U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
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[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECUR-
ITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 333-45241
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ELITE PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)
Delaware 22-3542636
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
165 Ludlow Avenue, Northvale, New Jersey 07647
(Address of principal offices) (Zip Code)
Issuer's telephone number: (201) 750-2646
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common stock American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
(Title of Class)
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(Title of Class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $ $10,315
----------------
The approximate aggregate market value of the voting and non-voting
common equity (not including options and warrants exercisable for voting equity)
held by non-affiliates (affiliates defined to include officers, directors and
10% shareholders) computed by reference to the closing price of
that portion of the common equity that is publicly traded as of June 22, 2000,
and presuming that the per-share market value of common equity which is not
publicly traded is equal to per-share market value of the company's publicly
traded common equity is: $60,399,658.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date: 8,908,804 shares of common
stock as of June 16, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy information statement; (3) any prospectus filed pursuant
to Rule 424(b) or (c) of the Securities At of 1933 ("Securities Act"). The list
of documents should be clearly described for information purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990). N/A
Transitional Small Business Disclosure Format (check one): Yes ___ No X
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FORWARD LOOKING STATEMENTS
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This Annual Report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Annual Report which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
the attainment of pharmaceutical development milestones or the receipt of
regulatory approval or the entering into of licensing or partnership
arrangements and other similar matters, are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties which could cause actual results
to differ materially from the Company's expectations, including the risk factors
discussed below and elsewhere in this Annual Report and other factors, many of
which are beyond the control of the Company. Consequently, all of the
forward-looking statements made in this Annual Report are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations. The Company assumes no
obligation to update publicly any such forward-looking statements, whether as a
result of new information, future events or otherwise.
PART I
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ITEM 1. DESCRIPTION OF BUSINESS
Elite Pharmaceuticals, Inc. ("EPI"), the registrant, is the sole owner
of Elite Laboratories, Inc. ("ELI"). EPI and ELI may be referred to
collectively in this report as "Elite" or "the Company".
Business Development
--------------------
EPI was incorporated in the State of Delaware on October 1, 1997. EPI's
predecessor, Prologica International, Inc. ("Prologica"), was incorporated in
the State of Pennsylvania on April 20, 1984. From the time of its incorporation,
and the completion of its initial public offering in August 1998, until the date
of its merger with EPI, Prologica engaged in no business other than searching
for suitable acquisitions. Except for ELI, it located no such acquisitions. EPI
was incorporated for the purpose of merging with Prologica in order to change
the name and state of incorporation of Prologica. EPI survived the merger with
Prologica; Prologica ceased to exist at the time of the merger on October 24,
1997. Contemporaneous with the merger of EPI and Prologica, ELI (the business
of which is described below) merged with a wholly owned subsidiary of
Prologica, HMF Enterprises, Inc. ("HMF"). HMF was incorporated on
August 1,1997 for the purpose of providing a vehicle into which ELI could merge.
ELI and HMF merged on October 30, 1997. ELI survived the merger with HMF and HMF
ceased to exist subsequent to the merger. The net result of the two mergers is
that Prologica and HMF ceased to exist, and EPI owns one hundred percent of the
stock of ELI. Such stock ownership is EPI's sole business. At the present time,
EPI has no plans to conduct any other business apart from the ownership of
ELI.
ELI was incorporated in the State of Delaware on August 23, 1990. On
October 30, 1997, one hundred percent of the stock of ELI was acquired by EPI
via the merger between ELI and HMF. With that exception, no acquisition or
disposition of any material assets, nor any material changes in the method of
conducting business have incurred since its incorporation.
Business of EPI
---------------
ELI primarily engages in researching, developing, licensing,
manufacturing, and marketing proprietary drug delivery systems and products.
ELI's drug delivery technology involves releasing a drug into the bloodstream or
delivering it to a target site in the body over an extended period of time or at
predetermined times. Such products are designed to allow drugs to be
administered less frequently, with reduced side effects and, in certain
circumstances, in reduced dosages. ELI has concentrated on developing orally
administered controlled release products. ELI primarily targets existing
controlled release drugs that are reaching the end of their exclusivity period,
and works to develop cheaper generic controlled-release versions of those drugs.
Nine of these controlled release products developed by ELI are either at the
development or testing stage. The products include drugs which provide
therapeutic benefits for angina and hypertension, a nonsteroidal analgesic drug,
and one which appears to lower blood glucose by stimulating insulin from the
pancreas. None of these products have yet been approved by the Food and Drug
Administration ("FDA"), and Elite therefore does not yet market any products.
ELI also engages in contract research and development activities sponsored by
other pharmaceutical companies.
Controlled drug delivery of a pharmaceutical compound is a relatively
new concept which offers a safer and more effective means of administering drugs
through releasing a drug into the bloodstream or delivering it to a certain site
in the body at predetermined rates or predetermined times. Its goal is to
provide more effective drug therapy while reducing or eliminating many of the
side effects associated with conventional drug therapy.
ELI spent approximately $1,273,445 in the fiscal year ended March 31,
1999, and $1,988,649 in the fiscal year ended March 31, 2000 on research and
development activities.
The Company has acquired pharmaceutical manufacturing equipment with
the intention of eventually manufacturing products developed by ELI as well as
manufacturing products on a contract basis. The Company has registered its
facilities with the FDA and the Drug Enforcement Agency (DEA).
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. It is contemplated that at the end of six
months, the parties will determine whether to proceed with a formal license
agreement or joint venture agreement.
Competition
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ELI competes in two related but distinct markets: It performs contract
research and development work regarding controlled-release drug technology for
large pharmaceutical companies, and it seeks to develop and market (either on
its own or by licensure to other companies) proprietary controlled-release
pharmaceutical products. In both arenas, Elite's competition consists of those
companies which are perceived to be able to develop controlled-release drugs.
In recent years, an increasing number of pharmaceutical companies have
become interested in the development and commercialization of products
incorporating advanced or novel drug delivery systems. The Company expects that
competition in the field of drug delivery will significantly increase in the
future since smaller specialized research and development companies are
beginning to concentrate on this aspect of the business. Some of the major
pharmaceutical companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery companies. Many
of these companies have greater financial and other resources as well as more
experience than the Company in commercializing pharmaceutical products. A
comparatively small number of companies have a track record of success in
developing controlled-release drugs. Significant among these are Alza
Corporation, Andrx, Elan Corporation, Biovail Corporation, Faulding, Schering,
KV Pharmaceutical and Forest Laboratories. Each of these companies have
developed expertise in certain types of drug delivery systems, although such
expertise does not carry over to developing a controlled-release version of all
drugs. Such companies may develop new drug formulations and products or may
improve existing drug formulations and products more efficiently than the
Company. While the Company's product development capabilities and patent
protection may help the Company to maintain its market position in the field of
advanced drug delivery, there can be no assurance that others will not be able
to develop such capabilities or alternative technologies outside the scope of
the Company's patents if any, or that even if patent protection is obtained,
such patents will not be successfully challenged in the future. In addition, it
must be noted that almost all of the Company's competitors have vastly greater
resources than the Company.
Patents, Trademarks, Royalty Agreements etc.
--------------------------------------------
ELI has received Notices of Allowance from the U.S. Patent and
Trademark Office for the following trademarks: Albulite CR, Nifelite CR,
Diltilite CD, Ketolite CR, Verelite CR and Glucolite CR.
On February 16, 1999, Dr. Atul Mehta was awarded a patent on a
controlled-release formulation of nefedipine (U.S.Patent No. 5,871,776).
