Filed Pursuant to Rule 424(B)5
Registration Statement Number 333-90633
PROSPECTUS SUPPLEMENT
- ------------------------------------------
(TO PROSPECTUS DATED FEBRUARY 28, 1998)
ELITE PHARMACEUTICALS, INC.
3,297,539 VOTING COMMON SHARES
(includes 2,022,537 shares underling options and warrants)
AND
317,250 CLASS A COMMON STOCK PURCHASE WARRANTS
(PAR VALUE $.01 PER SHARE)
--------------------------------------------------
This Prospectus covers (i) an aggregate of 3,297,539 shares of the
common stock of ("Common Stock"), $.01 par value, of Elite Pharmaceuticals, Inc.
("Elite Pharmaceuticals" or the "Company"), a Delaware corporation, on behalf of
certain selling security holders of the Company ("Selling Security Holders"),
and (ii) 317,250 of the Company's Class A Common Stock Purchase Warrants
("Warrants").
The Common Stock is traded on the American Stock Exchange ("AmEx") under the
symbol ELI. On March 10, 2000, the last reported sales price for the common
stock on AmEx was $17.125 per share. The Warrants in the over-the-counter market
and is quoted on the over-the-counter Bulletin Board ("Bulletin Board") under
the symbol ELIPZ. On March 10, 2000, the last reported sale price for the
Warrants on the Bulletin Board was $11.50 per Warrant.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The securities are being offered for cash as follows:
Underwriting Proceeds to
Price to discounts and issuer or
public(1) commissions(1) other persons(1)
Per Share of Common Stock unknown unknown unknown
Per Warrant unknown unknown unknown
Total unknown unknown unknown
(1) Any securities offered and sold pursuant hereto will be offered and
sold from time to time by existing security holders of the Company
("Selling Security Holders") for their own accounts. The Selling
Security Holders will sell their securities from time to time in the
public forum, at the prices then prevailing. The securities may be sold
directly by the Selling Security Holders or the Selling Security
Holders may offer such securities through broker/dealers or agents, at
market prices, with customary commissions being charged. It is
anticipated that the broker/dealers or agents will sell the securities
based on a "bid" price for the said securities in the public forum, and
the broker/dealers or agents will not act in an active manner in
soliciting parties to purchase the shares, either in the public forum
or privately. It is anticipated that this will be the sole manner in
which the shares will be sold.
---------------------------------------
The date of this Prospectus Supplement is March 13, 2000.
NOTE CORRECTION ON PAGE S-3
S-1
<PAGE>
SUMMARY INFORMATION
The following material, which is presented herein solely to furnish
limited introductory information regarding the Company, has been selected from,
or is based upon the detailed information and financial statements included in
or incorporated by reference into this Prospectus Statement and the accompanying
Prospectus, is qualified in its entirety by reference thereto, and, therefore
should be read together therewith. Each prospective investor is urged to read
this Prospectus Summary and the accompanying Prospectus in their entirety.
ON MARCH 30, 1998, ELITE PHARMACEUTICALS, INC. UNDERWENT A 1 FOR 2
REVERSE SPLIT OF ITS COMMON STOCK. ALL NUMBERS USED THROUGHOUT THIS PROSPECTUS
SUMMARY, INCLUDING THOSE DESCRIBING EVENTS THAT OCCURRED PRIOR TO MARCH 30,
1998, REFLECT THIS 1 FOR 2 REVERSE SPLIT.
THE OFFERING
COMPANY Elite Pharmaceuticals, Inc.
SECURITIES OFFERED BY THE None. All are offered by Selling Security
COMPANY Holders (as defined in the Prospectus)
SECURITIES COVERED BY 3,297,539 shares of Common Stock
PROSPECTUS 317,250 Class A Common Stock Purchase Warrants
SHARES OF COMMON STOCK 8,561,539 shares, as well as options and
OUTSTANDING AT MARCH 13, 2000 warrants exercisable for an additional
4,643,827 shares.
THE COMPANY
Elite Pharmaceuticals, Inc. ("Elite Pharmaceuticals") is a Delaware
Corporation with its principal offices located at at 165 Ludlow Avenue,
Northvale, NJ 07647. its telephone number is (201) 750-2646. Prior to October
28, 1998, the name of Elite Pharmaceuticals was Prologica International, Inc.
The business of Elite Pharmaceuticals is to own one hundred percent of the
shares of Elite Laboratories, Inc. ("Elite Labs"), a Delaware corporation
engaged in the research, development, licensing, manufacturing and marketing of
both new and generic, controlled-release pharmaceutical products.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Selling Shareholders". The
Company will receive proceeds only upon the exercise of the Warrants or the
Placement Agent Warrants by the holders thereof. See "Use of Proceeds".
S-2
<PAGE>
RISK FACTORS
The Securities offered hereby are highly speculative and involve a high
degree of risk and should not be purchased by investors who cannot afford the
loss of their entire investment. Prospective investors should carefully review
and consider the factors set forth under "Risk Factors" in the Prospectus as
well as all other information contained therein and herein, before subscribing
for any of the Securities.
BULLETIN BOARD LISTING
Elite Pharmaceuticals' Common Stock is currently listed on the American
Stock Exchange under the ticker symbol "ELI". Elite Pharmaceuticals' Class A
Warrants are currently listed on the Over-the-Counter Bulletin Board under the
ticker symbol "ELIPZ". There can be no assurance that the Company will continue
to meet the requirements for continued quotation or that a public trading factor
will develop or be sustained. See "Risk Factors".
CORRECTIONS
The first paragraph of the section of the Prospectus entitled "Selling
Security Holders" (beginning on page 13 of the Prospectus) and the first
paragraph of the section of the Prospectus entitled "Plan of Distribution"
(beginning on page 17 of the Prospectus) should each be replaced with the
following:
Any securities offered and sold pursuant hereto will be offered and
sold from time to time by existing security holders of the Company
("Selling Security Holders") for their own accounts. The Selling
Security Holders will sell their securities from time to time in the
public forum, at the prices then prevailing. The securities may be sold
directly by the Selling Security Holders or the Selling Security
Holders may offer such securities through broker/dealers or agents, at
market prices, with customary commissions being charged. It is
anticipated that the broker/dealers or agents will sell the securities
based on a "bid" price for the said securities in the public forum, and
the broker/dealers or agents will not act in an active manner in
soliciting parties to purchase the shares, either in the public forum
or privately. It is anticipated that this will be the sole manner in
which the shares will be sold.
S-3
FEBRUARY 28, 2000
PROSPECTUS
ELITE PHARMACEUTICALS, INC.
3,297,539 VOTING COMMON
SHARES (includes 2,022,537 shares underling
options and warrants)
AND
317,250 CLASS A COMMON STOCK PURCHASE WARRANTS
This Prospectus covers (i) an aggregate of 3,297,539 shares of the
common stock of ("Common Stock"), $.01 par value, of Elite Pharmaceuticals, Inc.
("Elite Pharmaceuticals" or the "Company"), a Delaware corporation, on behalf of
certain selling security holders of the Company ("Selling Security Holders"),
and (ii) 317,250 of the Company's Class A Common Stock Purchase Warrants.
Of the securities offered hereunder (i) 1,275,002 shares of Common
Stock were heretofore issued in a private offering beginning on May 17, 1999,
and ending on June 26, 1999 "1999 Private Placement"); (ii) 637,501 shares of
Common Stock are issuable pursuant to Class B Common Stock Purchase Warrants
("Class B Warrants") issued in the 1999 Private Placement; (iii) 260,000 shares
of Common Stock are issuable pursuant to Class B Warrants issued under the terms
of the Company's contract with its shareholder relations consultant; (iv)
250,000 shares of Common Stock are issuable pursuant to Class A Common Stock
Purchase Warrants issued to the financial consultant to the Company ("Class A
Warrants"); (v) 142,286 shares of Common Stock are issuable under warrants
granted prior to June 1997 to investors in the company under various private
placements; (vi) 467,500 shares of Common Stock are issuable pursuant to options
granted to various advisors, officers and directors of the company; (vii)
148,000 shares of Common Stock are issuable under options issued under the
Company's Incentive Stock Offering Plan; (viii) 117,250 share of Common Stock
are issuable under warrants granted to certain investors in the company; and
(ix) 250,000 Class A Warrants were issued to the financial consultant to the
Company; and (x) 117,250 Class A Warrants were issued to certain investors in
the company. See "Selling Security Holders." Each Class A Warrant entitles the
holder to purchase one share of Common Stock at an exercise price of $6.00
commencing November 30, 1997 and continuing until November 29, 2002. See
"Description of Securities." The offering price will be determined by the
Selling Security Holders. See "Selling Security Holders" "Plan of Distribution"
and "Underwriting." The Company will receive proceeds only upon the exercise of
the Warrants. If each option and warrant registered herein (or the shares of
which are registered herein) were exercised, the Company would receive
$9,290,577. See "Use of Proceeds".
Elite Pharmaceuticals' Common Stock and Class A Warrants are currently
listed for quotation on the Nasdaq Bulletin Board ("Bulletin Board"). There is a
limited trading market in its Common Stock and Class A Warrants; however, there
can be no assurance that an active trading market will develop in these
securities. See "Risk Factors."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD
TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The securities are being offered for cash as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Underwriting discounts Proceeds to issuer
Price to public(1) and commissions(1) or other persons(1)
Per Share of Common Stock unknown unknown unknown
Per Class A Warrant unknown unknown unknown
Total unknown unknown unknown
</TABLE>
(1) The securities offered hereunder will be offered by the Selling Security
Holders at market price; Elite Pharmaceuticals is unaware of any arrangements
entered into between such Selling Security Holders and any broker or dealer, or
underwriter. It is anticipated that the securities will be offered through the
over the counter market.
Elite Pharmaceuticals intends to furnish its shareholders with annual reports
containing audited financial statements, examined by an independent accounting
firm, and such interim reports as it may determine to furnish or as may be
required by law.
Where any document is incorporated by reference in the Prospectus but not
delivered therewith, Elite Pharmaceuticals will undertake to provide without
charge to each person, including any beneficial owner, to whom a prospectus is
delivered, upon oral or written request of such person, a copy of any and all of
the information incorporated by reference in the Prospectus (not including
exhibits to the information incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that the Prospectus
contains). Requests should be addressed to Pender R McElroy at (704) 372-9870.
Elite Pharmaceuticals is currently a reporting company under the Securities
Exchange Act of 1934, and files reports electronically pursuant thereto, and
such reports will be available upon the Securities and Exchange Commission's web
site, at http://www.sec.gov.
