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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended to
Commission File Number: 333-45241
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ELITE PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3542636
-------------------------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
165 Ludlow Avenue, Northvale, New Jersey 07647
-------------------------------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(201) 750-2646
------------------------------------------------------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's common stock as of September
30, 2000 is 8,915,054.
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
INDEX
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Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2000 and
September 30, 1999 (unaudited) 3
Consolidated Statements of Operations for the six months
ended September 30, 2000 and September 30, 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the six months
ended September 30, 2000 and September 30, 1999 (unaudited) 5
Notes to Form 10-QSB 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 9
PART II OTHER INFORMATION 10
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security-Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES 11
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30, March 31,
2000 2000
------------------ ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,973,481 $ 3,937,217
Restricted cash 247,112 571,730
Prepaid expenses and other current assets 57,149 338,670
Receivable for capital stock 17,015,000 ---
----------- -----------
Total current assets 20,292,742 4,847,617
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 2,590,280 2,479,327
INTANGIBLE ASSETS - net of accumulated amortization 28,394 29,564
OTHER ASSETS:
Deposits 1,316,940 1,315,710
Restricted cash 300,000 300,000
EDA Bond offering costs, net of accumulated amortization 183,568 190,165
----------------- ---------------
24,711,924 9,162,383
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of EDA Bonds 120,000 115,000
Accounts payable and accrued expenses 118,507 597,780
Amount payable to Joint Venture 12,015,000 ---
---------- ---
Total current liabilities 12,253,507 712,780
EDA BONDS - net of current portion 2,765,000 2,885,000
---------- ----------
15,018,507 3,597,780
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 20,000 shares authorized;
Series A convertible exchangeable Preferred stock; 12,015
shares designated, and no shares issued and outstanding
Preferred stock - $.01 par value; 7,250,000 shares authorized;
Series B convertible preferred stock; 4,806,000 shares
Designated, and no shares issued and outstanding
Common stock - $.01 par value;
Authorized - 25,000,000 shares issued and outstanding -
8,915,054 and 8,855,519 shares, respectively 89,150 88,555
Common stock issuable 5,000,000 ---
Preferred stock issuable 12,015,000 ---
Additional paid capital 12,780,196 12,511,080
Accumulated deficit (20,190,929) (7,035,032)
---------------- ----------------
Total stockholders' equity 9,693,417 5,564,603
---------------- ----------------
$ 24,711,924 $ 9,162,383
=============== ================
The accompanying notes are an integral part of the consolidated financial statements.
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------
-------------------------------------------------------------------
REVENUES
Consulting and test fees $ 0 $ 215 $ 0 $ 908
-------- --------- -------- ---------
Total revenues
-------------------------------------------------------------------
0 215 0 908
- --- - ---
OPERATING EXPENSES:
Research and development 331,892 542,479 705,900 936,955
General and administrative 162,753 198,315 320,769 574,552
Depreciation and amortization 58,980 18,523 117,960 35,972
------ -------- -------- ------
553,625 759,317 1,144,629 1,547,479
------- -------- --------- -------
LOSS FROM OPERATIONS (553,625) (759,102) (1,144,629) (1,546,571)
---------- --------- ----------- ------------
OTHER INCOME (EXPENSES):
Interest income 60,383 42,912 120,496 62,431
Interest expense (57,382) (1,196) (115,507) (2,195)
Equity in loss of Joint Venture (12,015,000) --- (12,015,000) ---
-------------- --- ------------ ---
(12,011,999) (12,010,011)
------------ --- ------------ ---
41,716 60,236
------ ------
LOSS BEFORE PROVISION FOR INCOME TAXES (12,565,624) (717,386) (13,154,640) (1,486,335)
------------ --------- ------------ -----------
PROVISION FOR INCOME TAXES 700 --- 1,255 ---
--- --- ----- ---
NET LOSS $(12,566,324) $ (717,386) $(13,155,895) $ (1,486,335)
============= =========== ============= =============
NET LOSS PER COMMON SHARE $ (1.41) $ (0.08) $ (1.48) $ (0.19)
=========== ========== =========== =============
COMMON SHARES OUTSTANDING 8,911,329 8,520,037 8,885,287 7,986,838
=========== ========= =========== =============
The accompanying notes are an integral part of the consolidated
financial statements.