The United States market for controlled-release nifedipine is approximately
one billion dollars. On May 11, 1999, Dr. Mehta was awarded a patent for
method of preparation of controlled release nefedipine formulations
(U.S. Patent No. 5,902,632). The Company is the beneficial owner of these
patents, and documents are presently being prepared to formally transfer the
patents from Dr. Mehta to the Company. On November 18, 1998, Dr. Mehta was
awarded a patent for the pulsed-release delivery system for methylphenidate
(U.S. Patent No. 5,837,284). This latter patent was assigned to Celgene.
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Corporation; however, the Company licensed from Celgene Corporation
certain manufacturing rights for methylphenidate, as well as rights
for the pulsed-release technology with regard to all non-methylphenidate
drugs. This patent has subsequently been assigned by Celgene Corporation to
Novartis Co.
The Company intends to apply for patents for other products in the
future; however, there can be no assurance that these or any future patents will
be granted. The Company believes that future patent protection of its
technologies and processes and of its products may be important to its
operations. The success of the Company's products may depend, in part, upon the
Company's ability to obtain strong patent protection. There can be no assurance,
however, that these patents, if issued, or any additional patents will prevent
other companies from developing similar or functionally equivalent dosage forms
of products. Furthermore, there can be no assurance that (i) any additional
patents will be issued to the Company in any or all appropriate jurisdictions,
(ii) the Company's patents will not be successfully challenged in the future,
(iii) the Company's processes or products do not infringe upon the patents of
third parties or (iv) the scope and validity of the Company's patents will
prevent third parties from developing similar products. Although a patent has a
statutory presumption of validity in the United States, there can be no
assurance that patents issued covering the Company's technologies will not be
infringed or successfully avoided through design innovation or by the challenge
of that presumption of validity. Finally, there can be no assurance that
products utilizing the Company's technologies, if and when issued, will not
infringe patents or other rights of third parties. It is also possible that
third parties will obtain patents or other proprietary rights that might be
necessary or useful to the Company. In cases where third parties are first to
invent a particular product or technology, it is possible that those parties
will obtain patents that will be sufficiently broad so as to prevent the Company
from using such technology or from marketing such products. In addition, the
Company consistently enters into confidentiality agreements with its employees
and business partners.
Patents and other proprietary rights are important to the Company's
business. It is the Company's policy to seek patent protection for its
inventions, and also to rely upon trade secrets, know-how, continuing
technological innovations, and licensing opportunities to develop and maintain
its competitive position.
Prior to the enactment in the United States of new laws adopting
certain changes mandated by the General Agreement on Tariffs and Trade ("GATT"),
the exclusive rights afforded by a U.S. Patent were for a period of 17 years
measured from the date of grant. Under these new laws, the term of any U.S.
Patent granted on an application filed subsequent to June 8, 1995, would
terminate 20 years from the date on which the patent application was filed in
the United States or the first priority date, whichever occurs first. Future
patents granted on an application filed before June 8, 1995, will have a term
that terminates 20 years from such date, or 17 years from the date of grant,
whichever date is later.
Under the Drug Price Competition and Patent Term Restoration Act of
1984, a U.S. Product patent or use patent may be extended for up to five years
under certain circumstances to compensate the patent holder for the time
required for FDA regulatory review of the product. The benefits of this act are
available only to the first approved use of the active ingredient in the drug
product and may be applied only to one patent per drug product. There can be no
assurance that the Company will be able to take advantage of this law.
The Company's success will depend, in part, on its ability to obtain
and enforce patents, protect trade secrets, obtain licenses to technology owned
by third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical and
biotechnology firms, including the Company, can be uncertain and involve complex
legal and factual questions. In addition, the coverage sought in a patent
application can be significantly reduced before the patent is issued.
Consequently, the Company does not know whether any of its pending
applications will result in the issuance of patents or, if any patents are
issued, whether they will provide significant proprietary protection or
commercial advantage, or will be circumvented by others. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first to make the inventions covered by each of its pending patent
applications, or that it was the first to file patent applications for such
inventions. In the event a third party has also filed a patent for any of its
inventions, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine priority
of invention, which could result in the loss of any opportunity to secure patent
protection for the invention and the loss of any right to use the invention, and
even if the eventual outcome is favorable to the Company, such interference
proceedings could result in substantial cost to the Company. Protection of
patent applications and litigation to establish the validity and scope of
patents, to assert patent infringement claims against others and to defend
against patent infringement claims by others can be expensive and
time-consuming. There can be no assurance that in the event that any claims with
respect to any of the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation could cause the Company to lose exclusivity relating
to such patent claims. If a third party is found to have rights covering
products or processes used by the Company, then the Company could be forced to
cease using the technologies covered by the disputed rights, could be subject to
significant liabilities to such third party, and could be required to license
technologies from such third party.
Also, different countries have different procedures for obtaining
patents, and patents issued by different countries provide different degrees of
protection against the use of a patented invention by others. There can be no
assurance, therefore, that the issuance to the Company in one country of a
patent covering an invention will be followed by the issuance in other countries
of patents covering the same invention, or that any judicial interpretation of
the validity, enforceability, or scope of the claims in a patent issued in one
country will be similar to the judicial interpretation given to a corresponding
patent issued in another country. Furthermore, even if the Company's patents are
determined to be valid, enforceable, and broad in scope, there can be no
assurance that competitors will not be able to design around such patents and
compete with the Company using the resulting alternative technology.
The Company also relies upon unpatented proprietary and trade secret
technology that it seeks to protect, in part, by confidentiality agreements with
its collaborative partners, employees, consultants, outside scientific
collaborators, sponsored researchers, and other advisors. There can be no
assurance that these agreements provide meaningful protection or that they will
not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by the Company, others
have not and will not obtain access to the Company's proprietary technology.
Government Regulation and Approval
----------------------------------
The design, development and marketing of pharmaceutical compounds, on
which the Company's success depends, are intensely regulated by governmental
regulatory agencies, including the Food and Drug Administration. Non-compliance
with applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunction actions and criminal
prosecution based on products or manufacturing practices that violate statutory
requirements. In addition, administrative remedies can involve voluntary
withdrawal of products, as well as the refusal of the Government to enter into
supply contracts or to approve abbreviated new drug applications ("ANDAs") and
new drug applications ("NDAs"). The FDA also has the authority to withdraw
approval of drugs in accordance with statutory due process procedures.
Before a drug may be marketed, it must be approved by the FDA. FDA
approval procedure for an ANDA relies on bio-equivalency tests which compare the
applicant's drug with an already approved reference drug, rather than with
clinical studies. Because ELI has concentrated, during the first few years of
its business operations, on developing products which are intended to be
bio-equivalent to existing controlled-release formulations, the Company expects
that most of its drug products will require ANDA filings.
The FDA approval procedure for an NDA is a two-step process. During the
Initial Product Development stage, an investigational new drug ("IND") for each
product is filed with the FDA. A 30-day waiting period after the filing of each
IND is required by the FDA prior to the commencement of initial (Phase I)
clinical testing in healthy subjects. If the FDA does not comment on or question
the IND within such 30-day period, initial clinical studies may begin. If,
however, the FDA has comments or questions, the questions must be answered to
the satisfaction of the FDA before initial clinical testing can begin. In some
instances this process could result in substantial delay and expense. Phase I
studies are intended to demonstrate the functional characteristics and safety of
a product.
