Elite Laboratories, Inc. merged with
a wholly-owned subsidiary of Prologica, with the Company's subsidiary
surviving this merger. The former shareholders of the Company's subsidiary
exchanged all of their shares of Class A voting common stock for shares of
the Company's voting common stock in a tax free reorganization under
Internal Revenue Code Section 368. The result of the merger activity
qualifies as a reverse acquisition. In connection with the reverse
acquisition, options exercisable for shares of Class A voting and Class B
nonvoting common stock of the Company's subsidiary were exchanged for
options exercisable for shares of the Company's voting common stock.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid short-term investments purchased with
initial maturities of three months or less to be cash equivalents.
F-8
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based on the estimated useful lives of the respective
assets which range from five to thirty-nine years. Major repairs or
improvements are capitalized. Minor replacements and maintenance and
repairs which do not improve or extend asset lives are expensed currently.
Upon retirement or other disposition of assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting
gain or loss, if any, is recorded.
Research and Development
------------------------
Research and development expenditures are charged to expense as incurred.
Patents and Trademarks
----------------------
Costs incurred for the application of patents and trademarks are
capitalized and amortized on the straight-line method, based on an
estimated useful life of fifteen years, upon approval of the patent and
trademarks. These costs are charged to expense if the patent or trademark
is unsuccessful.
Concentration of Credit Risk
----------------------------
The Company derives substantially all of its revenues from contracts with
other pharmaceutical companies, subject to licensing and research and
development agreements.
The Company maintains cash balances in its bank which, at times, may exceed
the limits of the Federal Deposit Insurance Corp.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-9
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
------------
The Company adopted SFAS No. 109, "Accounting for Income Taxes," which
requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax assets or
liabilities are adjusted to reflect changes in tax laws as they occur.
Loss Per Common Share
---------------------
The Company adopted SFAS No. 128, "Earnings Per Share," which establishes
new standards for computing and presenting earnings per share. The
statement also requires restatement of all prior period earnings per share
data presented.
Basic loss per common share is based on the weighted average number of
shares outstanding during the period. The weighted average number of shares
outstanding has been adjusted to reflect the recapitalization in connection
with the private placement as if it had occurred as of the beginning of the
period for which loss per share is presented as well as the effect of stock
splits and reverse stock splits issued during the periods. Common stock
equivalents have not been included as their effect would be antidilutive.
Revenue Recognition
-------------------
Revenues are earned primarily by licensing certain pharmaceutical products
developed by the Company as well as performing research and development
services under fixed price contracts. Such revenues are recorded as certain
projected goals are attained, as defined in the individual contracts.
Recently Issued Pronouncements
------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires an entity to measure all derivatives at fair value
and to recognize them in the balance sheet as an asset or liability,
depending on the entity's rights or obligations under the applicable
derivative contract. SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. The adoption of SFAS No.
133 is not expected to have a material impact on the Company's consolidated
financial condition, results of operations or cash flows.
F-10
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Pronouncements (Continued)
------------------------------
SFAS No. 132 "Employers Disclosures about Pensions and Other Post
Retirement Benefits," revises disclosures about pensions and other post
retirement benefit plans. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 132 did not
have a significant impact on the Company's consolidated financial position,
results of operations or cash flows.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report information about
operating segments in interim financial reports issued to shareholders.
SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 did not
have a significant impact on the Company's consolidated financial position,
results of operations or cash flows.
SFAS No. 130, "Reporting Comprehensive Income," requires an entity to
report comprehensive income and its components in a full set of financial
statements and is effective for fiscal years beginning after December 15,
1997. Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. The adoption of SFAS No. 130 did not have a significant
impact on the Company's consolidated financial position, results of
operations or cash flows.
American Institute of Certified Public Accountants Statement of Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1), identifies the characteristics of
internal use software and provides guidance on new cost recognition
principles. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. The adoption of SOP 98-1 is not expected
to have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
American Institute of Certified Public Accountants Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), provides guidance on
when revenue should be recognized and in what amounts for licensing,
selling, leasing or otherwise marketing computer software. SOP 97-2 is
effective for financial statements for fiscal years beginning after
December 15, 1997. The adoption of SOP 97-2 did not have a significant
impact on the Company's consolidated financial position, results of
operations or cash flows.