UNTIL 90 DAYS AFTER THE LATER TO OCCUR OF (I) THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT OR (II) THE DATE ON WHICH THE SECURITIES REGISTERED
HEREUNDER ARE BONA FIDE OFFERED TO THE PUBLIC, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
PROSPECTUS SUMMARY
--------------------
The following summary is qualified in its entirety by the detailed
information financial statements appearing elsewhere in this Memorandum. Each
prospective investor is urged to read this Memorandum in its entirety. All
statements other than statements of historical fact contained in this Memorandum
are forward-looking statements. Forward-looking statements in this Memorandum
generally are accompanied by words such as "intend," "anticipate," "believe,"
"estimate," "project," or "expect" or similar statements. Although Elite
Pharmaceuticals believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations will
prove correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements include
the risks described under "Risk Factors." All forward-looking statements in this
Memorandum are expressly qualified in their entirety by the cautionary
statements in this paragraph.
ON MARCH 30, 1998, ELITE PHARMACEUTICALS, INC. UNDERWENT A ONE-FOR-TWO REVERSE
SPLIT OF ITS COMMON STOCK. ON NOVEMBER 17, 1998, ELITE PHARMACEUTICALS, INC.
UNDERWENT A ONE-FOR-TWO REVERSE SPLIT OF ITS CLASS A WARRANTS. ALL NUMBERS USED
THROUGHOUT THIS PROSPECTUS, INCLUDING THOSE DESCRIBING EVENTS THAT OCCURRED
PRIOR TO MARCH 30, 1998, REFLECT THESE ONE-FOR-TWO REVERSE SPLITS.
THE COMPANY
The business of Elite Pharmaceuticals, Inc. ("Elite Pharmaceuticals")is
to own one hundred percent of the shares of Elite Laboratories, Inc.
("Elite Labs").Therefore,before discussing the history of Elite Pharmaceuticals,
this Prospectus will first describe the history and nature of this wholly owned
subsidiary.
ELITE LABORATORIES, INC.
Elite Labs was incorporated in the State of Delaware on August 23,
1990. It engages in the research, development, licensing, manufacturing and
marketing of both new and generic, controlled-release pharmaceutical products.
Controlled drug delivery 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. Since its inception in 1990, Elite Labs has established
a research and development laboratory and has developed six oral controlled
release pharmaceutical products to varying stages of the development process.
There is no assurance that any of Elite Labs's products will be approved by the
United States Food and Drug Administration ("FDA"), be marketed, or be
commercially viable products. Furthermore, there are no agreements in effect
requiring the payment of royalties to Elite Labs, except under certain
conditions, which may not be fulfilled. Elite Labs has also conducted several
research and development projects on behalf of large pharmaceutical companies.
These activities have generated only limited revenues to date.
3
ELITE PHARMACEUTICALS, INC.
Elite Pharmaceuticals is the successor to Prologica International, Inc.
Prologica was incorporated in the State of Pennsylvania on April 20, 1984.
Following its incorporation and completion of its initial public offering in
August 1988, Prologica did not possess any significant assets or engage in any
business other than searching for suitable acquisitions. Until it began
discussions with Elite Labs in the spring of 1997 it had not identified any such
acquisitions. In order to facilitate the acquisition of Elite Labs, Prologica
undertook the following steps: (i) on October 9, 1997, it underwent a
three-for-one reverse split of its issued and outstanding stock; (ii) on October
1, 1997, it caused the incorporation of a subsidiary, Elite Pharmaceuticals,
Inc., a Delaware corporation ("Elite Pharmaceuticals"), into which it merged on
October 28, 1997 in order to change its name and its state of incorporation; and
(iii) on August 1, 1997, it caused the incorporation of a subsidiary, HMF
Enterprises, Inc. ("HMF") with the intent that HMF would merge into Elite Labs,
and thus effect the acquisition.
The merger of Prologica with Elite Pharmaceuticals and the merger of
Elite Labs with HMF were made in conjunction with a private offering of the
common stock and Class A warrants to purchase common stock of Prologica
beginning on September 15, 1997 and continuing through November 30, 1997 (the
"1997 Private Placement"). Through the 1997 Private Placement new investors
purchased 2,000,000 shares and 1,000,000 warrants of Elite Pharmaceuticals.
Under the terms of the offering and merger agreements, Elite Labs and HMF merged
on October 30, 1997, with Elite Labs surviving the merger. In the merger, each
shareholder of Elite Labs received one share of Elite Pharmaceuticals for each
share of Elite Labs that he or she owned.
As of the date of the merger of Elite Labs and HMF (which was the date
that Elite Pharmaceuticals acquired Elite Labs), Prologica had assets equal to
$1,134 and a shareholder deficiency equal to $12,588; Elite Labs had assets
equal to $114,521 and shareholder deficit equal to $135,479. As a result of the
merger between Prologica and Elite Pharmaceuticals, Prologica changed its name
to Elite Pharmaceuticals, Inc. and its state of incorporation to Delaware. As a
result of the merger between Elite Labs and HMF, Elite Labs became the wholly
owned subsidiary of Elite Pharmaceuticals.
The Company undertook a second private offering of the common stock and
Class B Warrants to purchase common stock of Prologica beginning on May 17, 1999
and continuing through June 24, 1999 (the "1999 Private Placement"). As a result
of the 1999 Private Placement new investors purchased 1,275,002 shares (14.9%)
of the common stock plus Class B warrants to purchase an additional 637,501
shares of the common stock of Elite Pharmaceuticals. In the 1999 Private
Placement, the new investors invested a total of $4,462,500 in Elite
Pharmaceuticals. A portion of these funds were used to pay the legal fees and
filing fees associated with the 1999 Private Placement and the present
registration, and the balance have been and will be used to fund certain capital
improvements, research and development, consulting fees and general operating
expenses of Elite Labs.
4
For purposes of convenience, Elite Pharmaceuticals and Elite Labs may
be referred to collectively hereinafter as the "Company", however any references
to the "Registrant" shall refer exclusively to Elite Pharmaceuticals.
Elite Pharmaceuticals' and Elite Labs' principal offices are located at
165 Ludlow Avenue, Northvale, NJ 07647 and its telephone number is
(201)750-2646.
THE OFFERING
Although this is a public offering of the stock of Elite
Pharmaceuticals, the Company itself is issuing no securities. All of the
securities registered in connection with this offering are currently held by,
and will be offered by, current Selling Security Holders, or are subject to
execution of Warrants currently held by Selling Security Holders. (See "Terms of
the Offering", and "Description of Securities").
SECURITIES OUTSTANDING
There are 8,561,539 shares of common stock of Elite Pharmaceuticals, Inc.
("Common Stock") issued and outstanding as of February 22, 2000. In addition,
there are warrants and options outstanding to purchase an additional 4,643,827
shares of Common Stock as of February 22, 2000.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Selling Shareholders". The
Company will receive proceeds only upon the exercise of the Warrants registered
herein (or upon the exercise of the warrants or options the shares underlying
which are registered herein) by the holders thereof. See "Use of Proceeds".
RISK FACTORS
The Securities offered hereby are highly speculative and involve a high
degree of risk and should not be purchased by investors who cannot afford the
loss of their entire investment. Prospective investors should carefully review
and consider the factors set forth under "Risk Factors" as well as all other
information contained herein, before subscribing for any of the Securities.
NASDAQ LISTING
Elite Pharmaceuticals' Common Stock is currently listed on the American
Stock Exchange under the ticker symbol "ELI", and the Class A Warrants are
currently listed on the NASD OTC Bulletin Board under the ticker symbol "ELIPZ".
There can be no assurance that the Company will continue to meet the
requirements for continued quotation or that a public trading factor will
develop or be sustained. See "Risk Factors".
5
RISK FACTORS
--------------
The securities offered hereby are highly speculative in nature and
investment therein involves a high degree of risk. Therefore each prospective
investor should consider very carefully the risks and speculative factors
inherent in and affecting the business of, and investment in, Elite
Pharmaceuticals prior to the purchase of any of the securities offered hereby,
as well as all of the other matters set forth elsewhere in this Memorandum.
Investors should be prepared to suffer a loss of their entire investment.
Hereinafter Elite Pharmaceuticals and Elite Labs shall sometimes collectively be
referred to as the "Company." The material risks and speculative factors
involved are as follows:
1. Limited Operating History - Anticipated Future Losses.
Since the inception in 1984, of Elite Pharmaceutical's predecessor,
Prologica, neither Prologica nor Elite Pharmaceuticals has carried on any
business or generated any revenues. Its sole source of income is income received
through its ownership of Elite Labs. The Company expects to realize significant
losses in the next year of operation. Since Elite Labs' inception in 1990, it
has not generated any significant revenues. As of its fiscal year ended March
31, 1999, the Company had consolidated assets of $3,076,582, stockholders'
equity of $2,829,098, an accumulated earnings deficit of ($4,058,640) and
working capital of $1,364,564. As of the end of its third fiscal quarter, ending
December 31, 1999, the Company had consolidated net assets of $8,284,942,
stockholders' equity of $5,238,287, an accumulated earnings deficit of
($6,225,937) and working capital of $4,890,941. The Company's operations are
subject to all of the risks inherent in the establishment of a new commercial
enterprise and the likelihood of the success of the Company must be considered
in light of various factors, including working capital deficits, competition
with established and well financed entities, anticipated negative cash flow in
the period following completion of this offering, the absence of substantial
written commitments for purchase of Elite Labs' services and the need for
further development of the its products. The Company expects to continue to
incur losses until it is able to generate sufficient revenues to support its
operations and offset operating costs. There can be no assurance of revenues or
of the Company's eventual profitability.
2. Significant Capital Requirements; Need for Additional
Financing.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that it currently has sufficient
operating capital to satisfy its contemplated cash requirements for its normal
operating cycle. After such time, the completion of the Company's development
activities will require significant funding other than that which is otherwise
currently available to the Company. The Company has no current arrangements with
respect to sources of additional financing other than with respect to the
potential exercise of the options and warrants currently outstanding. There can
be no assurance that any of the warrants will be exercised or that other
additional financing will be available to the Company on commercially reasonable
terms, or at all. The inability of the Company to obtain additional financing,
when needed, would have a material adverse effect on the Company, including
possibly requiring the Company to curtail or cease its operations. To the extent
that any future financing involves the sale of the Company's equity securities,
the Company's then-
6
existing stockholders' equity, including investors in this Offering, could be
substantially diluted. On the other hand, to the extent the Company recurs
indebtedness or otherwise issues debt securities, the Company will be subject to
risks associated with indebtedness, including the risk that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on
such indebtedness.
3. Possible Earlier Need for Additional Financing.
In the event the Company's plans change, its assumptions change or
prove to be inaccurate, or its cash flow proves to be insufficient to fund the
Company's operations (due to unanticipated expenses, delays, problems,
difficulties or otherwise), the Company would be required to seek additional
financing sooner than anticipated. There can be no assurance that any of such
warrants will be exercised or that the Company would be able to secure
additional financing to fund its operations.
4. No Assurance of Successful Product Development.
Elite Labs has not yet developed a product to the stage of generating
commercial sales. While Elite Labs' President has successfully developed
controlled release products for his prior employers, Elite Labs' research
activities are characterized by the inherent risk that the research will not
yield results which will receive FDA approval or otherwise be suitable for
commercial exploitation.