After Phase I testing, extensive efficacy and safety studies in
patients must be conducted. After completion of the required clinical testing,
an NDA is filed, and its approval, which is required for marketing in the United
States, involves an extensive review process by the FDA. The NDA itself is a
complicated and detailed document and must include the results of extensive
clinical and other testing, the cost of which is substantial. While the FDA is
required to review applications within 180 days of their filing, in the process
of reviewing applications, the FDA frequently requests that additional
information be submitted and starts the 180-day regulatory review period anew
when the requested additional information is submitted. The effect of such
request and subsequent submission can significantly extend the time for the NDA
review process. Until an NDA is actually approved, there can be no assurance
that the information requested and submitted will be considered adequate by the
FDA to justify approval. The packaging and labeling of all Company developed
products are also subject to FDA regulation. It is impossible to anticipate the
amount of time that will be needed to obtain FDA approval to market any product.
The time to obtain FDA approval of the ANDA may range from approximately 12 to
36 months while that for an NDA may range from 12 to 24 months.
Whether or not FDA approval has been obtained, approval of the product
by comparable regulatory authorities in any foreign country must be obtained
prior to the commencement of marketing of the product in that country. All
marketing in territories other than the United States shall be conducted through
other pharmaceutical companies based in those countries. The approval procedure
varies from country to country, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general each
country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, there can be substantial delays in obtaining
required approvals from both the FDA and foreign regulatory authorities after
the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
All facilities and manufacturing techniques used for the manufacture of
products for clinical use or for sale must be operated in conformity with Good
Manufacturing Practice ("GMP") regulations issued by the FDA. In the event the
Company shall engage in manufacturing, it will be required to operate its
facilities in accordance with GMP regulations. If the Company shall hire another
company to perform contract manufacturing for it, it must take steps to ensure
that its contractor's facilities conform to GMP regulations.
Under the Generic Drug Enforcement Act, ANDA applicants (including
officers, directors and employees) who are convicted of a crime involving
dishonest or fraudulent activity (even outside the FDA regulatory context) are
subject to debarment. Debarment is disqualification from submitting or
participating in the submission of future ANDAs for a period of years or
permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse
to accept ANDAs from any company which employs or uses the services of a
debarred individual. The Company does not believe that it receives any services
from any debarred person.
The Company is governed by federal, state, and local laws of general
applicability, such as laws relating to working conditions and environmental
protection. The Company estimates that it spends approximately $3,000.00 per
year in order to comply with applicable environmental laws. The Company is also
licensed by, registered with, and subject to periodic inspection and regulation
by the DEA and New Jersey state agencies, pursuant to federal and state
legislation relating to drugs and narcotics. Certain drugs that the Company may
develop in the future may be subject to regulation under the Controlled
Substances Act and related Statutes. At such time as the Company begins
manufacturing products, it may become subject to the Prescription Drug Marketing
Act, which regulates wholesale distributors of prescription drugs.
Sources and Availability of Raw Material
----------------------------------------
The Company is not yet in the manufacturing phase of any product and
therefore does not have a requirement for significant amounts of raw materials.
It currently obtains what limited raw materials it needs from over twenty
suppliers.
Dependence on One or a Few Major Customers
------------------------------------------
Each year, the Company has had some customers which 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.
Employees
---------
As of June 13, 2000, the Company had 12 full-time employees and one
part-time employee. Its full-time employees are engaged in administration,
research and development; its part-time employee is engaged in administration.
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.
Research and Development Activities
-----------------------------------
During each of the last two fiscal years, substantially all of the time
of the Company has been spent on research and development activities. As
previously stated, none of the products undergoing research and development have
yet been approved by the FDA and, therefore, are not yet being marketed to
customers.
Compliance with Environmental Laws
----------------------------------
The Company believes it is currently in substantial compliance with all
federal, state and local environmental laws. The costs and effects of compliance
with such laws is not material.
Reports to Security Holders
---------------------------
The Company files reports with the Securities and Exchange
Commission, including Forms 10-QSB and 10-KSB The public may read and copy any
materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth
Street NW, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers such as the Company that
file electronically with the SEC. The Company's Internet address is:
www.elitepharma.com.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns real property and improvements, suitable for use as a
laboratory and offices, located at 165 Ludlow Avenue, Northvale, New Jersey. It
is intended that the property will be used for manufacturing in the future. The
Company's operations are not dependent on any specific location. The real
property and improvements of the Company are encumbered by a mortgage in favor
of the New Jersey Economic Development Authority (NJEDA) as security for a loan
through tax exempt bonds from the NJEDA to the Company. The mortgage document
contains the customary provisions including, without limitation, the right of
the mortgagee to foreclosure upon default.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings. The Company is not
aware of any proceeding being contemplated by a governmental authority.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended March 31, 2000.
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
------------------
The common stock of EPI first began public trading on July 23, 1998.
The stock was traded on the NASDAQ over-the-counter bulletin board under the
symbol "ELIP." On February 24, 2000, 13,912,856 shares of the Company's common
stock (consisting of 8,560,355 shares issued and outstanding, 2,387,714 shares
issuable upon exercise of options pursuant to the Company's 1997 Incentive Stock
Option Plan, and 2,964,787 shares issuable upon exercise of warrants were
listed on the American Stock Exchange. The Company's shares are now traded
on that exchange under the symbol "ELI.".
The Company's warrants are listed on the NASDAQ over-the-counter
bulletin board under the symbol "ELIPZ." The Company first began trading its
warrants on September 11, 1998.
The common stock of EPI's predecessor, Prologica, was listed in the
pink sheets, but no active trading occurred in those securities.
The high and low sales prices for each quarter within the last two
fiscal years of the Company's common stock and the Company's warrants is as
follows:
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Common Stock Warrants
FYE 3/31/1999 High Low High Low
First Quarter n/a n/a n/a n/a
Second Quarter $4 1/4 $ 2 $ 5/8 $ 1/2
Third Quarter $6 1/8 $3 1/2 $ 13/16 $ 1/2
Fourth Quarter $4 3/8 $3 1/2 $ 1 $ 13/16
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Common Stock Warrants
FYE 3/31/2000 High Low High Low
First Quarter $4 7/8 $3 3/4 $1 1/16 $0 19/32
Second Quarter $9 $3 7/8 $5 $0 29/32
Third Quarter $10 5/16 $7 13/16 $6 3/16 $3 1/2
Fourth Quarter $24 1/4 $7 $15 7/8 $3 11/32
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The information for the fiscal year ended March 31, 1999 was obtained
from the Internet at www.bloomberg.com/markets/ wei.html. The information for
the fiscal year ended March 31, 2000 was obtained from the Internet at
www.FinancialWeb.com. The information reflects inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
Holders
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As of June 13, 2000, there were 145 holders of record of the Company's
common stock, and 88 holders of record of the Company's warrants. On information
and belief, 3,186,141 of such shares and 490,835 of such warrants are held by
Cede & Company as nominee for the Depository Trust Company and such shares are
held for the account of numerous other persons.
Dividends
---------
The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain any future earnings for funding
growth and does not anticipate paying any cash dividends on its common stock in
the foreseeable future.