American Institute of Certified Public Accountants Statement of Position
No. 96-1, "Environmental Remediation Liabilities," establishes specific
criteria for the recognition and measurement of environmental remediation
liabilities. The adoption of the statement in 1998 did not have a
significant effect on the Company's consolidated financial position,
results of operations or cash flows.
F-11
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year 2000 Computer Systems Compliance
-------------------------------------
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue
is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs, as
well as outside vendor's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a major system failure or miscalculations. The Company
presently believes that,with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
in a timely manner, the Year 2000 Issue may have a material impact on the
operations of the Company.
Stock-Based Compensation
------------------------
Under various qualified and non-qualified plans, the Company may grant
stock options to officers, selected employees, as well as members of the
board of directors and advisory board members. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standrds
No. 123, "Accounting for Stock-Based Compensation." Accordingly, the
Company is recognizing compensation cost pursuant to the provisions of APB
No. 25. Had compensation cost for the Company=s stock option plans been
determined based on the fair value at the grant date for awards in 1999 and
1998, consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the proforma
amount. No proforma calculation was prepared as the impact of SFAS No. 123
would have no effect on the per share calculation.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash, accounts payable and accrued expenses and
other current liabilities approximate fair value due to the short term
maturity of these items.
F-12
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 2 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
<S> <C>
Property and equipment at March 31, 1999, consists of the following:
Laboratory and manufacturing equipment $ 232,708
Furniture and fixtures 58,325
Land, building and improvements 1,109,199
Equipment under capital lease 168,179
------------
1,568,411
Less: Accumulated depreciation and amortization 318,174
$ 1,250,237
============
Depreciation and amortization expense amounted to $51,536 and $23,883
for the years ended March 31, 1999 and 1998, respectively.
</TABLE>
NOTE 3 - INTANGIBLE ASSETS
<TABLE>
<CAPTION>
Intangible assets at March 31, 1999, consists of the following:
<S> <C>
Patents $ 13,384
Trademarks 8,120
---------
21,504
Less: Accumulated amortization 3,745
$ 17,759
========
Amortization amounted to $1,407 and $1,277 for the years ended March 31,
1999 and 1998, respectively.
</TABLE>
NOTE 4 - PURCHASE OF BUILDING
On May 28, 1998, the Company purchased a 15,000 square foot building to
house its new office, laboratory and manufacturing facility in Northvale,
New Jersey. The purchase price was $1,050,000 plus certain closing and
related acquisition costs in the amount of $22,123.
F-13
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASE
In March 1998, the Company acquired laboratory equipment under a capital
lease that expires on March 18, 2000. Lease obligations are due in monthly
installments of $4,146 including interest at approximately 10.5%. This
lease is collateralized by laboratory equipment with a net carrying value
of $67,100 at March 31, 1999.
Minimum future lease payments under this capitalized lease at March 31,
1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending March 31,
---------------------
2000 $ 49,750
Less: Interest (2,729)
---------
Present value of net minimum lease payments $ 47,021
=========
The Company incurred interest expense of $7,420 for the year ended March
31, 1999.
NOTE 6 - INCOME TAXES
The components of provision for income taxes by taxing jurisdiction are as
follows:
<C> <C>
1999 1998
------- -------
Federal:
Current $ - $ -
Deferred - 11,200
------ ---------
- 11,200
- -------------------------------------------------------------------------------- ---------
State:
Current 100 200
Deferred - 3,600
------ ---------
100 3,800
- -------------------------------------------------------------------------------- ---------
$ 100 $ 15,000
====== =========
</TABLE>
F-14
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 6 - INCOME TAXES (CONTINUED)
The major components of deferred tax assets at March 31, 1999 are as
follows:
Net operating loss carryforwards $ 1,476,000
Valuation allowance (1,476,000)
------------
$ -
============
At March 31, 1999, a 100% valuation allowance is provided as it is
uncertain if the deferred tax assets will be utilized.
At March 31, 1999, for income tax purposes, the Company has unused net
operating loss carryforwards of approximately $4,036,000 expiring in 2007
through 2014.
NOTE 7 - STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Issuance of Common Stock
------------------------
For the years ended March 31, 1998 and 1997, before its private placement
offering, the Company issued 102,000 shares of its common stock for a total
of $142,800. The shares were sold on various dates as follows:
<S> <C> <C> <C>
Date Issued Shares Issued Amount
March 20, 1997 82,000 $ 114,800
May 20, 1997 20,000 28,000
-------- ----------
102,000 $ 142,800
======================================================================================
</TABLE>
During October 1997, in connection with the aforementioned Prologica
merger, 450,000 shares of the Company's common stock were issued to the
former shareholders of Prologica.