5. No Assurance of Successful Licensing and Marketing.
Initially, the Company plans to market its products, once developed,
either directly or through agreements with third parties and by way of licensing
agreements with other pharmaceutical companies. There can be no assurance that
such third-party arrangements can be successfully negotiated or that any such
arrangements, if available, will be on commercially reasonable terms. Even if
acceptable and timely marketing arrangements are entered into, there can be no
assurance that products developed by the Company will be competitive and
profitable in the marketplace. Because the Company's clients will in many cases
make all or many material marketing and other commercialization decisions
regarding such products, a significant number of the variables that affect the
Company's royalties and fees, and, in turn, profitability, are not exclusively
within the Company's control. Achieving market acceptance for the Company's
products and services requires additional funding for which a portion of the
proceeds of this Offering have been allocated. The Company's business strategy
is to expand its client relations for various new pharmaceutical products.
However, to date, the Company has had only a limited number of clients.
Implementation of the Company's growth will depend upon, among other things, the
Company's ability to hire and retain skilled marketing personnel.
6. Government Regulation.
The design, development and marketing of pharmaceutical
products are reviewed, and manufacturing facilities are inspected, by government
regulatory agencies, including the United States Food and Drug Administration
and comparable agencies in other countries (collectively "Agency"). The Company
is unable to predict the effect that reviews by
7
any Agency will have on the development, clinical testing, manufacturing,
marketing or sale of its pharmaceutical products. Failure to obtain Agency
approvals in a timely fashion or on the terms and with the scope or breadth
contemplated by the Company could adversely affect the Company. In addition, in
certain cases, the Company's license agreements for new formulations of
pharmaceutical products may provide that the licensees, rather than the Company,
are responsible for obtaining the Agency approval of new formulations. In such
cases, the timing of the submission of applications for Agency approval and of
any supplementary data requested by an Agency is not within the Company's
control. Any delays in the submission of such applications and supplementary
data requested could adversely affect the business of the Company. Continued
growth in the Company's revenues and profits will depend, in large part if not
exclusively, on successful introduction and marketing of products subject to
Agency approval. There can be no assurance as to when or whether such approvals
from such regulatory authorities will be received. See "Business-Governmental
Regulation."
7. Competition.
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. 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.
8. Proprietary Technology: Unpredictability of Patent Protection.
The Company's success, competitive position and amount of royalty
income will depend in part on its ability to obtain patent protection in various
jurisdictions related to the technologies, processes and products it develops.
The Company may file patent applications seeking such protection. There can be
no assurance that these applications will result in the issuance of patents(s),
or if any patent(s) are issued, that litigation will not be commenced seeking to
challenge such patent protection or that such challenges will fail. In addition,
there can be no assurance that the scope and validity of the Company's patents
will prevent third parties from developing similar or competing products. The
expenses involved in litigation regarding patent protection or a challenge
thereto can be significant and cannot be estimated by the Company.
8
Furthermore, there can be no assurance that the Company's activities
will not infringe on patents owned by others. The Company could incur
substantial costs in defending itself in suits brought against it, or in suits
in which the Company may assert, against others, claiming infringement of the
Company's patents. There can be no assurance that the Company would possess
sufficient funds to protect its patents from infringement. Should the products
be found to infringe upon patents issued to third parties, the manufacture, use
and sale of such products could be enjoined and the Company could be required to
pay substantial damages. In addition, the Company may be required to obtain
licenses to patents, or other proprietary rights of third parties, in connection
with the development and use of the Company's products and technologies as they
relate to other persons' technologies. No assurance can be given that any
licenses required under any such patents or proprietary rights would be
available on acceptable terms, if at all.
The Company also relies, and will continue to rely, upon trade secrets
and proprietary know-how, which it seeks to protect in part, by confidentiality
agreements. The Company consistently requires its employees and potential
business partners to execute confidentiality agreements prior to doing business
with the Company, and it is currently a party to well over one hundred such
agreements. Representative samples of such agreements are attached hereto.
However, there can be no assurance that such employees or others, will maintain
the confidentiality of such trade secrets or proprietary information or that
trade secrets or proprietary know-how of the Company will not otherwise become
known or be independently developed in such manner that the Company will have no
practical recourse. See "Business-Patents."
9. Key Research Personnel.
The Company is heavily dependent upon the scientific expertise of Dr.
Atul M. Mehta, President and CEO of Elite Pharmaceuticals and Elite Labs.
Although Elite Labs now employs and will in the future continue to employ other
qualified scientists, as of the date of this Prospectus, only Dr. Mehta has the
advanced knowledge, knowhow and track record of having successfully developed
controlled-release products for other companies. The loss of Dr. Mehta's
services would have a material adverse effect on the Company's business.
Therefore, Elite Labs entered into a five-year employment contract with Dr.
Mehta which ends on December 31, 2000. The key terms of the agreement are a
salary currently set at $242,000 with provisions for annual increases, incentive
commissions, a discretionary bonus, health insurance, and term life insurance
for the benefit of Dr. Mehta's family. Additionally, Elite Labs has obtained
insurance coverage with respect to Dr. Mehta's life in an amount of $1,000,000,
payable to the Company. The details of these arrangements are described in
detail in "Management."
10. Lack of Trading Market.
Purchasers of the securities offered hereby must be aware of the
long-term nature of their investment and be able to bear the economic risks of
their investment for an indefinite period of time. Currently no trading market
exists for the Warrants. A very limited trading market exists in the
over-the-counter market for the Common Stock and Class A Warrants
9
which are listed for quotation on the American Stock Exchange ("Amex") and the
NASD OTC Bulletin Board ("Bulletin Board"), respectively. A somewhat broader
market in the Common Stock may develop, although there can be no assurance of
such an occurrence. Even if such a market developed, it would still be more
difficult for an investor to dispose of, or to obtain quotations as to, the
price of the Common Stock than a security traded on a national securities
exchange.
11. Penny Stock Regulation.
The trading of the Company's Common Stock, if any, will be subject to
Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and non-exchange
listed securities. Under such rule, brokers-dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are exempt from this rule if the market price is at least $5.00 per
share. The Commission has adopted regulations that generally define a "penny
stock" to be an equity security that has a market price of less than $5.00 per
share or an exercise price of less than $5.00 per share subject to certain
exceptions. Such exceptions include equity securities listed on Nasdaq and
equity securities issued by an issuer that has (i) net tangible assets of at
least $2,000,000, if such issuer has been in continuous operation for more than
three years, or (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a risk of disclosure schedule explaining
the penny stock market and the risks associated therewith. Although Elite
Pharmaceuticals' Common Stock is currently trading at over $5.00, there can be
no assurance that it will continue to trade at such price, and if it falls below
such price, it will be considered a penny stock as defined in the Exchange Act
and as such, the market liquidity for the Common Stock will be limited to the
ability of broker-dealers to sell the Common Stock in compliance with the
above-mentioned disclosure requirements.
12. Outstanding Warrants and Options.
There are outstanding warrants and options to purchase an aggregate of
4,643,827 shares of Common Stock for prices ranging from $2.00 to $9.00, for an
average exercise price of $4.96. Of these options and warrants, 1,480,000 are
held by officers, directors and/or five-percent shareholders. To the extent that
outstanding warrants or options are exercised, dilution of the interests of
Elite Pharmaceuticals' stockholders will occur. Moreover, the terms upon which
the Company will be able to obtain additional equity may be adversely affected
since the holders of the outstanding warrants can be expected to exercise them
at a time when the Company would, in all likelihood, be able to obtain capital
on terms more favorable to the Company than those provided by such securities.
13. No Dividends.
Elite Pharmaceuticals has not paid any cash dividends to date and does
not expect to pay cash dividends in the foreseeable future.
10
14. Potential Anti-Takeover Effects of Delaware Law.
Certain provisions of Delaware law could make more difficult a merger,
tender offer or proxy contest involving the Company, even if such events could
be beneficial to the interests of the shareholders. These provisions include
Section 2.03 of the Delaware General Corporation law. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock.
15. Arbitrary Offering Price.
The Securities offered hereunder will be offered by the Selling
Security Holders at a price or prices to be determined by such Selling Security
Holders. The Company does not know that the offering price of the Common Stock
and Warrants will be; the offering price will be arbitrarily determined by the
Selling Security Holders and will bear no relation to Elite Pharmaceuticals'
book value, assets, or any other objective criteria of value. There can be no
assurance that the Securities offered hereby can be resold at or near the
offering price. In addition, the exercise price of the Warrants bears no
relation to Elite Pharmaceuticals' book value, assets, or any other objective
criteria of value. The Company does not know whether all, or even any, of the
Selling Security Holders will sell their securities, or when they will do so.
See "Selling Security Holders" and "Plan of Distribution".
16. Limitation on Personal Liability of Directors.
The Articles of Incorporation and Bylaws of the Company contain
provisions reducing the potential personal liability of the directors of the
Company for certain monetary damages and providing for indemnity of directors.
The Company is unaware of any present, pending or threatened litigation which
would result in any liability for which a director would seek such
indemnification or protection. The provisions affecting personal liability
provide that the Company will indemnify its directors to the fullest extent
permitted by Section145 of the Delaware Corporation Law against (a) expenses
(including attorney's fees) reasonably incurred in connection with any
threatened, pending or completed civil, criminal, administrative, investigative
or arbitrative action, suit or proceeding (and appeal therefrom) against any
director, whether or not brought by or on behalf of the Company seeking to hold
the director liable by reason of the fact that he was acting in such capacity;
and (b) any reasonable payments made by him in satisfaction of any judgment,
money decree, fine, penalty or settlement in such action, suit or proceeding. In
that respect, the provisions diminish the potential right of action which might
otherwise be available to shareholders by affording indemnification by the
Company against most damages and settlement amounts paid by a director.
17 . Product Liability.
The design, development and manufacture of the Company's Products
involve an inherent risk of product liability claims. The Company has procured
product liability insurance; however, a successful claim against the Company in
excess of the policy limits
11
could have a material adverse effect upon the Company's results of operations
and financial position. To the best of the Company's knowledge, no claim has
been made against the Company as of February 22, 2000.
18. Forward Looking Statements.
All statements other than statements of historical fact contained in
this Memorandum are forward-looking statements. Forward-looking statements in
this Memorandum generally are accompanied by words such as "intend,"
"anticipate," "believe," "estimate," "project," or "expect" or similar
statements. Although Elite Pharmaceuticals believes that the expectations
reflected in such forward-looking statements are reasonable, no assurance can be
given that such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include the risks described hereinabove. All
forward-looking statements in this Memorandum are expressly qualified in their
entirety by the cautionary statements in this paragraph.
19. Control by Directors.
There are currently 8,561,539 shares of Company stock issued and
outstanding, as well as options and warrants to purchase an additional 4,643,827
shares. Of the shares issued and outstanding, officers and/or directors of the
Company hold 1,712,455 shares (20%), and options or warrants to purchase an
additional 1,033,964 shares. If every holder of an option or warrant exercised
his or her rights under such option or warrant, there would be 13,205,366 shares
issued and outstanding, of which the officers and directors of the Company would
own 2,746,419 (21%). However, if only the officers and directors exercised such
rights, there would be 9,595,503 shares issued and outstanding, of which the
officers' and directors' 2,746,419 shares would equal 29 percent.