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
2000 1999
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,155,895) $(1,486,335)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation 110,193 34,375
Amortization of intangibles 7,767 1,777
Equity in loss of Joint Venture 12,015,000 ---
Changes in assets and liabilities:
Consulting and test fees receivable --- ---
Prepaid expenses and other current assets 281,521 15,644
Accounts payable, accrued expenses and other current liabilities (479,275) (36,570)
NET CASH USED IN OPERATING ACTIVITIES (1,220,689) (1,471,109)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (221,146) (648,172)
Payment of deposit for property and equipment (1,230) (144,000)
Payments for Patent Filings --- ---
Restricted cash 324,618 (1,975,603)
----------- -----------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES 102,242 (2,767,775)
----------- -----------
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)
Proceeds from issuance of common stock and warrants
in connection with private placement --- 4,462,500
Payments of offering costs in connection with private placement --- (10,000)
Proceeds from issuance of common stock and warrants 269,711 114,800
Principal Payments on Capital Lease Obligation --- (26,827)
Principal repayments of NJEDA Bonds (115,000) ---
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 154,711 7,346,913
----------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (963,736) 3,108,029
CASH AND CASH EQUIVALENTS - beginning 3,937,217 1,559,443
--------- ---------
CASH AND CASH EQUIVALENTS - ending $ 2,973,481 $4,667,472
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 116,250 $ 1,196
Cash paid for income taxes 1,255 200
SUPPLEMENTAL SCHEDULE NONCASH FINANCING ACTIVITIES:
Preferred Stock Issuance in Exchange for Interest in Joint Venture $ 12,015,000 $ ---
The accompanying notes are an integral part of the consolidated
financial statements.
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The information in this Form 10-QSB includes the results of
operations of Elite Pharmaceuticals, Inc. ("the Company") and its
wholly-owned subsidiary, Elite Laboratories, Inc. ("Elite"), for
the six months ended September 30, 2000 and 1999. The data is
unaudited, but includes all adjustments including the elimination
of intercompany accounts and transactions which are, in the
opinion of management, necessary for a fair presentation of the
interim periods presented.
The accounting policies utilized in the preparation of this Form
10-QSB are the same as those set forth in the Company's Form
10K-SB at March 31, 2000 and should be read in conjunction with
the disclosures presented therein.
The Company does not anticipate being profitable for fiscal year
2001, therefore a current provision for income tax was not
established for the six months ended September 30, 2000.
This quarterly report may contain forward-looking statements
which involve certain risks and uncertainties. Important factors
could arise which could cause the Company's operating results to
differ materially from those contained in any forward looking
statement.
NOTE 2 - EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares outstanding during each period presented. The Company has
adopted FAS 128, "Earnings Per Share" and has restated prior
periods to comply with the provisions of this pronouncement.
Common stock equivalents have not been included as their effect
would be antidilutive.
NOTE 3 - COMMITMENTS
On October 1, 1998, the Company entered into a consulting
agreement with an investment banking firm ("Consultant"). The
terms of the agreement provide for the consultant to render
various services to the Company relating to financial and
investment activities for a term of twenty four months.
As compensation for the consultant's services, the Company shall
grant warrants to purchase 300,000 shares of the Company's common
stock at an exercise price of $6 per share. The warrants shall
vest at the rate of 50,000 warrants every ninety days after the
commencement of the agreement.
The agreement may be terminated by the Company at any time after
ninety days following the commencement date, upon thirty days
written notice.
On September 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.
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 4 - STOCKHOLDER'S EQUITY
Private Placement Offering
In a private placement offering dated May 17, 1999, the Company
raised $4,462,500 from the sale of 12.75 units of its securities;
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. The Company issued 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 raised net proceeds of $4,452,500 from the private
placement after legal fees of $10,000.
Joint Venture Subscription Offering
On September 21, 2000, 409,165 shares of the Company's common
stock and 12,015 shares of a newly created Elite Series A
convertible exchangeable preferred stock ("Series A Preferred
Stock") will be issued to Elan International Services, Ltd.
("EIS") for consideration of $5,000,000 and $12,015,000,
respectively, during the month of October. Proceeds from the sale
of the Series A Preferred Stock were used to fund the Company's
80.1% share of Elite Research, Ltd. ("ERL"), a joint venture with
EIS.
The Series A Preferred Stock accrues a dividend of 7% per annum,
compounded annually and payable in shares of Series A Preferred
Stock. The Series A Preferred Stock is convertible at anytime
after two years, at EIS's option, into the Company's common stock
at a price of $18.00 per share. For the quarter ended September
30, 2000, the Company accrued no dividends on the Series A
Preferred Stock.
NOTE 5 - 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
$197,860, 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 that the $300,000 Debt Service Reserve
are expected to be expended within twelve months and are
therefore categorized as current assets.
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ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 6 - MEMORANDUM OF UNDERSTANDING
On June 1, 2000, the Company entered into a Memorandum of
Understanding with Inabata America Corporation ("Inabata"), an
international trading company which markets specialty chemicals
throughout the world in several industry segments including the
pharmaceutical industry. The purpose of the Memorandum was to
agree that the two parties would explore the possibility of
entering into a joint venture for the purpose of marketing Elite
products in Japan through the efforts of Inabata. The parties
will review each other's capabilities and obtain information
concerning regulatory procedures, price restrictions and
marketing information for the Japanese markets. The parties will
perform other due diligence investigations and analyses.