Private Placement
-----------------
On May 17, 1999, the Company offered for sale thirteen units of its
securities at $350,000.00 per unit, a total offering of $4,550,000.00. Each unit
consisted of 100,000 shares of common stock and 50,000 shares of Class A
Redeemable Common Stock Purchase Warrant. Each Warrant entitled the holder to
purchase one share of the common stock at an exercise price of $5.00 during the
five year period commencing on the closing date of the offering. The offering
remained open for twenty days, subject to a twenty day extension at the
discretion of the Company. The offering was conducted without registration under
the Securities Act of 1933 (the "Act") in reliance upon the exemption from
registration afforded by Section 4(6) of the Act and Rule 506 of Regulation D
promulgated thereunder. Units were offered only to and purchased only by
"accredited investors" as that term is defined in Rule 501 of Regulation D. No
underwriters were involved, and no sales commissions or sales fees were paid
with respect to this private placement. The Company sold 12.75 units for gross
proceeds of $4,462,500.00. The offering was completed on June 16, 1999. After
legal and filing fees, the Company realized net proceeds of approximately
$4,452,500.00, of which $4,202,500.00 will be used as working capital for the
Company, and the remaining $250,000.00 will be used to pay fees to advisers and
consultants of the Company. On March 3, 2000, together with other securities,
the Company registered with the Securities and Exchange Commission on Form SB-2
under the Securities Act of 1933 1,275,002 shares of the common stock issued in
the private placement and 637,501 shares of common stock issuable pursuant to
the Class A Common Stock Purchase Warrants issued in the private placement.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
------------
The Company has developed nine oral controlled release pharmaceutical
products to varying stages of the development process. 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 pharmaceutical 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.
<PAGE>
Results of Consolidated Operations
----------------------------------
Year Ended March 31, 2000 vs. Year Ended March 31, 1999.
---------------------------------------------------------
Elite's revenues for the year ended March 31, 2000 were $10,315, a
decrease of $140,097, or approximately 93%, over the comparable period of the
prior year. Net revenues consisted of consulting and test fees of $10,315
(compared with $ 412 for the comparable period of the prior year). In the prior
year, net revenues also consisted of $150,000 of license fees.
General and administrative expenses for the year ended March 31, 2000
were $984,736, an increase of $363,024, or approximately 58% from the comparable
period of the prior year. The increase in general and administrative expenses
was substantially due to legal fees, consulting fees, and salaries. General and
administrative expenses expressed as a percentage of revenues were approximately
9546% for the year ended March 31, 2000 as compared to 413% for the comparable
period of the prior year.
Research and development costs for the year ended March 31, 2000, were
$1,988,649, an increase of $715,204, or approximately 56%, 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 to clinical organizations for conducting biostudies on drug products
developed by the Company. These increases have been made possible principally
because of the Company raising equity in its May 1999 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 year ended March 31, 2000 was $2,976,392, as
compared to $1,661,881 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
-------------------------------
During the fiscal year ended March 31, 2000, the Company raised
$4,452,500 (net of legal fees of $10,000) in cash flows from financing
activities through the issuance of common stock and warrants in a private place
beginning on May 17, 1999 and concluding on June 16, 1999.
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 underwriting fees equal to
$90,000 (three percent (3%) of the par amount of the bonds). The bonds are
collateralized by a first mortgage lien on the building which includes property
and equipment.
The Company estimates that the net proceeds from the private placement
offering and NJ EDA Bond issuance will be sufficient to meet its cash
requirements for a period of between 18 and 24 months following the dates of
closing. 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, 2000, the Company experienced negative
cash flows from operations of $2,778,850 primarily due to the Company's net loss
of $2,976,392. For the year ended March 31, 1999, the Company experienced
negative cash flows from operations of $1,455,607 primarily due to the Company's
net loss of $1,661,881.
Recently Issued Pronouncements
------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Accounts,"
requires an entity to measure all derivatives at fair value and to recognize
them in the balance sheet as an asset or liability, depending on the entity's
rights or obligations under the applicable derivative contract. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. The adoption of SFAS No. 133 is not expected to have a material impact on
the Company's consolidated financial condition, results of operations or cash
flows.
SFAS No. 132, "Employer's Disclosures about Pensions and Other Post Retirement
Benefits," revises disclosures about pensions and other post retirement benefit
plans. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. The adoption of SFAS No. 132 did not have a material impact on the
Company's consolidated financial condition, results of operations or cash flows.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements for fiscal years beginning December 15, 1997. The adoption
of SFAS No. did not have a material impact on the Company's consolidated
financial condition, results of operations or cash flows.
SFAS No. 130, "Reporting Comprehensive Income," requires an entity to report
comprehensive income and its components in a full set of financial statements,
and is effective for fiscal years beginning after December 15, 1997.
Comprehensive income is the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The adoption of SFAS No. 130 did not have a material impact on the
Company's consolidated financial condition, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), identifies the characteristics of internal use
software and provides guidelines on new cost recognition principles. SOP 98-1 is
effective for financial statements for fiscal years beginning after December 15,
1998. The adoption of SOP 98-1 is not expected to have a material impact on the
Company's consolidated financial condition, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of Position No.
97-2, "Software Revenue Recognition" (SOP 97-2), provides guidance on when
revenue should be recognized and in what amounts for licensing, selling, leasing
or otherwise marketing computer software. SOP 97-2 is effective for financial
statements for fiscal years beginning after December 15, 1997. The adoption of
SOP 97-2 did not have a material impact on the Company's consolidated financial
condition, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of Position No.
96-1, "Environmental Remediation Liabilities," establishes specific criteria for
the recognition and measurement of environmental remediation liabilities. The
adoption of the statement in 1998 did not have a material impact on the
Company's consolidated financial condition, results of operations or cash flows.
ITEM 7. FINANCIAL STATEMENTS
The information for this item is contained as an exhibit attached to
this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disclosure required.
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Identification of Directors and Executive Officers
--------------------------------------------------
The directors and executive officers of EPI are:
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
Name Age Position
----- --- --------
Atul M. Mehta 51 President, Chief Executive Officer and Director
Donald S. Pearson 64 Director
Harmon Aronson 56 Director
Mark I. Gittelman 40 Secretary and Treasurer
</TABLE>
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. Atul M. Mehta, the founder of ELI, has been a director of ELI since
its inception in 1990 and a director of EPI since 1997. He has been employed as
the President of ELI since 1990 and President of EPI since 1997. Prior to that,
he was Vice President at Nortec Development Associates, a company specializing
in the development of food, pharmaceutical and chemical specialty products, from
1984 to 1989. From 1981 to 1984, he was associated with Ayerst Laboratories, a
division of American Home Products Corporation in the solids formulation section
as Group Leader. His responsibilities included development of formulations of
ethical drugs for conventional and controlled-release dosage forms for both USA
and international markets. He received his B.S. degree in Pharmacy with honors
from Shivaii University, Kolhapur, India, and a BS, MS, and a Doctorate of
Philosophy in Pharmaceutics from the University of Maryland in 1981. Other than
Elite Labs, no company with which Dr. Mehta was affiliated in the past was a
parent, subsidiary or other affiliate of the Company.
Donald S. Pearson, a director since 1999, 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 University. He has served
on the informal advisory board of ELI for several years; other than ELI, no
company with which Dr. Pearson was affiliated in the past was a parent,
subsidiary or other affiliate of the Company.
Harmon Aronson, a director since 1999, 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 United States
and international firms manufacturing bulk drugs and finished pharmaceutical
dosage products who are seeking FDA approval for their products for the US
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 ELI, no company with
which Dr. Aronson was affiliated in the past was a parent, subsidiary or other
affiliate of the Company.
Mark I. Gittelman, CPA is the President of Gittelman & Co., P.C., an
accounting firm in Clifton, NJ. Prior to forming Gittelman & Co., P.C. 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 a 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 ELI, no
company with which Mr. Gittelman was affiliated in the past was a parent,
subsidiary or other affiliate of the Company.