Private Placement Offering
--------------------------
In a private placement concluding on November 30, 1997, the Company raised
$6,000,000 consisting of 100 units, each unit consisting of 40,000 shares
of common stock of the Company and 20,000 warrants, each warrant entitling
the holder to purchase one share of common stock at an exercise price of
$3.00 per share during the five year period commencing with the date of
closing of the private placement memorandum (November 30, 1997). The price
per unit was $60,000. This resulted in the issuance of 2,000,000 shares of
common stock and 1,000,000 warrants to purchase common stock, at an
exercise price of $6.00 per share, after giving effect to the one for two
reverse split on March 30, 1998.
The Company received net proceeds of $5,232,061 from the private placement
after underwriting costs, legal fees and sales commissions.
F-15
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS= EQUITY (CONTINUED)
Placement Agent Agreement
-------------------------
On August 8, 1997, in connection with its private placement offering, the
Company entered into a placement agent agreement with its underwriter.
Terms of this one year agreement include the following:
a. Placement fees equal to ten percent (10%) of the gross proceeds.
b. Consulting fees in the amount of $3,000 per month.
c. The issuance of ten placement agent warrants, each made up of 20,000
shares of common stock and 10,000 warrants to purchase common stock, at
an exercise price of $6.00 per share, for a price of $72,000 per unit.
Such warrants are exercisable for a period of five years from the date
of issuance.
For the years ended March 31, 1999 and 1998, placement agent fees in the
amount of $18,000 and $618,000, respectively, have been charged to
additional paid-in capital.
Warrants
--------
The Company authorized the issuance of common stock purchase warrants, with
terms of five to six years, to various corporations and individuals, in
connection with the sale of securities, loan agreements and consulting
agreements. Exercise prices range from $4.00 to $6.00 per warrant. The
warrants expire at various times from August 1, 2002 to October 1, 2003.
<TABLE>
<CAPTION>
A summary of warrant activity for the periods indicated were as follows:
<S> <C> <C> <C>
1999 1998
- --------------------------------------------------------------------- -------------
Beginning balance 1,867,286 122,286
Warrants issued 50,000 1,745,000
Warrants exercised or expired - -
----------- -----------
Ending balance 1,917,286 1,867,286
=========== ===========
</TABLE>
There were no warrants exercised as of March 31, 1999.
F-16
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Split and Reverse Split
On August 21, 1997, Elite Laboratories, Inc. authorized a two for one stock
split, increasing its authorized common stock to 20,000,000 shares, and
increasing the number of outstanding shares of common stock from 4,787,613
to 9,575,226 shares.
On March 30, 1998, Elite Pharmaceuticals, Inc. authorized a one for two
reverse stock split, decreasing its authorized common stock to 10,000,000
shares, and decreasing the number of outstanding shares of common stock
from 14,475,226 to 7,237,613 shares.
Change in Authorized Common Shares
In May 1998, the Company increased the authorized common shares, par value
$.01, to 25,000,000.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease
-----
The Company leased its laboratory and office space in Maywood, New Jersey
under an operating lease, which expired on October 30, 1998, at $5,300 per
month. The lease provided for the landlord to pay all utility costs and for
increases in rent based on cost of living formulas.
Rent expense amounted to $37,198 and $63,240, for the years ended March 31,
1999 and 1998, respectively.
Employment Agreement
--------------------
On February 11, 1998, the Company amended an employment agreement with its
President/CEO, originally entered into on May 23, 1991, and extended on
December 28, 1995. The amended agreement runs for a term of five years
through December 31, 2000. Minimum annual salary as of March 31, 1999 is as
follows:
Year Ending March 31,
---------------------
2000 $222,750
2001 (through December 31) 173,250
---------
$396,000
=========
F-17
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (Continued)
---------------------
On December 31, 2000, this agreement will be automatically renewed for an
additional five years, unless written notice is given by December 31, 1999.
Annual compensation under the renewed agreement shall be equal to no less
than one hundred and five percent (105%) of the previous year's base
salary.