NOTE 7 - COLLABORATIVE AGREEMENTS
In October 2000, Elite entered into a joint development and
operating agreement with Elan Corporation, plc, and Elan
International Services, Ltd. (together "Elan") to develop
products using drug delivery technologies and expertise of both
companies. This joint venture, Elite Research, Ltd. ("ERL"), a
Bermuda corporation, is initially owned 80.1% by Elite and 19.9%
by Elan. ERL will fund its research through capital contributions
from its partners based on the partners' ownership percentage.
ERL will subcontract research and development efforts to Elite,
Elan and others. It is anticipated that Elite will likely provide
most of the formulation and development work. Elite has not yet
begun to subcontract development work for ERL.
While the Company owns 80.1% of the outstanding common stock of
ERL, Elan and its subsidiaries have retained significant minority
investor rights that are considered "participating rights" as
defined in the Emerging Issues Task Force Consensus No. 96-16.
Accordingly, the Company will not consolidate the financial
statements of ERL, but will instead account for its investment in
ERL under the equity method of accounting.
For the quarter ended September 30, 2000, ERL recognized a net
loss of $15,000,000. The net loss includes a $15,000,000 payment
to Elan for a technology license fee. Elite recognized 80.1% of
ERL's loss, or approximately $12,015,000 for the three months
ended September 30, 2000. To date, ERL has not recognized any
revenue.
ELITE PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO
THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1999
Introduction
The Company has developed nine oral controlled release pharmaceutical
products to varying states of the development process.
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.
In October 2000, Elite entered into a joint development and operating
agreement with Elan Corporation, plc, and Elan International Services, Ltd.
(together "Elan") to develop products using drug delivery technologies and
expertise of both companies. This joint venture, Elite Research, Ltd. ("ERL"), a
Bermuda corporation, is initially owned 80.1% by Elite and 19.9% by Elan. ERL
will fund its research through capital contributions from its partners based on
the partners' ownership percentage. ERL will subcontract research and
development efforts to Elite, Elan and others. Elite has not yet begun to
subcontract development work for ERL.
In September 2000, Elite received approval of its application to sell
approximately $2,200,000 in New Jersey Net Operating Tax losses under the New
Jersey Economic Development Agency's Technology Business Tax Certificate
Program. The Company expects to receive approximately $400,000 from the proceeds
of this sale.
Results of Consolidated Operations
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.
Period Ended September 30, 2000 vs. Period Ended September 30, 1999
Elite's revenues for the period ended September 30, 2000 were $0, a
decrease of $908 or approximately 100% over the comparable period of the prior
year. Net revenues consisted of consulting and test fees of $908 for the
comparable period of the prior year.
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ELITE PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO
THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1999
(CONTINUED)
Period Ended September 30, 2000 vs. Period Ended September 30, 1999 (Continued)
General and administrative expenses for the period ended September 30,
2000 were $320,769, a decrease of $253,783, or approximately 44% from the
comparable period of the prior year. The decrease in general and administrative
expenses was substantially due to a decrease in consulting fees.
Research and development costs for the period ended September 30, 2000,
were $705,900, a decrease of $231,955 or approximately 25% from the comparable
period of the prior year. Research and development costs have declined as the
Company has not undertaken a similar kind of biostudies as was the case in the
comparable period of the prior year.
Elite's net loss for period ended September 30, 2000 was $13,155,895 as
compared to $1,486,335 for the comparable period of the prior year. The increase
in the net loss was primarily due to a one time charge of $12,015,000
representing the equity in the loss of its 80.1% owned joint venture, Elite
Research, Ltd.
Material Changes in Financial Condition
The Company's working capital (total current assets less total current
liabilities), which was $4,134,837 as of March 31, 2000, increased to $8,039,235
as of September 30, 2000. The increase in working capital is due to the issuance
of stock subscriptions of $17,015,000 in connection with its joint venture in
ERL offset by the $12,015,000 which is payable to ERL.
The Company experienced negative cash flow from operations of
$1,220,689 for the period ended September 30, 2000 primarily due to the
Company's net loss from operations of $1,144,629.
Forward Looking Statements
This report contains forward-looking statements that describe the
Company's business prospects. These statements involve risks and uncertainties
including, but not limited to, rapid technology changes, regulatory uncertainty,
level of demand for the Company's products and services, product acceptance,
industry wide competitive factors, and political, economic or other conditions.
Furthermore, market trends are subject to changes which could adversely affect
future results. Reference should be made to the Company's Prospectus for its
initial public offering declared effective on August 14, 1998, and the
supplement to the Prospectus dated August 19, 1998, for additional discussion
concerning such risk factors.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a report on Form
8-K on October 26, 2000 to report transactions with
Elan Corporation, plc. No financial statements were
filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELITE PHARMACEUTICALS, INC.
Date: November13, 2000 By: /s/Atul M. Mehta
---------------------------------------------------
Atul M. Mehta
President & Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 By: /s/Mark I. Gittelman
---------------------------------------------------
Mark I. Gittelman
Chief Financial Officer and Treasurer
(Principal Financial & Accounting Officer)
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