Election of Directors
---------------------
Each director holds office (subject to the Company's By-Laws) until the
next annual meeting of stockholders and until such director's successor has been
elected and qualified. All executive officers of the Company are serving until
the next annual meeting of directors and until their successors have been duly
elected and qualified. There are no family relationships between any of the
directors and executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
The Company became a reporting company, and reports to the Securities
and Exchange Commission on Form 3, Form 4 and Form 5 became obligatory, as of
August 14, 1998. None of the officers, directors or holders of 10% or more of
securities of the Company made a timely filing of Form 3. As of June 13, 2000,
Mark Gittelman, Treasurer of the Company, and Harmon Aronson, a director, have
filed reports on Form 3. To the knowledge of the Company, no officer, director
or owner of 10% or more of the securities of the Company has filed a report on
Form 4. The Company is attempting to assist these persons with respect to
compiling the information necessary to file required reports on Form 4 and Form
5. The Company has not yet determined with any certainty which persons, who are
required to file a report on Form 4 and/or Form 5, have not done so.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides information on the compensation of Dr.
Atul M. Mehta, the chief executive officer of the Company for the last three
fiscal years. No other executive officer or employee received salary and bonus
exceeding $100,000 during those periods.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary Executive Compensation Table
------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Fiscal Bonus Other Restricted Securities LTIP All other
principal Year(1) Salary Annual stock Underlying payouts compen-
position Compen- awards options sation
sation
Atul M. 1999 $227,030 $25,000 $3,040 (2) -- 500,000 -- --
Mehta 1998 $193,333 $--- $3,220 (2) -- 300,000 -- --
President 1997 $185,000 $20,000 $1,795 (2) -- 545,214 -- --
</TABLE>
(1) The Company's fiscal year is from April 1 through March 31. The information
is provided for each fiscal year beginning April 1. (2) Represents use of a
company car, and premiums for insurance on Dr. Mehta's life for the benefit of
his wife paid by the Company.
Option Grants Table in Last Fiscal Year
---------------------------------------
During the last completed fiscal year of the Company, options were
granted to Dr. Mehta as shown in the following table:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of % Grant Represents Exercise or
Name Securities of Options Base Price Expiration date
Underlying Options to Employees ($/sh)
Atul M. Mehta 500,000(1) 100% $10.00 3-31-10 (2)
</TABLE>
(1) 100,000 shares of the total of 500,000 shares subject to the option shall
vest on each December 31, beginning December 31, 2001.
(2) The options granted to Dr. Mehta during the last fiscal year expires on the
earlier of (a) one year after he ceases to be employed by EPI or to serve as an
officer or director of EPI or (b) March 31, 2010. Notwithstanding, the option
shall become fully vested and exercisable if Dr. Mehta's employment agreement or
his position as an officer and director is terminated by the Company for any
reason or if it expires as a result of the Company giving notice of nonrenewal.
If the board of directors of the Company votes to approve the acquisition of
more than 50% of the stock of the Company by any person or entity, the Company
may require Dr.Mehta to exercise or sell the options.
Aggregated Executive Option Exercises in Last
Fiscal Year and FY-End Option/SAR Values
----------------------------------------
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
No. 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 $0 845,214/600,000 $6,973,016/$4,950,000 (1)
</TABLE>
(1) These shares are unregistered, and their market value is unknown and
incalculable. However, the registered common stock of the Company was trading
for $8.25 per share as of the close of business on June 13, 2000. It is on this
hypothetical value that the figures in column (e) are calculated. These figures
may have no relation to the actual value of the unexercised options.
Compensation of Directors
-------------------------
Each non-affiliated director receives $1,000 as compensation for each
meeting attended.
Employment Agreement
--------------------
The only employment agreement which the Company has with an executive
officer is the Amended and Restated Employment Agreement entered into March 31,
2000 between the Company and Dr. Atul Mehta (the "Agreement"). The Agreement
provides that the Company will employ Mehta for a period of five years ending
December 31, 2005 (unless sooner terminated pursuant to provisions of the
Agreement). At the end of said period of five years, the Agreement will be
automatically renewed for an additional five year term unless either party gives
written notice of nonrenewal by December 31, 2004. Subsequent to December 31,
2010, the Agreement is automatically extended for periods of one year unless
either party gives notice of nonrenewal at least one year prior to the date of
expiration. The Agreement provides for an annual salary of $242,000, which
amount is to be increased by the board of directors not less than 10% annually
beginning January 1, 2001. The Agreement further provides that Dr. Mehta will
each fiscal year receive 5% of the net profit of the Company, will have health
insurance to cover Dr. Mehta and his dependents, will have insurance on his life
for the benefit of his spouse or his estate in an amount of at least $300,000,
and will have such bonus as the board of directors in its discretion may award
to Dr. Mehta from time to time. In addition, the Agreement provides that Dr.
Mehta will receive options to purchase the common stock of Elite at a price of
$10.00 per share in a total amount of 500,000 shares, exercisable in increments
of 100,000 shares annually beginning December 31, 2001. The options shall be
exercisable from the date of vesting until one year after Mehta ceases to be
employed by the Company or to serve as an officer and director of the Company or
March 31, 2010, whichever is earlier. The options are exercisable by Dr. Mehta
if the Agreement or Dr. Mehta's position as an officer and director is
terminated by the Company for any reason or if the Agreement is not renewed by
the Company. The Agreement further provides that if the board of directors votes
to approve the acquisition of more than 50% of the stock by any person or
entity, the Company may require Dr. Mehta to elect to exercise the options or to
sell the options at a price equal to the difference between the exercise price
and an amount which is 110% of the then fair market value of the stock. As to
Dr. Mehta's compensation subsequent to December 31, 2005, the agreement provides
that the parties shall determine Dr. Mehta's compensation after said period;
and, such compensation shall be on terms no less favorable to Dr. Mehta then the
terms of compensation for the first five years and shall be no less than 110% of
his annual salary for the year ended December 31, 2005. The Agreement shall
terminate upon (a) Dr. Mehta's death, (b) election of either party if Mehta is
unable to perform his duties on account of disability for a total period of 120
days or more during any consecutive period of twelve months, by Elite upon
"severe cause" and (d) by Mehta upon the occurrence of certain events. If the
Agreement is terminated due to Dr. Mehta's death, his surviving spouse, or his
estate if his spouse does not survive, shall receive Dr. Mehta's salary,
incentive commissions, benefits and any deferred compensation accrued through
the last day of the third calendar month following the month in which
termination occurred; in addition, one-half of his salary would be paid for an
additional period of three years. If the Agreement is terminated by the Company
because of Dr. Mehta's disability or upon "severe cause", Dr. Mehta will receive
his salary, incentive commissions, benefits and any deferred compensation
through the last day of the calendar month in which the termination occurs. If
the Agreement is terminated by Dr. Mehta upon the occurrence of one of the
events specified which would permit him to so terminate, Dr. Mehta shall then
receive all accrued salary, incentive commissions, benefits and any deferred
compensation through the later of May 22, 2006 or the third anniversary of such
termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the security ownership of the Company's
voting and equity securities by certain beneficial owners and management as of
June 28, 2000. Listed is (i) each person known by the Company to be the
beneficial owner of more than five percent 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>
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
Common Atul M. Mehta, Director/Officer 3,032,914(1) 34.0%
165 Ludlow Avenue Direct and
Northvale New Jersey 07647 Indirect
Common John de Neufville and Mely Rahn, Trustees 878,000(2) 9.9%
Margaret de Neufville Revocable Trusts Direct and
197 Meister Avenue Indirect
North Branch, NJ 08876
Common Bakul S. and Dilip S. Mehta 630,000 7.1%
P.O. Box 438 Direct
Muscat, Sultanate of Oman
Common Bridge Ventures, Inc. 492,768(3) 5.5%
575 Lexington Avenue, Ste. 410 Direct and
New York, NY 10022 Indirect
Common Vijay Patel 441,036(4) 5.0%
19139 Pebble Court Direct and
Woodbridge, CA 95258 Indirect
Common Donald S. Pearson, Director 48,750(5) 0.05%
1305 Peabody Avenue Direct
Memphis, TN 38104
Common Harmon Aronson, Director 30,000(6) 0.03%
26 Monterey Drive Direct
Wayne, NJ 07470
Common Officers and Directors as a Group 3,111,664 34.9%
Direct
and Indirect
</TABLE>
(1) Includes (i) 6,300 shares held by Dr. and Mrs. Mehta as custodians for Amar
Mehta; (ii) 6,300 shares held by Dr. and Mrs. Mehta as custodians for Anand
Mehta; and (iii) options to purchase 1,445,214 shares of common stock (including
options for 500,000 shares held by Dr. Mehta which do not begin vesting until
December 31, 2001 and then vest 100,000 shares on that date and 100,000 shares
annually thereafter for four years).