Among other certain standard employee benefits, the agreement also provides
for the following:
a. Incentive commissions equal to five percent (5%) of net profit, as
defined, for each fiscal year. b. Options to purchase 520,214
shares of common stock at a price of $2.00 per share. The options were
initially to vest at the rate of $100,000 per year each year from 1996
through 2001; however, upon completion of the private placement
undertaken by the Company in 1997, they became 100% vested. Such
options are exercisable from the date that they are granted through
either one year after termination of employment or ten years from the
date of grant.
c. Incentive stock options to purchase 125,000 shares of common stock, at
a price of $7.00 per share. d. Certain additional compensation on
termination as a result of a change in control of the Company through
the earlier of May 22, 2001 or three years following termination.
Compensation expense under this agreement amounted to $193,333 and
$205,000 for the years ended March 31, 1999 and 1998, respectively.
Technology Agreements
---------------------
On November 26, 1996, the Company entered into a formulation development
agreement with a multinational pharmaceutical company, which was
subsequently amended on May 23, 1997. The terms of the agreement provide
for the right to acquire the license of the developed product for sale,
manufacture and distribution worldwide, subject to licensing fees,
royalties, and development funds as defined, and annual royalty payments of
net sales, as defined, subject to minimum annual payments based on certain
economic conditions.
This agreement was subsequently terminated on February 5, 1999, whereas the
Company has retained all rights to the "Intellectual Property," as defined
in the agreement, including the rights to use, develop, and market such
property.
F-18
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Consulting Agreements
---------------------
On August 1, 1997, the Company entered into two agreements with
corporations which provide various consulting services for a period of
three years. Terms of the agreements included the following:
a. Combined monthly fees of $15,000.
b. The issuance of 350,000 warrants to purchase common stock at an
exercise price of $6.00 per share for a period of five (5) years (see
Note 7).
Consulting expenses under these agreements amounted to $180,000 and
$120,000 for the years ended March 31, 1999 and 1998, respectively.
On August 1, 1998, the Company entered into a consulting agreement with a
company for the purpose of providing management, marketing and financial
consulting services for an unspecified term. Terms of the agreement provide
for a nonrefundable monthly fee of $2,000. This compensation will be
applied against amounts due pursuant to a business referral agreement
entered into on April 8, 1997.
Terms of the business referral agreement provide for payments by the
Company based upon a formula, as defined, for an unspecified term.
Consulting expense under this agreement amounted to $16,000 for the year
ended March 31, 1999.
On October 1, 1998, the Company entered into an investment banking
consulting agreement with a corporation for a period of two years.
Under the terms of the agreement, on October 1, 1998 the Company issued
50,000 warrants to purchase common stock. Another 50,000 warrants were
issued in April 1999 and an additional 200,000 warrants may be issued by
the Company under the remaining term of the agreement, which may be
terminated by the Company at any time upon thirty (30) days written notice.
All warrants issued under the agreement will be at an exercise price of
$6.00 per share for a period of five (5) years.
F-19
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 9 - STOCK OPTION PLANS
Under various qualified and nonqualified plans, the Company may grant stock
options to officers, selected employees, as well as members of the board of
directors and advisory board members. The options must be granted at
exercise prices of not less than fair market value and expire within ten
years from the date of grant. All of these options are considered to be
fully vested. Transactions under the various stock option and incentive
plans for the periods indicated were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Years Ended March 31, 1999 1998
--------------------- ------------- -------------
Outstanding at beginning of year 1,007,714 750,000
Granted 465,000 257,714
Exercised - -
----------- -----------
Outstanding at end of year 1,472,714 1,007,714
=========== ===========
Options outstanding at March 31, 1999 and 1998 ranged in price from
$2.00 to $7.00. There were no options exercised as of March 31, 1999.
</TABLE>
NOTE 10 - PUBLIC OFFERING
In July 1998 the Company successfully filed a registration statement on
Form SB-2 under the Securities Act of 1933, as amended, for the purpose of
registering securities previously sold to and held by various corporations
and individuals. Accordingly, the Company did not receive any proceeds upon
filing of Form SB-2.
The securities registered consisted of 3,725,000 shares of the Company's
$.01 par value common stock, including 1,525,000 redeemable common stock
purchase warrants.
For the years ended March 31, 1999 and 1998, the Company incurred legal
fees and other costs amounting to $3,043 and $32,078, respectively, in
connection with its public filing, which has been charged to additional
paid-in capital.