12
SELLING SECURITY HOLDERS
---------------------------
Any securities offered and sold pursuant hereto will be offered and
sold from time to time by existing security holders of the Company ("Selling
Security Holders") for their own accounts. The securities offered may be sold
directly by the Selling Security Holders; alternatively, the Selling Security
Holders may offer such securities through dealers or agents. The distribution
of securities by Selling Security Holders may be effected in one or more
transactions that may take place on the over-the-counter market, including
broker's transactions, privately-negotiated transactions or through sales to one
or more broker-dealers for resale of such securities as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Security
Holders in connection with such sales of securities. The Selling Security
Holders and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Securities Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by a Selling
Security Holder, the Selling Security Holder must, to the extent required by
law, deliver a prospectus setting forth the number of shares being offered, and
the terms of the offering, including the name or names of any dealers or agents
employed by the Selling Security Holder, if any, the purchase price
paid by any such person employed by the Selling Security Holder for shares
purchased from the Selling Security Holder, and any discounts, commissions, or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public. The Selling Security Holders will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the time of purchases and sales by
the Selling Security Holders.
The following table shows the names of Selling Security Holders, along
with any material relationships such security holders have or have had with the
Company and the amount of securities held by such security holder and available
to be offered.
Column A shows the name of the Selling Security Holder; Column B
describes any positions or offices held by the Selling Security Holder within
the last three years with the Company, its predecessor or its affiliates; Column
C shows number of Shares being offered that are owned by the Security Holder
prior to the offering; Column E shows the number of Warrants being offered that
are owned by the Selling Security Holder. As used in the preceding sentence
"Shares" means shares of Common Stock of Elite Pharmaceuticals, Inc., and
"Warrants" mean Class A Common Stock Purchase Warrants, each warrant entitling
the holder to purchase one share of Common Stock at an exercise price of $6.00
exercisable for five years from November 30, 1997. As stated above, the Company
does not know which, if any, Security Holders will be offering their securities
for sale, when they intend to do so, or what percentage of their securities will
be offered.
13
(See Note 1 for method used in calculating securities held.) Asterisks represent
"less than one percent".
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
SECURITIES ISSUED IN 1999 PRIVATE PLACEMENT.
- --------------------------------------------
All entries into Column E represent Class B Warrants (which are not being
registered hereby).
A. B. C. D. E. F. G.
# of
# of Percent Warrants Total Percent
Positions Shares of or Options # of Of
Name of Security Holder Held Owned Owned Owned Securities Total
Abadi, Henry None 25,000 * 12,500 37,500 *
Abadi, Maurice None 25,000 * 12,500 37,500 *
Ali, Asid None 25,000 * 12,500 37,500 *
Ballas, Mayer MD PSP None 25,000 * 12,500 37,500 *
Barilits, Paul None 28,572 * 14,286 42,858 *
Bauer-Wolf, Beate None 18,572 * 9,286 27,858 *
Beck, Martin S. None 25,000 * 12,500 37,500 *
Belson, Jerome None 200,000 See Note 2 100,000 300,000 See Note 2
Benun, Morris None 12,500 * 6,250 18,750 *
Bridge Ventures, Inc. See Note 3 50,000 * 25,000 75,000 *
Brown, Alexander Trust None 50,000 * 25,000 75,000 *
Brown, Richard None 250,000 3.0% 125,000 375,000 4.5%
Brown, Ronald R. None 12,500 * 6,250 18,750 *
Burton, Alan None 16,000 * 8,000 24,000 *
Carr, Frank B. None 25,000 * 12,500 37,500 *
Giamanco, Joseph None 50,000 * 25,000 75,000 *
Harvic Int'l Pens Plan None 25,000 * 12,500 37,500 *
Karsten, Robert None 25,000 * 12,500 37,500 *
Keys Foundation None 100,000 See Note 4 50,000 150,000 See Note 4
Lagano, Frances None 25,000 * 12,500 37,500 *
Lexer, Bernhard None 22,572 * 11,286 33,858 *
Orenstein, Daniel None 12,500 * 6,250 18,750 *
Prager, Tis None 25,000 * 12,500 37,500 *
Roselle, Joseph C. None 50,000 See Note 5 25,000 75,000 See Note 5
Ross, Harvey L. None 25,000 * 12,500 37,500 *
Schaffer, Ronald None 12,500 * 6,250 18,750 *
Sheeber, Marvin None 25,000 * 12,500 37,500 *
Teboul, Georgette None 75,000 * 37,500 112,500 1.5%
Wurditch, Josef None 14,286 * 7,143 21,429 *
</TABLE>
14
OTHER ISSUANCES OF AND WARRANTS.
- --------------------------------
1) Issuances under the Company's Incentive Stock Option Plan in 1998 and 1999.
Entries in Column E represent options granted (exercisable at $6.00 per share).
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
A. B. C. D. E. F. G.
BROOKS, GLENROY NONE 0 * 1,000 1,000 *
GUY, ELLA CECILA NONE 0 * 1,000 1,000 *
HAMET, SUSAN NONE 0 * 30,000 30,000 *
SHAH, MANESH NONE 0 * 75,000 75,000 *
WANG, MIN FA NONE 0 * 1,000 1,000 *
XHELO, MELINDA NONE 0 * 1,000 1,000 *
DiFalco, Raymond None 0 * 24,000 24,000 *
</TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C>
2) Options granted to advisors, officers and directors of the Company prior to
the Company's merger in 1997. Numbers in Column E represent options granted
(exercisable at $2.00 per share)
A. B. C. D. E. F. G.
Barrie Blauvelt None 0 * 125,000 125,000 1.45%
Donald Pearson Director 0 * 18,750 18,750 *
John deNeufville None 0 * 25,000 25,000 *
John Jackson None 0 * 125,000 125,000 1.45%
John Robinson None 0 * 25,000 25,000 *
Vijay Patel None 0 18,750 18,750 *
</TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
3) Options granted to advisors, officers and directors of the Company following
to the Company's merger in 1997. Numbers in Column E represent options granted
(exercisable at $6.00 per share)
A. B. C. D. E. F. G.
Barri Blauvelt None 0 * *
15,000 15,000
Donald Pearson Director 0 * *
30,000 30,000
Harmon Aronson Director 0 * *
30,000 30,000
Jerome Skelly None 0 * *
15,000 15,000
Mark Gittelman Secretary / 0 * *
Treasurer 10,000 10,000
Michael Freedman None 0 * 5,000 5,000 *
</TABLE>
4) Warrants granted to investors in the Company prior to the Company's merger in
1997. Numbers in Column E represent warrants granted (exercisable at $2.00 per
share).
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
A. B. C. D. E. F. G.
Vijay Patel None 0 * 149,572 149,572 1.73%
Dashrath Patel None 0 * 40,000 40,000 *
</TABLE>
15
<PAGE
5) Warrants granted pursuant to a Financial Consulting Agreement between the
Company and Adolph Komorsky Associates dated October 1, 1998. Numbers in Column
E represent Class A Warrants.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
A. B. C. D. E. F. G.
Paul M. Michaels None 0 * 60,000 60,000 *
Lawrence S. Zaslow None 0 * 60,000 60,000 *
Peter W. Adolph None 0 * 60,000 60,000 *
Mark E. Komorsky None 0 * 60,000 60,000 *
Andreas Ebner None 0 * 5,000 5,000 *
Simon Goldman None 0 * 5,000 5,000 *
</TABLE>
6) Warrants granted pursuant to a Consulting Agreement between the Company and
Saggi Capital Corporation dated August 1, 1997. Numbers in Column E represent
Class B Warrants.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
Smyth, Meadows & Harrange,
Inc.
None 0 * 30,000 30,000 Note 6
Dutchess Foundation Vaduz None 0 * 200,000 200,000 Note 6
Mayer Ballas, M.D. None 0 * 30,000 30,000 *
7) Warrants granted pursuant to certain investors in the Company in 1999.
Numbers in Column E represent Class A Warrants. </TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
Rickel Securities, Inc. None 0 * 1,250 1,250 *
Stanely Ast None 0 * 1,000 1,000 *
Myron Teitelbaum None 0 * 10,000 10,000 *
Frank B. Carr None 0 * 100,000 100,000 Note 7
Alan R. Cohen None 0 * 5,000 5,000 *
</TABLE>
Note 1. For purposes of computing the percentage of securities held by each
person, any security which such person or persons has the right to acquire
within sixty days of September 24, 1999 is deemed to be outstanding but is not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. Percentages are rounded up to the nearest one-half percent.
Note 2. When the shareholder's holdings under the 1999 Private Placement are
added to other shares and warrants already owned, he holds 7% of the total
issued and outstanding securities.
Note 3. When the shareholder's holdings under the 1999 Private Placement are
added to securities already owned, it holds 7.5% of the total issued and
outstanding securities. Bridge Ventures is a consultant under terms of
Consulting Agreement entered into between Elite Laboratories, Inc. and Bridge
Ventures, Inc., dated as of August 1, 1997, and assumed by Elite
Pharmaceuticals, Inc. as of November 7, 1997.
Note 4: When the shareholder's holdings under the 1999 Private Placement are
added to securities already owned, it holds 3.5% of the total issued and
outstanding securities.
Note 5. When the shareholder's holdings under the 1999 Private Placement are
added to securities already owned, he holds 2.0% of the total issued and
outstanding securities.
Note 6: Shareholder is an affiliate of Saggi. When the shareholder's holdings
are added to securities already owned by Saggi or acquired as described in Note
7 below, it owns 4.5% of the total issued and outstanding securities.
Note 7: When the shareholder's holdings under the 1999 Private Placement are
added to these securities, he holds 1.6% of the total issued and outstanding
securities.
16
USE OF PROCEEDS
---------------
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Selling Shareholders". The
Company will receive proceeds only upon the exercise of the Warrants or the
Placement Agent Warrants by the holders thereof. If all of the warrants and
options, the shares underlying which are registered hereunder, were exercised,
there would be proceeds of $9,290,577. There can be no assurance as to when, if
ever, any or all of such warrants and options will be exercised. Proceeds, if
any, received from the exercise of the warrants and options will be used for
working capital requirements and other general corporate purposes.
DILUTION
----------
There will be no dilution of the book value of the Common Stock since
no additional shares are being issued as a result of this offering. There are
outstanding options and warrants not offered hereunder which entitle the holders
thereof to purchase shares of Common Stock at exercise prices ranging from $2.00
to $9.00; exercise of such options or warrants by the holders thereof may dilute
the book value of the Common Stock if such warrants or options are exercised at
a time when the book value of the Common Stock exceeds the exercise price.