(2) Represents 448,000 shares held in trust for the benefit of John P. de
Neufville, (ii) 405,000 shares held in trust for David T. de Neufville and (iii)
options personally held by John P. de Neufville to purchase 25,000 shares.
(3) Includes (i) 56,334 shares owned by SMACS Holding Corp., an affiliate of
Bridge Ventures, Inc., (ii) warrants to purchase 207,500 shares held by
Bridge Ventures, Inc. and (iii) warrants to purchase 75,000 shares held by
SMACS Holding Corp.
(4) Includes options to purchase 18,750 shares of common stock, warrants to
purchase 117,286 shares of common stock and 15,000 shares held as custodian for
Amisha Patel.
(5) Comprised of options to purchase 48,750 shares.
(6) Comprised of options to purchase 30,000 shares of common stock.
Information on the stock ownership of these persons was provided to the
Company by the persons.
The Company is informed and believes that as of June 13, 2000, Cede &
Co. held 3,186,141 shares (35.8%) and warrants for 490,835 shares of the
Company (35.9%) as nominee for Depository Trust Company, 55 Water Street, New
York, New York 10004, that Cede & Co. and Depository Trust Company both disclaim
any beneficial ownership thereof, and that such shares are held for the account
of numerous other persons, no one of whom is believed to beneficially own five
percent or more of the common stock of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Elite Laboratories, Inc. is a party to a three-year Consulting
Agreement entered into with Bridge Ventures, Inc. ("Bridge") on August 1, 1997,
under which Bridge provides the company with marketing and management consulting
services. Under the terms of the Consulting Agreement, ELI pays Bridge the sum
of $10,000 per month and reimburses Bridge for all out-of-pocket expenses
incurred on behalf of Elite Labs. Bridge is an owner of at least five percent of
the Elite Pharmaceuticals' Common Stock, as described in more detail in the
section entitled Security Ownership of Certain Beneficial Owners and Management.
Elite Pharmaceuticals, Inc. is a party to an agreement whereby fees are
paid to a company wholly owned by Mark Gittelman, the Company's Treasurer, in
consideration for services rendered by Mr. Gittelman in his capacity as
Treasurer. For the years ended March 31, 2000 and 1999, the fees paid to that
company were $75,945 and $50,414, respectively.
Other than as described above, the Company is not (and has not
been in the last two years) a party to any transaction in which any of the
persons described in SEC Reg. Sec. 228.404(a) has or had a direct or indirect
material interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Attached as an exhibit is the Report on Consolidated Financial
Statements of the Company and subsidiary for the fiscal years ended March 31,
2000 and 1999. Attached as an exhibit is Exhibit 27 - Financial Statement
Data.
(b) The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended March 31, 2000.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized..
ELITE PHARMACEUTICALS, INC.
By: /S/Atul M. Mehta
_______________________
Atul M. Mehta
President and
Chief Executive Officer
Date: June 29, 2000
By: /S/Mark I. Gittelman
________________________
Mark I. Gittelman
Treasurer and
Chief Financial Officer
Date: June 29, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons, constituting a majority of the board of directors of the
registrant, on behalf of the registrant and in the capacities and on the dates
indicated.
/S/Atul M. Mehta
________________________
Atul M. Mehta
Director
Date: June 29, 2000
/S/Harmon Aronson
________________________
Harmon Aronson
Director
Date: June 28, 2000
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Elite Pharmaceuticals, Inc.
Northvale, New Jersey
We hereby consent to the incorporation by reference in the Annual Report of
Elite Pharmaceuticals, Inc. (the
"Company") on Form 10-KSB of our
report dated May 26, 2000, appearing in the
Companys Form 10-KSB for the years
ended March 31, 2000 and 1999.
MILLER, ELLIN & COMPANY, LLP
June 27, 2000
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Elite Pharmaceuticals, Inc.
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of Elite
Pharmaceuticals, Inc. and Subsidiary as of March 31, 2000, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended March 31, 2000 and 1999. 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, 2000 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 26, 2000
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSOLIDATED BALANCE SHEET (AS AT MARCH 31, 2000) 1
CONSOLIDATED STATEMENTS OF OPERATIONS 2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 3
CONSOLIDATED STATEMENTS OF CASH FLOWS 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5-19
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents $3,937,217
Restricted cash 571,730
Prepaid expenses and other current assets 338,670
----------
Total current assets 4,847,617
PROPERTY AND EQUIPMENT- net of accumulated
depreciation and amortization 2,479,327
INTANGIBLE ASSETS - net of accumulated amortization 29,564
Deposits on equipment 1,315,710
Restricted cash 300,000
EDA Bond offering costs, net of accumulated amortization of $7,695 190,165
----------
$9,162,383
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of EDA Bonds $115,000
Accounts payable and accrued expenses 597,780
---------
Total current liabilities 712,780
EDA Bond - net of current portion 2,885,000
---------
Total liabilities 3,597,780
COMMITMENTS AND CONTINGENCIES
Common stock - $.01 par value;
Authorized - 25,000,000 shares
Issued and outstanding - 8,855,519 shares 88,555
Additional paid-in capital 12,511,080
Accumulated deficit (7,035,032)
Total stockholders' equity 5,564,603
Total liabilities and stockholders' equity $9,162,383
==========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED
MARCH 31,
_______________________
2000 1999
_______________________
REVENUES:
Licensing fees $ --- $150,000
Consulting and test fees 10,315 412
__________ __________
Total revenues 10,315 150,412
__________ __________
OPERATING EXPENSES:
Research and development 1,988,649 1,273,445
General and administrative 984,736 621,712
Depreciation and amortization 86,290 52,943
__________ _________
3,059,675 1,948,100
__________ _________
LOSS FROM OPERATIONS (3,049,360) (1,797,688)
___________ ___________
OTHER INCOME (EXPENSES):
Interest income 210,877 142,872
Interest expense (137,709) (6,965)
___________ ___________
73,168 135,907
___________ ___________
LOSS BEFORE PROVISION FOR INCOME TAXES (2,976,192) (1,661,781)
PROVISION FOR INCOME TAXES 200 100
___________ ___________
NET LOSS $(2,976,392) $(1,661,881)
============ ============
BASIC LOSS PER COMMON SHARE $ (0.35) $ (0.23)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,287,648 7,237,613
============ ===========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ------- ----------- -------------
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)
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 125,000 1,250 248,750 - 250,000
Issuance of shares and warrants through
exercise of placement agent warrants 29,324 293 105,274 - 105,567
Issuance of shares through exercise
of warrants 188,580 1,886 969,594 - 971,480
Offering costs in connection with
sale of securities - - (10,000) - (10,000)
registration of securities - - (67,650) - (67,650)
Net loss for year ended March 31, 2000 - - - (2,976,392) (2,976,392)
_________ __________ ___________ ____________ ___________
BALANCE AT MARCH 31, 2000 8,855,519 $88,555 $12,511,080 $(7,035,032) $5,564,603
========= ======= =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED
MARCH 31,
_____________________________
2000 1999
_____________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,976,392) $(1,661,881)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 76,784 51,536
Amortization of intangibles 9,506 1,407
Deferred income taxes - -
Changes in assets and liabilities:
Consulting and test fees receivable - 25,000
Prepaid expenses and other current assets (286,065) (40,638)
Other assets - security deposit - 9,000
Accounts payable, accrued expenses and other current liabilities 397,317 159,969
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,778,850) (1,455,607)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for patent and trademark filings (13,616) (950)
Restricted cash (871,730) -
Payment of deposit for manufacturing equipment (1,119,172) (196,538)
Purchases of property and equipment (1,305,874) (1,071,235)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,310,392) (1,268,723)