NOTE 11 - MAJOR CUSTOMERS
<TABLE>
<CAPTION>
<S> <C> <C>
For the years ended March 31, revenues from major customers are as follows:
1999 1998
-------- -------
Customer A 99.73% 53.9%
Customer B - 38.5%
</TABLE>
F-20
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 12 - SUBSEQUENT EVENTS
Private Placement Offering
--------------------------
In a private placement offering dated May 17, 1999, the Company raised
$4,462,500, subject to acceptance, consisting of 12.75 units; each unit
consisting of 100,000 shares of common stock of the Company and 50,000
warrants, each warrant entitling the holder to purchase one share of common
stock at an exercise price of $5.00 per share during the five year period
commencing with the date of closing of the private placement memorandum
(June 16, 1999). The price per unit was $350,000. This resulted in the
issuance of 1,275,000 shares of common stock and 637,500 warrants to
purchase common stock, at an exercise price of $5.00 per share.
The Company received net proceeds of $4,452,500 from the private placement
after legal fees of $10,000.
Proposed Bond Financing Offering
--------------------------------
On May 14, 1999, the Company entered into an underwriter/private placement
agreement with an investment banking firm for the issuance of tax exempt
bonds by the New Jersey Economic Development Authority. The aggregate
principal proceeds of the fifteen year term bonds are expected to be a
minimum of $2,000,000 and up to a maximum of $3,000,000. The proceeds, net
of offering costs expected to be a minimum of $270,000 and up to a maximum
of $300,000, are to be used by the Company to refinance the land and
building it currently owns, and for the purchase of certain manufacturing
equipment and related building improvements. The expected closing date of
the offering is July 28, 1999.
The Company will be subject to underwriting fees equal to three percent
(3%) of the par amount of the bonds.
The bonds will be collateralized by a first mortgage lien on the building
which includes property and equipment.
F-21
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 13 - UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The following unaudited pro forma, condensed balance sheet assumes the
consummation of the following transactions as of March 31, 1999.
a. A private placement offering dated May 17, 1999 of the Company's
tender offer of 12.75 units consisting of common stock and warrants.
b. A private placement offering expected to be completed on July 28, 1999
for the issuance of tax exempt bonds by the New Jersey Economic
Development Authority.
The financial information presented herein does not purport to be
indicative of what would have occurred had the transactions actually been
made as of such date or of results which may occur in the future.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Company
As Pro Forma
Reported Adjustments Pro Forma
------------- ---------------- ------------
$ 4,452,500 (1)
Current assets $ 1,612,048 1,730,000 (2) $ 7,794,548
Property and equipment 1,250,237 - 1,250,237
Intangible assets 17,759 - 17,759
Other assets 196,538 270,000 (2) 466,538
------------ ------------ ------------
$ 3,076,582 $ 6,452,500 $ 9,529,082
============ ============ ============
Current liabilities $ 247,484 $ - $ 247,484
Long-term debt - 2,000,000 (2) 2,000,000
Common stock 72,376 12,750 (1) 85,126
( 10,000) (1)
Additional paid-in capital 6,815,362 4,449,750 (1) 11,255,112
Accumulated deficit (4,058,640) - (4,058,640)
------------ ------------ ------------
$ 3,076,582 $ 6,452,500 $9,529,082
============ ============ ==========
(1) To record the consummation of the private placement offering
of 12.75 units consisting of common
stock and warrants.
(2) To record the consummation of the private placement offering for
the issuance of tax exempt bonds, assuming the minimum of
$2,000,000 of gross proceeds and the minimum offering costs of
$270,000. Information with respect to use of proceeds is not
available.
</TABLE>
F-22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-START> Apr-01-1998
<PERIOD-END> Mar-31-1999
<CASH> 1,559,443
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,612,048
<PP&E> 1,568,411
<DEPRECIATION> 318,174
<TOTAL-ASSETS> 3,076,582
<CURRENT-LIABILITIES> 247,484
<BONDS> 0
<COMMON> 72,376
0
0
<OTHER-SE> 2,756,722
<TOTAL-LIABILITY-AND-EQUITY> 3,076,582
<SALES> 150,412
<TOTAL-REVENUES> 150,412
<CGS> 0
<TOTAL-COSTS> 1,948,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,965
<INCOME-PRETAX> (1,661,781)
<INCOME-TAX> 100
<INCOME-CONTINUING> (1,661,881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,661,881)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