PLAN OF DISTRIBUTION
----------------------
Any securities offered and sold pursuant hereto will be offered and
sold from time to time by Selling Security Holders for their own accounts. The
securities offered may be sold directly by the Selling Security Holders, or the
Selling Security Holders may offer such securities through dealers or agents
employed by them. The distribution of securities by Selling Security
Holders may be effected in one or more transactions that may take place on the
over-the-counter market, including broker's transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale of such
securities as principals, at market prices prevailing at the time, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated fees or commissions may be paid by the
Selling Security Holders in connection with such sales of securities. The
Selling Security Holders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
17
At the time a particular offer of securities is made by a Selling
Security Holder, the Selling Security Holder must, to the extent required by
law, deliver a prospectus setting forth the number of shares being offered, and
the terms of the offering, including the name or names of any dealers or
agents, if any, the purchase price paid by any person for shares
purchased from the Selling Security Holder, and any discounts, commissions, or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public. The Selling Security Holders will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the time of purchases and sales by the
Selling Security Holders.
The Company is unaware of securities being offered other than for cash.
No Selling Security Holder has the right to designate any of the Company's Board
of Directors. No persons are or have been indemnified against liability arising
under the Securities Act with respect to this offering of the Common Stock and
Warrants, except to the extent that the Articles of Incorporation and Bylaws of
the Company indemnify the members of its Board of Directors generally against
civil, criminal and administrative actions against any director by reason of
action taken by such person in his or her capacity as director. (See "Risk
Factors - Limitation on Personal Liability of Directors"). The Company is
unaware any contracts that any Selling Security Holder may have entered into
with any dealer, underwriter or finder, or of any passive market making activity
being contemplated or undertaken by any Selling Security Holder.
Pursuant to the provisions under the Exchange Act and the rules and
regulations thereunder, any persons engaged in a distribution of the Common
Stock offered by this Prospectus may not simultaneously engage in market making
activities with regard to the Common Stock of the Company during applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Security Holders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of Common Stock by
the Selling Security Holders.
18
MANAGEMENT
------------
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
- ---------------------------------------------------
The directors and executive officers of the Elite Pharmaceuticals and Elite Labs
are identical, and are:
NAME AGE POSITION
Atul M. Mehta 50 President, Chief Executive
Officer and Director
Donald Pearson 64 Director
Harmon Aronson 56 Director
Mark Gittelman 39 Treasurer and Secretary
Atul M. Mehta has been a director of Elite Labs since its inception in
1990, and a director of Elite Pharmaceuticals since 1997. There are no
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,
KoIhapur, 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 Mr. Mehta was affiliated in the past was a parent, subsidiary or other
affiliate of the Company.
Mr. Pearson, Director, has been employed since 1997 as the President of
Pearson & Associates, Inc., a company that provides consulting services to the
pharmaceutical industry. Prior to starting Pearson & Associates, Mr. Pearson
served for five years as the Director of Licensing at Elan Pharmaceuticals, and
prior to that he was employed by Warner-Lambert for thirty years in various
marketing, business development and licensing capacities. Mr. Pearson holds a
B.S. in Chemistry from the University of Arkansas, and studied steroid chemistry
at St. John's Univeristy. He has served on the informal advisory board of Elite
Labs for several years; other than Elite Labs, no company with which Dr. Pearson
was affiliated in the past was a parent, subsidiary or other affiliate of the
Company.
Dr. Aronson, Director has been employed since 1997 as the President of
Aronson Kaufman Associates, Inc. a New Jersey-based consulting firm that
provides manufacturing, FDA regulatory and compliance services to the
pharmaceutical and biotechnology companies. Its clients include US and
international firms manufacturing bulk drugs and finished pharmaceutical dosage
products who are seeking FDA approval for their products for the US
19
Market. Prior to that, Dr. Aronson was employed by Biocraft Laboratories,
a leading generic drug manufacturer, most recently in the position of Vice
President of Quality Management; prior to that he held the position of Vice
President of Non-Antibiotic Operations, where he was responsible for the
manufacturing of all the firm's non-antibiotic products. Dr. Aronson holds a
Ph.D. in Physics from the University of Chicago. Other than Elite Labs, no
company with which Dr. Aronson 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 the company 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 his Masters of Science in Taxation from 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.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
- -----------------------------------------
No director, executive officer, or person nominated to become an executive
officer or director, or control person has been the subject of any of the
following actions taken during the past ten years and not subsequently reversed,
suspended, vacated, annulled or otherwise rendered of no effect:
(a) bankruptcy or insolvency proceedings as described in Reg.
Section 228.401(d)(1)(i);
(b) criminal proceedings as described in Reg.
Section 228.401(d)(1)(ii);
(c) civil or administrative proceedings as described in Reg.
Section 228.401(d)(1)(iii); or
(d) self-regulatory organization proceedings as described in Reg. Section
228.401(d)(1)(i).
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
- -----------------------------------------------------------------------
LIABILITIES.
- ------------
The Articles of Incorporation and Bylaws of the Company contain
provisions reducing the potential personal liability of the directors of the
Company for certain monetary damages and providing for indemnity of directors.
The Company is unaware of any present, pending or threatened litigation which
would result in any liability for which a director would seek such
indemnification or protection. In addition, the Company has a $5,000,000
liability insurance policy for directors and officers.
The provisions affecting personal liability provide that the Company
will indemnify its directors to the fullest extent permitted by Section 145 of
the Delaware Corporation Law against (a) expenses (including attorney's fees)
reasonably incurred in connection with any threatened, pending or completed
civil, criminal, administrative, investigative or arbitrative action, suit or
proceeding (and appeal therefrom) against any director, whether or not brought
by or on behalf of the Company seeking to hold the director liable by reason of
the fact that he was acting in such capacity; and (b) any reasonable payments
made by him in satisfaction of
20
any judgment, money decree, fine, penalty or settlement in such action, suit or
proceeding. In that respect, the provisions diminish the potential right of
action which might otherwise be available to shareholders by affording
indemnification by the Company against most damages and settlement amounts paid
by a director.
D&O LIABILITY INS
- -----------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
COMPENSATION.
- -------------
SUMMARY EXECUTIVE COMPENSATION TABLE FOR YEARS 1997, 1998 AND 1999.
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
<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 1999 $220,000 $0 $3,040(3) -- -- -- --
President 1998 $200,000 $20,000 $3,220(3) -- 300,000 -- --
1997 $180,000 $0 $1,795(3) -- 545,214(4) -- --
</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 1999, 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 on 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% $7.00 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;
21
<TABLE>
<CAPTION>
Aggregated Executive Option Exercises and Fiscal Year End OPTION/SAR VALUE TABLE
FOR FISCAL YEAR ENDED MARCH 31, 1999.
- -----------------------------------------------------------
<S>
<C> <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 $0 845,214/100,000 $7,249,747/550,000(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.
(2) The shares are unregistered, and their market value is unknown and
uncalculable. However, the registered common stock of the Company is trading for
$12.50 per share as of February 24, 2000. Based on that price, the maximum
amount the shares of Common Stock could be worth is $10,565,175 (vested) and
$1,250,000 (unvested). It is on this hypothetical value, less the exercise price
per share, 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> <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(1) $0 $1,000(2) $0 0 0
John W. Jackson(1) $0 $1,000(2) $0 0 0
</TABLE>
(1) Director of Elite until its most recent annual meeting on September 2, 1999.
(2) 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,
22
$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. Dr. Mehta's salary in 1999, as established by the Board, was $220,000,
and in 2000, it will be $242,000. (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.
Dr. Mehta is required to refrain from competing with the Company
during the term of the Agreement.
PRINCIPAL SHAREHOLDERS
------------------------
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) 25.2%
165 Ludlow Avenue
Northvale, New Jersey 07647
VOTING COMMON JOHN DE NEUFVILLE, TRUSTEE 925,000(3) 10.8%
Margaret deNeufville Revocable Trust
197 Meister Avenue
North Branch, NJ 08876
Voting Common Bakul and Dilip Mehta 630,000 7.4%
P.O. Box 438
Muscat, Sultanate of Oman
VOTING COMMON BRIDGE VENTURES, INC. 535,918(4) 6.0%
575 Lexington Avenue, Ste. 410
New York, NY 10022
VOTING COMMON VIJAY PATEL 441,036(5) 5.1%
19139 Pebble Court
Woodbridge, CA 95258
23
VOTING COMMON MARK GITTELMAN 10,000(6) <1%
300 Colfax Ave
Clifton, NJ 07013
VOTING COMMON DONALD PEARSON 18,750(7) <1%
530 Forest Pkwy # A
Forest Park, GA 30297
VOTING COMMON OFFICERS AND DIRECTORS AS A GROUP 2,361,564(8) 25.4%
</TABLE>
(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 September 24, 1999. 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.
(5) Includes options to purchase 18,750 shares of Common Stock and warrants
to purchase 117,286 shares of Common Stock.
(6) Represents options to purchase 10,000 shares of Common Stock.
(7) Represents options to purchase 18,750 shares of Common Stock.
(8) Includes options to purchase 773,964 shares of Common Stock.
DESCRIPTION OF SECURITIES
----------------------------
Elite Pharmaceuticals has 25,000,000 shares of common stock authorized.
There are 8,561,539 shares of Common Stock outstanding, and an additional
4,643,827 shares of Common Stock are subject to outstanding options or warrants
to purchase said shares. Of such outstanding shares, 4,787,600 shares of such
Common Stock could be sold pursuant to Rule 144 under the Securities Act,
subject to the volume and time limitations contained therein; 2,200,000 have
been registered under the Company's 1998 Registration Statement on form SB-2;
and 448,791 shares of Common Stock were previously registered under the name of
Prologica International, Inc. The shares, options and warrants are held by
approximately 650 security holders.
24
DESCRIPTION OF COMMON STOCK.
- ----------------------------
The Common Stock registered is the sole class of stock in the Company. The
holders of Common Stock are entitled to one vote for each share held of record
on each matter submitted to a vote of stockholders and do not have cumulative
voting rights for the election of directors. The Common Stock has no conversion
rights and includes no preemptive subscription, conversion, redemption or other
rights to subscribe for additional securities. The holders of the Common Stock
will be entitled to receive dividends, if any, as may be declared by the Board
of Directors out of legally available funds and to share pro rata in any
distribution to the stockholders, including any distribution upon liquidation,
dissolution or winding up of the Company subject to the rights of any holders of
Preferred Stock, if any Preferred Stock is ever issued. All outstanding Common
Stock and the Shares issuable upon exercise of the Warrants, upon issuance and
when paid for, will be duly authorized, validly issued, fully paid and
nonassessable.
The Company has not, to date, paid any cash dividends upon its Common
Stock and does not expect to declare or pay any dividends.
WARRANTS.