----------- -----------
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 (197,860) -
Principal payments on capital lease (47,021) (42,331)
Proceeds from issuance of common stock and warrants 1,327,047 -
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) (18,000)
Payments of offering costs in connection
with registration filing (67,650) (3,043)
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,467,016 (63,374)
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,377,774 (2,787,704)
CASH AND CASH EQUIVALENTS - beginning 1,559,443 4,347,147
--------- ----------
CASH AND CASH EQUIVALENTS - ending $3,937,217 $1,559,443
========== ==========
SCHEDULES OF NON-CASH ACTIVITIES:
Utilization of building deposit and related acquisition
costs towards purchase of building $ - $123,057
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $118,326 $7,420
Cash paid for income taxes 200 200
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Elite Pharmaceuticals, Inc. and its Subsidiary, ("Company"),
which is wholly-owned. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Nature of Business
------------------
Elite Pharmaceuticals, Inc. was incorporated on October 1, 1997
under the Laws of the State of Delaware, and its wholly-owned
subsidiary Elite Laboratories, Inc. was incorporated on August
23, 1990 under the Laws of the State of Delaware, in order to
engage in research and development activities for the purpose of
obtaining Food and Drug Administration approval, and, thereafter,
commercially exploiting generic and new controlled-release
pharmaceutical products. The Company also engages in contract
research and development on behalf of other pharmaceutical
companies.
Merger Activities
-----------------
In October 1997, concurrent with its private placement offering,
Elite Pharmaceuticals, Inc. merged with Prologica International,
Inc. ("Prologica") a Pennsylvania Corporation (see Note 7), a
publicly traded inactive corporation, with Elite Pharmaceuticals,
Inc. surviving the merger. In addition, in October 1997, Elite
Laboratories, Inc. merged with a wholly-owned subsidiary of
Prologica, with the Company=s subsidiary surviving this merger.
The former shareholders of the Company=s subsidiary exchanged all
of their shares of Class A voting common stock for shares of the
Company=s voting common stock in a tax free reorganization under
Internal Revenue Code Section 368. The result of the merger
activity qualifies as a reverse acquisition. In connection with
the reverse acquisition, options exercisable for shares of Class
A voting and Class B nonvoting common stock of the Company's
subsidiary were exchanged for options exercisable for shares of
the Company=s voting common stock.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid short-term investments
purchased with initial maturities of three months or less to be
cash equivalents.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is
provided on the straight-line method based on the estimated
useful lives of the respective assets which range from five to
thirty-nine years. For property and equipment financed with
proceeds of the NJ EDA Bond issuance, depreciation is provided
under the Alternative Depreciation System based on useful lives
ranging from five to forty years. Major repairs or improvements
are capitalized. Minor replacements and maintenance and repairs
which do not improve or extend asset lives are expensed
currently.
Upon retirement or other disposition of assets, the cost and
related accumulated depreciation are removed from the accounts
and the resulting gain or loss, if any, is recorded.
Research and Development
------------------------
Research and development expenditures are charged to expense as
incurred.
Patents and Trademarks
----------------------
Costs incurred for the application of patents and trademarks are
capitalized and amortized on the straight-line method, based on
an estimated useful life of fifteen years, upon approval of the
patent and trademarks. These costs are charged to expense if the
patent or trademark is unsuccessful.
Concentration of Credit Risk
----------------------------
The Company derives substantially all of its revenues from
contracts with other pharmaceutical companies, subject to
licensing and research and development agreements.
The Company maintains cash balances in its bank which, at times,
may exceed the limits of the Federal Deposit Insurance Corp.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
------------
The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method of accounting for
income taxes. The liability method measures deferred income taxes
by applying enacted statutory rates in effect at the balance
sheet date to the differences between the tax bases of assets and
liabilities and their reported amounts in the financial
statements. The resulting deferred tax assets or liabilities are
adjusted to reflect changes in tax laws as they occur.
Loss Per Common Share
---------------------
The Company adopted SFAS No. 128, "Earnings Per Share," which
establishes new standards for computing and presenting earnings
per share. The statement also requires restatement of all prior
period earnings per share data presented.
Net loss per common share is based in 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.
Recently Issued Pronouncements
------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires an entity to measure all derivatives at
fair value and to recognize them in the balance sheet as an asset
or liability, depending on the entity=s rights or obligations
under the applicable derivative contract. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. The adoption of SFAS No. 133 is not expected
to have a material impact on the Company=s consolidated financial
condition, results of operations or cash flows.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Pronouncements (Continued)
-------------------------------
SFAS No. 132 "Employers Disclosures about Pensions and Other Post
Retirement Benefits," revises disclosures about pensions and
other post retirement benefit plans. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997. The adoption
of SFAS No. 132 did not have significant impact on the Company=s
consolidated financial position, results of operations or cash
flows.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements for fiscal years beginning
after December 15, 1997. The adoption of SFAS No. 131 did not
have a significant impact on the Company=s consolidated financial
position, results of operations or cash flows.
SFAS No. 130, "Reporting Comprehensive Income," requires an
entity to report comprehensive income and its components in a
full set of financial statements and is effective for fiscal
years beginning after December 15, 1997. Comprehensive income is
the change in equity of a business enterprise during a period
from transactions and other events and circumstances from
non-owner sources. The adoption of SFAS NO. 130 did not have a
significant impact on the Company=s consolidated financial
position, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1), identifies
the characteristics of internal use software and provides
guidance on new cost recognition principles. SOP 98-1 is
effective for financial statements for fiscal years beginning
after December 15, 1998. The adoption of SOP 98-1 is not expected
to have a material impact on the Company=s consolidated financial
position, results of operations or cash flows.
American Institute of Certified Public Accountants Statement of
Position No. 97-2, "Software Revenue Recognition" (SOP 97-2),
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.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Pronouncements (Continued)
------------------------------
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.
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 grand date
for awards in 2000 and 1999, 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.
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.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Laboratory and manufacturing equipment $585,409
Office equipment 20,534
Furniture and fixtures 51,781
Land, building and improvements 2,048,382
Equipment under capital lease 168,179
---------
2,874,285
Less: Accumulated depreciation and amortization 394,958
---------
$2,479,327
==========
Depreciation and amortization expense amounted to $76,784 and $51,536 for the years ended March
31, 2000 and 1999, respectively.