- ---------
The Company is also registering 250,000 Class A Warrants, each of which
entitles the holder to purchase one share of Common Stock at an exercise price
of $6.00 during the five-year period commencing June 26, 1998. There are
currently warrants and options issued and outstanding exercisable for 4,643,827
shares of Common Stock, including the Warrants being Registered, although not
all warrants or options outstanding have the same exercise rights, exercise
period or exercise price as those being registered. No fractional shares will be
issued upon exercise of the Warrants. However, if a Warrant Holder exercises all
Warrants then owned of record by him or her, the Company will pay to such
holder, in lieu of the issuance of any fractional share which is otherwise
issuable, an amount in cash based on the market value of the Common Stock on the
last trading day prior to the exercise date
The Company also has outstanding certain Class B Warrants, none of
which are being registered hereunder. Each Class B Warrant entitles the holder
to purchase one share of Common Stock at $5.00 during the five year period
commencing June 1999.
TRANSFER AGENT.
- ---------------
The transfer agent and registrar for the Company's Common Stock and
Warrants registered hereunder is Jersey Transfer and Trust Company, 201
Bloomfield Avenue, Verona, New Jersey, 07044.
TRADING MARKET.
- ---------------
There is currently a limited trading market for Common Stock on the
American Stock Exchange and the Warrants on the NASD OTC Bulletin Board.
EXPERTS AND COUNSEL
----------------------
COUNSEL.
- --------
The legality of the securities offered hereby and certain other legal
matters will be passed upon for the Company by James, McElroy & Diehl, P.A, 600
South College Street, Charlotte, North Carolina 28202.
25
EXPERTS.
- --------
The consolidated financial statements of Elite Pharmaceuticals, Inc.
and Subsidiary included in the Company's Prospectus for the years ended March
31, 1999 and 1998, have been audited by Miller, Ellin & Company, LLP,
independent auditors, to the extent and for the periods set forth in their
report dated May 24, 1999, and June 14, 1999, as to Note 2, appearing elsewhere
herein, and is included in reliance upon the report of said firm given upon
their authority as experts in accounting and auditing.
INTERESTS OF EXPERTS AND COUNSEL
- --------------------------------
Neither (a) any expert named in the Registration Statement as having
prepared or certified any part of the Registration Statement or a report, or
valuation to be used in connection with the Registration Statement, nor (b) any
counsel for the Company named in the Prospectus as having given an opinion on
the validity of the securities being registered or on other legal matters in
connection with the Registration or the Offering, (i) was employed for that
purpose on a contingency basis; (ii) had at any time prior hereto, or is to
receive in connection with the offering; a substantial interest, direct or
indirect, in the Company, its parents or subsidiaries; or (iii) was connected
with the Company or any of its parents or subsidiaries as a promoter, managing
underwriter, or principal underwriter, voting trustee, director, officer or
employee.
26
DESCRIPTION OF BUSINESS
-------------------------
ELITE PHARMACEUTICALS, INC.'S BUSINESS.
- ---------------------------------------
Elite Pharmaceuticals' predecessor, Prologica International, Inc., 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 Elite Pharmaceuticals, Prologica engaged
in no business other than searching for suitable acquisitions. Except for Elite
Pharmaceuticals, it located no such acquisitions. Elite Pharmaceuticals was
incorporated in the State of Delaware on October 1, 1997, for the purpose of
merging with Prologica in order to change the name and state of incorporation of
Prologica. (Prior to the merger, Prologica underwent a three-for-one reverse
split on October 9, 1997.) Elite Pharmaceuticals survived the merger with
Prologica; Prologica ceased to exist at the time of the merger on October 24,
1997. Contemporaneous with the merger of Elite Pharmaceuticals and Prologica,
Elite Labs (the business of which is described below) merged with a wholly owned
subsidiary of Prologica, HMF. HMF was incorporated on August 1, 1997 for the
purpose of providing a vehicle into which Elite Labs could merge. Elite Labs and
HMF merged on October 30, 1997. (Prior to the merger, Elite Labs underwent a
two-for-one forward split on August 21, 1997.) Elite Labs survived the merger
with HMF and HMF ceased to exist subsequent to the merger. The net result of the
two mergers is that Prologica and HMF have ceased to exist, and Elite
Pharmaceuticals owns one hundred percent of the stock of Elite Labs. Such stock
ownership is Elite Pharmaceuticals' sole business.
There were no promotors of Elite Pharmaceuticals prior to its incorporation.
Neither Elite Pharmaceuticals nor Prologica had had any operating revenue for
the three years preceding the merger. At the present time, Elite Pharmaceuticals
has no plans to conduct any other business apart from the ownership of Elite
Labs. None of the proceeds of the current offering will inure to the benefit of
Elite Pharmaceuticals or Elite Labs.
ELITE LABORATORIES, INC.'S BUSINESS.
- -------------------------------------
Elite Laboratories, Inc. was incorporated in the State of Delaware on August 23,
1990. As described above, on October 30, 1997, one hundred percent of the stock
of Elite Labs was acquired by Elite Pharmaceuticals, Inc. via the merger between
Elite Labs 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
- ---------------------
Elite Labs primarily engages in researching, developing, licensing,
manufacturing, and marketing proprietary drug delivery systems and products.
Elite Labs' 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. Elite Labs has concentrated on
developing orally administered controlled release products. Elite Labs primarily
targets existing controlled release drugs that are reaching the end of their
exclusivity period, and works to develop
27
cheaper generic controlled-release version of those drugs. Six controlled
release products developed by Elite Labs are at various stages of testing. 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 FDA, and Elite therefore does not yet market any
products.
Elite Labs also engages in contract research and development activities
sponsored by several 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.
In the United States and European health care communities, a great deal of
interest has been evident in the area of new drug delivery systems. Several
pharmaceutical products have been introduced as oral controlled-release dosage
forms, both as tablets and as capsules.
RESEARCH AND DEVELOPMENT COSTS.
- -------------------------------
Elite Labs 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. As Elite Labs does not yet sell any of its products, no part of the
cost of such research was passed on to consumers of Elite Labs' products.
DISTRIBUTION METHODS OF PRODUCTS OR SERVICES.
- --------------------------------------------------
As yet, Elite Labs has not developed nor needed an elaborate method of
distribution of products or services.
COMPETITIVE BUSINESS CONDITIONS AND ISSUER'S COMPETITIVE POSITION.
- -------------------------------------------------------------------
Elite Labs 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 are able (or are perceived as 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
28
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.
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.
PATENTS, TRADEMARKS, ROYALTY AGREEMENTS ETC..
- ----------------------------------------------
Elite Labs 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, Elite was awarded a patent on its controlled-release
formulation of nifedipine (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, Elite retained certain manufacturing 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,
29
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 upon 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; it is currently a party to
well over one hundred such agreements. A representative copy of such an
agreement is attached hereto.
GOVERNMENT REGULATION AND APPROVAL
- -----------------------------------
The design, development and marketing of pharmaceutical compounds, those
activities 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. Because Elite
Labs 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: 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. There can be no
marketing in the United States of a product for which ANDA is required until it
has been approved by the FDA.
30
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, 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 required to obtain approval from the FDA to market any
product. The time period 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.
31
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 begins
manufacturing products, it may become subject to the Prescription Drug Marketing
Act, which regulates wholesale distributors of prescription drugs.
EMPLOYEES.
- ----------
Elite 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. Elite
Pharmaceuticals does not have any employees except its President/CEO. Elite Labs
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.
Atul M. Mehta is the sole significant employee of the Company at this time. In
fiscal years 1999 and 1998, his salary was allocated 75% to research and
development and 25% to general administrative.
EMPLOYEE INCENTIVE STOCK OPTION PLAN.
- -------------------------------------
On August 7, 1997, the shareholders of the Elite Labs approved the Company's
Incentive Stock Option Plan ("Plan"). The purpose of the Plan is to promote the
success of the Company by providing a method wherein eligible employees may be
awarded additional remuneration for services rendered.The Plan provides that the
maximum number of shares of Common Stock reserved for awards thereunder shall be
625,000. The purpose of this stock option plan (this "Plan") is to secure for
the company and its stockholders the benefits which flow from providing key
employees and officers with the incentive inherent in common stock ownership.
The stock options granted under the Plan are intended to qualify as incentive
stock options within the meaning of Internal Revenue Code Section 422. The total
number of shares of common stock to be subject to the options granted pursuant
to the Plan shall not exceed 625,000 shares. The plan is administered by the
Board of Directors. The purchase price per share of Stock purchasable under
options granted pursuant to the Plan shall not be less than 100% of the fair
market value at the time the options are granted. The purchase price per share
of Stock purchasable under options granted pursuant to the Plan to a person who
owns more than 10 percent of the voting power of the company's
32
voting stock shall not be less than 110% of the fair market value at the time
the options are granted. No option granted pursuant to this Plan shall be
exercisable after the expiration of ten years from the date it is first granted.
No option granted pursuant to this Plan to a person who owns more than 10
percent of the voting power of the company's voting stock will be exercisable
after the expiration of five years from the date it is first granted.
In December 1998, Atul M. Mehta was awarded options to purchase 300,000
shares of Common Stock under the Incentive Stock Option Plan. The options are to
vest over three years beginning December 1998. The exercise price for the
options is $7.00 per share. In December 1998, Robert Deline was awarded options
to purchase 75,000 shares; however, his employment was terminated prior to any
such shares vesting. In July 1999, Susan Hamet was awarded options to purchase
30,000 shares, such options vesting over three years beginning March 2000. Also
in July 1999, the following employees were each awarded options to purchase
1,000 shares, exercisable at $6.00 and vesting July 1, 2000: GlenRoy Brooks,
Melinsa Xhelo, Min Fa Wang, and Ella Cecilia Guy. In December, 1999, Raymond
DiFalco was awarded options to purchase 24,000 shares at $6.00 per share; and in
January 2000, Paul Jones was awarded options to purchase 15,000 shares at $9.00
per share.
LEGAL PROCEEDINGS
- ------------------
Neither Elite Pharmaceuticals nor Elite Labs is involved in or the
subject of any current or aware of any pending legal proceedings, nor is any of
the property of either company the subject of any such legal proceedings.
PROPERTY
- ---------
Both Elite Pharmaceuticals and Elite Labs are located at 165 Ludlow Avenue,
Northvale, New Jersey, where the Company owns a piece of real property and
improvements for use as a laboratory and offices.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF THE COMPANY AND ITS SUBSIDIARY
INTRODUCTION
Elite Pharmaceuticals' predecessor , Prologica International, Inc., 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 Elite Pharmaceuticals, Prologica engaged
in no business other than searching for suitable acquisitions. Except for Elite
Pharmaceuticals, it located no such acquisitions. Elite Pharmaceuticals was
incorporated in the State of Delaware on October 1, 1997, for the purpose of
merging with Prologica in order to change the name and state of incorporation of
Prologica. (Prior to the merger with Elite Pharmaceuticals, Prologica underwent
a three-for-one reverse split of its stock.) Elite Pharmaceuticals survived the
merger with Prologica; Prologica ceased to exist at the time of the merger on
October 24, 1997. Contemporaneous with the merger of Elite Pharmaceuticals and
Prologica, Elite Labs (described below) merged with a wholly owned subsidiary of
Prologica, HMF. HMF was incorporated on August 1,
33
1997 for the purpose of providing a vehicle into which Elite Labs could merge.
Elite Labs and HMF merged on October 30, 1997. (Prior to the merger with HMF,
Elite Labs underwent a two-for-one forward split of its stock.) Elite Labs
survived the merger with HMF and HMF ceased to exist subsequent to the merger.
The net result of the two mergers is that Prologica and HMF have ceased to
exist, and Elite Pharmaceuticals owns one hundred percent of the stock of Elite
Labs. Such stock ownership is Elite Pharmaceuticals' sole business.
Elite Labs was incorporated in the State of Delaware on August 23,
1990. As described above, on October 30, 1997, one hundred percent of the stock
of Elite Labs was acquired by Elite Pharmaceuticals, Inc. 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.
Elite Labs, now a wholly owned subsidiary of Elite Pharmaceuticals,
engages in the research, development, licensing, manufacturing and marketing of
both new and generic controlled-release pharmaceuticals products. Elite Labs is
a 100% owned subsidiary of Elite Pharmaceuticals, Inc. 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.
34
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
(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.
NINE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 (UNAUDITED)
Elite's revenues for the period ended December 31, 1999 were $6,908, a
decrease of $147,314 or approximately 96% over the comparable period of the
prior year. Net revenues primarily consisted of consulting and tests fees of
$6,293 and contract research and development fees of $615 (compared with
$150,000 of licensing fees and $4,222 of consulting and test fees for the
comparable period of the prior year).
General and administrative expenses for the period ended December 31,
1999 were $721,057, an increase of $246,950, or approximately 52% from the
comparable period of the prior year. The increase in general and administrative
expenses was substantially due to
35
legal and consulting fees. General and administrative expenses expressed as a
percentage of revenues was approximately 10,438% for the period ended December
31, 1999 as compared to 307% for the comparable period of the prior year.
Research and development costs for the period ended December 31, 1999,
were $1,532,925, an increase of $769,725 or approximately 101% from the
comparable period of the prior year. The increase in research and development
costs can be attributed to increases in laboratory raw materials, supplies,
payments to clinical organizations for conducting biostudies on drug products
developed by the Company, and new hires. These increases have been made possible
principally because of the Company raising equity in its recent private
placement offering and incurring debt in connection with the issuance of New
Jersey Economic Development Authority (NJ EDA) Bonds, and reflects increased
efforts to develop drug release products and technology in accordance with
management's plan of operations.
Elite's net loss for period ended December 31, 1999 was $2,167,297 as
compared to $988,843 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; 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.
36
Material Changes in Financial Condition
The Company's working capital (total current assets less total current
liabilities), which was $1,364,564 as of March 31, 1999, increased to $4,890,941
as of December 31, 1999. The increase in working capital was primarily due to
the Company raising equity in its May 1999 private placement offering and
incurring debt in connection with the issuance of NJ EDA Bonds.
The Company experienced negative cash flow from operations of $2,238,950
for the period ended December 31, 1999 due to the Company's net loss of
$2,167,297.
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.
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.
37
EVENTS OCCURRING AFTER FISCAL YEAR END 3/31/99
- ----------------------------------------------
BOND FINANCING OFFERING.
On September 3, 1999, the Company completed the issuance of $3,000,000
in tax-exempt bonds by the New Jersey Economic Development Authority (NJEDA).
The net proceeds of the bonds (approximately $2,700,000) will 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.
PRIVATE PLACEMENT OF SECURITIES
Subject to a confidential private offering memorandum dated May 17,
1999, the Company sold 12.75 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 B 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 was conducted without registration under SEC exemption
afforded by Section 4(6) of the Securities Act and Rule 506 of regulations
promulgated thereunder. The Company received net proceeds of $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 funded 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
38
shareholders. SFAS No. 131 is effective for financial statements for fiscal
years beginning December 15, 1997. The adoption of SFAS No. 131 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.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS.
- -----------------------------------------
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, Elite 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.
39
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.
Elite Pharmaceuticals, Inc. is a party to a consulting contract with
Harmon Aronson, whereby the company compensates Dr. Aronson on a per diem basis
for consulting services rendered in connection with compliance with FDA rules
and regulations. For the year ended March 31, 1999 and 1998, the fees to Dr.
Aronson under such agreement were $36,092 and $2,000, respectively.
Elite Pharmaceuticals, Inc. is a party to a referral agreement with
Donald Pearson, similar to the agreement the company has with several other
persons in the pharmaceutical industry, whereby the company would compensate Mr.
Pearson for a referral of a manufacturing client. No fees have been generated to
date under this agreement.
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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------
Not Applicable.
40
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
CONTENTS
PAGE
-----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET (AS OF MARCH 31, 1999) F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-23
F-1
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-2
<TABLE>
<CAPTION>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
------
<S>
<C> <C> <C>
DECEMBER 31, MARCH 31,
1999 1999
------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $4,132,331 $1,559,443
Restricted cash 901,353 -
PREPAID EXPENSES AND OTHER CURRENT ASSETS 18,912 52,605
---------- ----------
Total current assets 5,052,596 1,612,048
PROPERTY AND EQUIPMENT- net of accumulated
depreciation and amortization 2,385,843 1,250,237
INTANGIBLE ASSETS - net of accumulated amortization 16,706 17,759
OTHER ASSETS:
Security deposits 340,538 196,538
Restricted cash 300,000 -
EDA BOND OFFERING COSTS, NET OF ACCUMULATED AMORTIZATION 189,259 -
---------- ----------
$8,284,942 $3,076,582
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES:
Current portion of capitalized lease obligation $ 8,184 $ 47,021
Accounts payable 34,395 100,420
Accrued expenses and other current liabilities 4,076 100,043
CURRENT PORTION OF EDA BONDS 115,000 -
------- ---------
Total current liabilities 161,655 247,484
EDA BOND-NET OF CURRENT PORTION 2,885,000 -
--------- ---------
TOTAL LIABILITIES 3,046,655 247,484
--------- ---------
Authorized - 25,000,000 shares, Issued and outstanding -
8,560,355 and 7,237,613 shares, respectively 85,603 72,376
Additional paid-in capital 11,378,621 6,815,362
ACCUMULATED DEFICIT (6,225,937) (4,058,640)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,238,287 2,829,098
---------- -----------
$8,284,942 $3,076,582
========== ==========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
F-3
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEARS ENDED
DECEMBER 31, MARCH 31,
-----------------------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
Licensing fees $ - $ 150,000 $150,000 $20,000
Contract research and development 615 - - -
CONSULTING AND TEST FEES 6,293 4,222 412 31,958
----- ------------ -------- ------
TOTAL REVENUES 6,908 154,222 150,412 51,958
------- ------------- -------- ------
OPERATING EXPENSES:
Research and development 1,532,925 763,200 1,273,445 541,164
General and administrative 721,057 474,107 621,712 336,063
DEPRECIATION AND AMORTIZATION 56,646 18,972 52,943 25,160
------ --------- -------------- -------
2,310,628 1,256,279 1,948,100 902,387
--------- --------- -------------- -------
LOSS FROM OPERATIONS (2,303,720) (1,102,057) (1,797,688) (850,429)
----------- ----------- ----------- --------
Interest income 139,046 119,527 142,872 86,794
INTEREST EXPENSE (2,623) (6,313) (6,965) (9,956)
----------- ----------- ----------- -------
136,423 113,214 135,907 76,838
------------ ----------- ----------- -------
LOSS BEFORE PROVISION FOR
INCOME TAXES (2,167,297) (988,843) (1,661,781) (773,591)
PROVISION FOR INCOME TAXES - - 100 15,000
----------- ----------- ------------- ----------
NET LOSS $(2,167,297) $ (988,843) $(1,661,881) $ (788,591)
============ =========== ============ ===========
BASIC LOSS PER COMMON SHARE $ (0.27) $ (0.14) $ (0.23) $ (0.13)
======== ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,177,515 7,237,613 7,237,613 5,858,238
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements
F-4
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
*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
Sale of securities through
private placement 1,275,002 12,750 4,449,750 - 4,462,500
Issuance of shares through
exercise of options 25,000 250 49,750 - 50,000
Issuance of shares and
warrants through exercise
of placement agent warrants 22,740 227 81,637 - 81,864
Offering costs in connection
with sale of securities - - (10,000) - (10,000)
Offering costs in connection
with registration of
securities - - (7,878) - (7,878)
NET LOSS FOR THE NINE MONTHS
ENDED DECEMBER 31, 1999
(UNAUDITED) - - - (2,167,297) (2,167,297)
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999
(UNAUDITED) 8,560,355 $ 85,603 $11,378,621 $(6,225,937) $5,238,287
========= ======== =========== =========== ==========
* 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-5
</TABLE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NINE MONTHS ENDED YEARS ENDED
DECEMBER 31, MARCH 31,
-----------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,167,297) $(988,843) $ (1,661,881) $(788,591)
Adjustments to reconcile net loss to cash
Depreciation 51,292 18,000 51,536 23,883
Amortization of intangibles 5,354 972 1,407 1,277
Deferred income taxes - - - 14,800
Changes in assets and liabilities:
Consulting and test fees receivable - 25,000 25,000 (12,792)
Prepaid expenses and other current assets 33,693 (9,969) (40,638) (9,812)
Other assets - security deposit - 9,000 9,000 -
Accounts payable (66,025) (13,670) 86,750 10,957
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (95,967) 73,219 21,079
-------- --------- ---------- --------
(21,034)
NET CASH USED IN OPERATING ACTIVITIES (2,238,950) (980,544) (1,455,607) (739,199)
----------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for patent and trademark filings - (8,286) (950)
(2,100)
Payment of building deposit and related acquisition costs - - - (123,057)
Payment of deposit for manufacturing equipment (144,000) - (196,538) -
Purchases of property and equipment (1,186,898) (1,219,495) - -
RESTRICTED CASH (1,201,353) (1,071,235) (7,392)
----------- ------------ ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,532,251) (1,227,781) (1,268,723) (132,549)
----------- ----------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ----------------------------------------
Proceeds from issuance of NJ Economic Development
Authority (EDA) Bonds 3,000,000 - - -
Payments of offering costs in connection with issuance of
EDA Bonds (193,560) - - -
Repayments of notes payable - related parties - - - (100,000)
Principal payments on capital lease (38,837) (31,328) (42,331) -
Proceeds from issuance of common stock and warrants 131,864 - - 28,150
Proceeds from issuance of common stock and warrants
in connection with private placement 4,462,500 - - 6,000,000
Payments of offering costs in connection
with private placement (10,000) (18,000) (18,000) (767,939)
Payments of offering costs in connection
WITH REGISTRATION FILING (7,878) (3,043) (32,078)
------- ------- ----------- ---------
(1,203)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,344,089 (50,531) (63,374) 5,128,133
--------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements
F-6
</TABLE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NINE MONTHS ENDED YEARS ENDED
DECEMBER 31, MARCH 31,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED)
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,572,888 (2,258,856) (2,787,704) 4,256,385
CASH AND CASH EQUIVALENTS - BEGINNING 1,559,443 4,347,147 4,347,147 90,762
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS - ENDING $4,132,331 $2,088,291 $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 equipment by capital leases - - - 89,352
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 2,623 $ 6,313 $ 7,420 $ 11,240
Cash paid for income taxes 200 200 200 200
The accompanying notes are an integral part of the consolidated financial statements
F-7
</TABLE>
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.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
The consolidated balance sheet of the Company at December 31,
1999 and the consolidated statements of operations, changes in
stockholders' equity and cash flows for the nine months ended
December 31, 1999 and 1998 are unaudited but include all
adjustments which in the opinion of management are necessary for
the fair presentation of the Company's financial position and
results of operations for the periods then ended. All such
adjustments are of a normal recurring nature. The results of
operations for the interim periods are not necessarily indicative
of the results of operations for a full fiscal year.