NOTE 3 - INTANGIBLE ASSETS
Intangible assets at March 31, 2000, consists of the following:
Patents $27,000
Trademarks 8,120
------
35,120
Less: Accumulated amortization 5,556
-------
$29,564
=======
Amortization amounted to $1,811 and $1,407 for the years ended March 31, 2000 and 1999,
respectively.
</TABLE>
NOTE 4 - PURCHASE OF BUILDING
On May 28, 1998, the Company purchased a 15,000 square foot
building to house its new office, laboratory and manufacturing
facility in Northvale, New Jersey. The purchase price was
$1,050,000 plus certain closing and related acquisition costs in
the amount of $22,123.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 5 - INCOME TAXES
<TABLE>
<CAPTION>
<S> <C> <C>
The components of provision for income taxes by taxing jurisdiction are as follows:
2000 1999
---- ----
Current $- $ -
Deferred - -
-------------- -------------
- -
-------------- -------------
State:
Current 200 100
Deferred - -
------------- -------------
200 100
------------- -------------
$200 $100
==== =====
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
The major components of deferred tax assets at March 31, 2000 are as follows:
Net operating loss carryforwards $(2,565,000)
Valuation allowance 2,565,000
------------
$0
==
</TABLE>
At March 31, 2000, a 100% valuation allowance is provided as it
is uncertain if the deferred tax assets will be utilized.
At March 31, 2000, for income tax purposes, the Company has
unused net operating loss carryforwards of approximately
$6,978,000 expiring in 2007 through 2014.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 6 - STOCKHOLDERS' EQUITY
Private Placement Offering
--------------------------
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.
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:
1. Placement fees equal to ten percent (10%) of the gross proceeds.
2. Consulting fees in the amount of $3,000 per month.
3. The issuance of ten placement agent warrants, each made up of
20,000 shares of common stock and 10,000 warrants to purchase
common stock, at an exercise price of $6.00 per share, for a
price of $72,000 per unit. Such warrants are exercisable for
a period of five years from the date of issuance.
For the years ended March 31, 2000 and 1999, placement agent fees
in the amount of $0 and $18,000, respectively, have been charged to additional
paid-in capital.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Warrants
--------
The Company authorized the issuance of common stock purchase
warrants, with terms of five to six years, to various
corporations and individuals, in connection with the sale of
securities, loan agreements and consulting agreements. Exercise
prices range from $4.00 to $6.00 per warrant. The warrants expire
at various times from August 1, 2002 to October 31, 2002.
A summary of warrant activity for the periods indicated were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
______________ ______________
Beginning balance 1,917,286 1,867,286
Warrants issued 1,277,501 50,000
Placement Agent Agreement 14,662 -
Warrants exercised or expired (188,580) -
-------------- --------------
Ending balance 3,020,869 1,917,286
============== ==============
</TABLE>
Change in Authorized Common Shares
----------------------------------
In May 1998, the Company increased the authorized common shares,
par value $.01, to 25,000,000.
NOTE 7 - 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 and $37,198, for the years
ended March 31, 2000 and 1999, respectively.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreement
--------------------
On March 31, 2000, the Company amended and restated an employment
agreement with its President/CEO, originally entered into on May
23, 1991 and amended in December 1995, December 1998 and February
1998. The amended agreement runs for a term of five years through
December 31, 2005. Minimum annual salary as of March 31, 2000 is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ending March 31,
---------------------
2001 $242,000
2002 242,000
2003 242,000
2004 242,000
2005 (through December 31) 181,500
-------
$1,149,500
==========
</TABLE>
On December 31, 2005, this agreement will be automatically
renewed for an additional five years, unless written notice is
given by December 31, 2004. Annual compensation under the renewed
agreement shall be equal to no less than one hundred and ten
percent (110%) of the previous year's base salary.
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 shares 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. Options to purchase 500,000 shares of common stock at
a price of $10 per share. Options to purchase 100,000
shares will vest each year beginning December 31,
2001 and ending December 31, 2005.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreement (Continued)
4. Incentive stock options to purchase 125,000 shares of common stock, at
a price of $7.00 per share.
5. Certain additional compensation on termination as a result of a
change in control of the Company.
Compensation expense under this agreement amounted to $252,030
and $193,333 for the years ended March 31, 2000 and 1999, 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.
Consulting Agreements and Related Party
---------------------------------------
On August 1, 1997, the Company entered into two agreements with
corporations, one of which is an owner of at least 5% of the
Company's common stock, which provide various consulting services
for a period of three years. Terms of the agreements included the
following:
6. Combined monthly fees of $15,000.
7. The issuance of 350,000 warrants to purchase common stock at an
exercise price of $6.00 per share for a period of five (5) years
(see Note 7).
Consulting expenses under these agreements amounted to $180,000
for both the years ended March 31, 2000 and 1999.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Consulting Agreements (Continued)
---------------------
On August 1, 1998, the Company entered into a consulting
agreement with a company for the purpose of providing management,
marketing and financial consulting services for an unspecified
term. Terms of the agreement provide for a nonrefundable monthly
fee of $2,000. This compensation will be applied against amounts
due pursuant to a business referral agreement entered into on
April 8, 1997.
Terms of the business referral agreement provide for payments by
the Company based upon a formula, as defined, for an unspecified
term.
Consulting expense under this agreement amounted to $4,000
and $16,000 for the years ended March 31, 2000 and 1999.
On October 1, 1998, the Company entered into an investment
banking consulting agreement with a corporation for a period of
two years.
Under the terms of the agreement, on October 1, 1998 the Company
issued 50,000 warrants to purchase common stock. Another 50,000
warrants were issued in April 1999 and an additional 200,000
warrants may be issued by the Company under the remaining term of
the agreement, which may be terminated by the Company at any time
upon thirty (30) days written notice. All warrants issued under
the agreement will be at an exercise price of $6.00 per share for
a period of five (5) years.
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 $45,000 for the year ended March
31, 2000.
An officer and stockholder of the Company provided services to
the Company. Fees paid for services rendered by a corporation
wholly-owned by this officer and stockholder, amounted to
approximately $76,000 and $50,000 for the years ended March 31,
2000 and 1999, respectively.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 8 - 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>
Years Ended March 31, 2000 1999
--------------------- ----- -----
Outstanding at beginning of the year 1,472,714 1,007,714
Granted 663,000 465,000
Exercised (125,000) -
Expired (75,000) -
-------- ---------
Outstanding at end of year 1,935,714 1,472,714
========= =========
Options outstanding at March 31, 2000 and 1999 ranged in price from $2.00 to $10.00.
</TABLE>
NOTE 9 - 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.
In March 2000, 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 will not receive any proceeds upon
filing of Form SB-2. The securities 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.
For the years ended March 31, 2000 and 1999, the Company incurred
legal fees and other costs amounting to $7,878 and $3,043,
respectively, in connection with its public filing, which has
been charged to additional paid-in capital.
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 10 - 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 a 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.
Principal maturities required under the bond agreement are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2001 $115,000
2002 120,000
2003 130,000
2004 140,000
2005 150,000
Thereafter 2,345,000
$3,000,000
</TABLE>
NOTE 11 - MAJOR CUSTOMERS
<TABLE>
<CAPTION>
<S> <C> <C>
For the years ended March 31, revenues from major customers are
as follows:
2000 1999
----- -----
Customer A 58.10% 99.73%
Customer B 32.90% -
</TABLE>
<PAGE>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 12 - SUBSEQUENT EVENT
On June 1, 2000, the Company entered into a Memorandum of
Understanding with Inabata America Corporation (AInabata@), 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.