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.
F-8
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
--------------------------
The Company considers highly liquid short-term investments
purchased with initial maturities of nine months or less to be
cash equivalents. Cash and cash equivalents consist principally
of money market accounts at various financial institutions.
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 charged to expense as incurred.
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. For the nine months ended December 31, 1999 and 1998
(unaudited) and for the years ended March 31, 1999 and 1998,
research and development costs amounted to $1,532,925, $763,200,
$1,273,445 and $541,164, respectively.
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.
F-9
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 contract.
F-10
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
-------------------------------
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
position, results of operations or cash flows.
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 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 cashflows.
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.
F-11
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)
------------------------------
American Institute of Certified Public Accountants Statement of
Position No. 97-2, "Software Revenue Recognition" (SOP 97-2),
provide 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 December15, 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 financial condition or results of operations or cash
flows.
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 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 Standards 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 in the proforma amount. No proforma
calculation was prepared as the impact of SFAS No. 123 would have
no effect on the per share calculation.
F-12
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, MARCH 31,
1999 1999
--------------------------------------
(Unaudited)
Laboratory and manufacturing equipment $ 1,081,394 $232,708
Furniture and fixtures 49,804 58,325
Office equipment 17,099 -
Land, building and improvements 1,438,833 1,109,199
EQUIPMENT UNDER CAPITAL LEASE 168,179 168,179
------- ----------
2,755,309 1,568,411
LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION 369,466 318,174
------- ----------
$2,385,843 $1,250,237
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $51,292,
$18,000, $51,536 and $23,883 for the nine months ended December
31, 1999 and 1998 (unaudited) and for the years ended March 31,
1999 and 1998, respectively.
F-13
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 3 - INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, MARCH 31,
1999 1999
---------------------------------
(Unaudited)
Patents $ 13,384 $ 13,384
TRADEMARKS 8,120 8,120
----- ---------
21,504 21,504
LESS: ACCUMULATED AMORTIZATION 4,798 3,745
----- ---------
$ 16,706 $ 17,759
========= =========
</TABLE>
Amortization amounted to $5,354, $972, $1,407 and $1,277 for the
nine months ended December 31, 1999 and 1998 (unaudited) and for
the years ended March 31, 1999 and 1998, respectively.
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.
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 $52,092 and $67,100 at
December 31, 1999 (unaudited) and March 31, 1999, respectively.
Minimum future lease payments under this capitalized lease are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DECEMBER 31, MARCH 31,
YEAR ENDING MARCH 31, 1999 1999
---------------------
--------------------------------------
(Unaudited)
2000 $ 8,292 $ 49,750
LESS: INTEREST (108) (2,729)
----- -------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS $ 8,184 $ 47,021
========= =========
</TABLE>
The Company incurred interest expense of $2,623 and $7,420 for
the nine months ended December 31, 1999 (unaudited) and for the
year ended March 31, 1999.
F-14
<TABLE>
<CAPTION>
<S> <C> <C>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 6 - INCOME TAXES
The components of provision for income taxes by taxing
jurisdiction are as follows:
MARCH 31,
1999 1998
----------------------
Federal:
Current $ - $ -
DEFERRED - 11,200
----------------- ------
- 11,200
----------------- ------
State:
Current 100 200
DEFERRED - 3,600
------------- ------
100 3,800
------------- -----
$ 100 $ 15,000
========= ========
</TABLE>
No provisions for income taxes were made for the nine months
ended December 31, 1999 and 1998 (unaudited).
The major components of deferred tax assets at December 31, 1999
(unaudited) and March 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, MARCH 31,
1999 1999
-----------------------------------
(Unaudited)
Net operating loss carryforwards $2,283,000 $ 1,476,000
VALUATION ALLOWANCE (2,283,000) (1,476,000)
----------- -----------
$ - $ -
========= =======
</TABLE>
At December 31, 1999 (unaudited) and at March 31, 1999, a 100%
valuation allowance is provided as it is uncertain if the
deferred tax assets will be utilized.
At December 31, 1999 (unaudited) and at March 31, 1999, for
income tax purposes, the Company has unused net operating loss
carryforwards of approximately $6,215,000 (unaudited) and
$4,036,000, respectively expiring in 2007 through 2014.
F-15
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY
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:
<TABLE>
<CAPTION>
<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 OFFERINGS
---------------------------
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.
In a private placement offering dated May 17, 1999, the Company
raised $4,462,500 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.
F-16
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:
Placement fees equal to ten percent (10%) of the gross proceeds.
Consulting fees in the amount of $3,000 per month.
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 nine months ended December 31, 1999 and 1998 (unaudited)
and for the years ended March 31, 1999 and 1998, placement agent
fees in the amount of $0, $18,000, $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 September 30, 2009.
A summary of warrant activity for the periods indicated were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nine Months Ended Years Ended
DECEMBER 31, MARCH 31,
1999 1998 1999 1998
----------------------------------------------------------------------
(unaudited) (unaudited)
Beginning balance 1,917,286 1,867,286 1,867,286 122,286
Warrants issued 1,047,501 50,000 50,000 1,745,000
Warrants issued pursuant to
Placement Agent Agreement 11,370 - - -
WARRANTS EXERCISED OR EXPIRED -
- - -
--- --- -
ENDING BALANCE 2,976,157 1,917,286 1,917,286 1,867,286
========= ========= ========= =========
</TABLE>
There were no warrants exercised as of December 31, 1999
(unaudited) and March 31, 1999.
F-17
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 $0, $37,198, $37,198 and $63,240 for the
nine months ending December 31, 1999 and 1998 (unaudited) and 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:
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDING MARCH 31,
---------------------
2000 $ 222,750
2001 (THROUGH DECEMBER 31) 173,250
-------
$ 396,000
</TABLE>
F-18
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENT (CONTINUED)
--------------------
Effective January 1, 2000, the Company increased the base salary
of the President/CEO for calendar 2000 from $220,000 to $242,000
plus a discretionary bonus of $25,000. 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:
1. Incentive commissions equal to five percent (5%) of net
profit, as defined, for each fiscal year.
2. 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.
3. Incentive stock options to purchase 125,000 shares of common
stock, at a price of $7.00 per share.
4. 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 $166,530,
$138,333, $193,333 and $205,000 for the nine months ending
December 31, 1999 and 1998 (unaudited) 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-19
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:
1. Combined monthly fees of $15,000.
2. The issuance of 350,000 warrants to purchase common stock of 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 $135,000,
$135,000, $180,000 and $120,000 for the nine months ended
December 31, 1999 and 1998 (unaudited) and 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. On or around June 1, 1999, this agreement was
terminated by mutual consent of all parties.
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 $4,000,
$10,000 and $16,000 for the nine months ended December 31, 1999
and 1998 (unaudited) and for the year ended March 31, 1999.
On October 1, 1998, the Company entered into an investment bank
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-20
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONSULTING AGREEMENTS (Continued)
---------------------
On June 30, 1999 this consulting agreement was amended to provide
for payment of a monthly consulting fee of $5,000, commencing on
July 1, 1999 and terminating on December 1, 2000. Consulting fees
under this agreement amounted to $30,000 for the nine months
ended December 31, 1999 (unaudited).
NOTE 9 - STOCK OPTION PLANS
------------------
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
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> <C> <C>
NINE MONTHS ENDED YEARS ENDED
DECEMBER 31, MARCH 31,
1999 1998 1999 1998
------------------------------------------------------------------
(Unaudited) (Unaudited)
Outstanding at beginning of the period 1,472,714 1,007,714 1,007,714 750,000
Granted 148,000 465,000 465,000 257,714
EXERCISED (25,000)
- - -
--- --- -
OUTSTANDING AT END OF PERIOD 1,595,714 1,472,714 1,472,714 1,007,714
========= ========= ========= =========
</TABLE>
Options outstanding at December 31, 1999 and 1998 (unaudited) and
at March 31, 1999 and 1998 ranged in price from $2.00 to $7.00.
25,000 options were exercised as of December 31, 1999
(unaudited), and no options were exercised as of March 31, 1999.
F-21
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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 consist 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. No such amounts were
incurred for the nine months ending December 31, 1999 and 1998
(unaudited).
NOTE 11 - BOND FINANCING OFFERING
-----------------------
On September 2, 1999, the Company completed the issuance of tax
exempt bonds by the New Jersey Economic Development Authority.
The aggregate principal proceeds of the fifteen year term bonds
were $3,000,000. The proceeds, net of offering costs of $60,000,
are being 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.
Offering costs in connection with the bond issuance totaled
$193,560, including the $60,000 mentioned above which were paid
from bond proceeds. Offering costs included underwriter fees
equal to $90,000 (three percent (3%) of the par amount of the
bonds).
The bonds are collateralized by a first lien on the building
which includes property and equipment.
Several restricted cash accounts are maintained in connection
with the issuance of these bonds. These include amounts
restricted for payments of bond principal and interest, for the
refinancing of the land and building the Company currently owns,
for the purchase of certain manufacturing equipment and related
building improvements as well as for the maintenance of a
$300,000 Debt Service Reserve. All restricted amounts other than
the $300,000 Debt Service Reserve are expected to be expended
within twelve months and are therefore categorized as current
assets.
F-22
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 12 - MAJOR CUSTOMERS
Revenues from major customers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, MARCH 31,
1999 1998 1999 1998
---- ---- ----- -----
(Unaudited) (Unaudited)
Customer A 86.86% 99.73% 99.73% 53.90%
Customer B 6.22% - - 38.50%
</TABLE>
NOTE 13 - SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING
------------------------
In March 2000, the Company plans to file 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
will not receive any proceeds upon filing of Form SB-2.
The securities to be registered consist of 3,297,539 shares of
the Company's $.01 par value common stock, including 2,022,537
underlying Class A and Class B common stock purchase warrants,
and 317,250 Class A common stock purchase warrants.
F-23
DATED FEBRUARY 28, 2000
PROSPECTUS
ELITE PHARMACEUTICALS, INC.
3,297,539 VOTING COMMON
SHARES (includes 2,022,537 shares underling
options and warrants)
AND
317,250 CLASS A COMMON STOCK PURCHASE WARRANTS
ELITE PHARMACEUTICALS, INC.
----------------------------
PROSPECTUS
----------------------------
February 28, 2000
