ELITE PHARMACEUTICALS INC /NV/ - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(MARK
ONE)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
FISCAL YEAR ENDED – March 31, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
TRANSITION PERIOD FROM ______ TO ______
Commission
File Number: 001-15697
ELITE
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
22-3542636
|
|
(State
or other jurisdiction
of
incorporation)
|
(IRS
Employer
Identification
No.)
|
165 Ludlow Avenue,
Northvale, New Jersey 07647
(Address
of principal executive offices)
(201)
750-2646
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the
Act:
|
Common
Stock - $.01 par value
The
Common Stock is quoted on the OTC Bulletin Board
|
Securities
registered pursuant to Section 12(g) of the
Act:
|
None
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports) and (2) has been subject to such filing requirements for at
least the past 90
days.
Yes x
No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
file and larger accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes ¨ No x
The
aggregate market value of the voting common equity held by non-affiliates of the
Registrant as of September 30, 2008 was approximately $4,006,873
based upon the closing price per share of $0.17 of the Registrant’s common
stock, par value $0.01 per share, on the American Stock Exchange on such date as
reported by Bloomberg L.P. (For purposes of determining this amount,
only directors, executive officers, and, based on Schedule 13(d) filings as of
September 30, 2008, 10% or greater stockholders, and their respective
affiliates, have been deemed affiliates).
The
Registrant had 69,969,781 shares of common stock, par value $0.01 per share,
outstanding as of June 23, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933, as amended. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24,
1980). N/A
FORWARD LOOKING
STATEMENTS
This
Annual Report on Form 10-K and the documents incorporated herein contain
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
Annual Report, statements that are not statements of current or historical fact
may be deemed to be forward-looking statements. Without limiting the
foregoing, the words “plan”, “intend”, “may,” “will,” “expect,” “believe”,
“could,” “anticipate,” “estimate,” or “continue” or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Any
reference to “Elite”, the “Company”, “we”, “us”, “our” or the “Registrant” means
Elite Pharmaceuticals Inc. and its subsidiaries.
ii
Table
of Contents
Form 10-K
Index
PAGE
|
|||
PART I
|
|||
Item 1.
|
Business
|
4
|
|
Item 1A.
|
Risk Factors
|
15
|
|
Item 1B.
|
Unresolved Staff Comments
|
28
|
|
Item 2.
|
Properties
|
28
|
|
Item 3.
|
Legal Proceedings
|
29
|
|
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
29
|
|
PART II
|
|||
Item 5.
|
Market for Company’s Common
Equity and Related Stockholder Matters
|
29
|
|
Item 6.
|
Selected Financial Data
|
36
|
|
Item
7.
|
Management’s Discussion
and Analysis of Financial Condition and Results of
Operation
|
36
|
|
Item 7A.
|
Quantitative and Qualitative Disclosures About
Market Risk
|
51
|
|
Item 8.
|
Financial Statements and Supplementary
Data
|
51
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
51
|
|
Item 9AT.
|
Controls and Procedures
|
51
|
|
Item 9B.
|
Other Information
|
53
|
|
PART III
|
|||
Item 10.
|
Directors and Executive Officers of the
Company
|
53
|
|
Item 11.
|
Executive Compensation
|
60
|
|
Item
12.
|
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
|
83
|
|
Item 13.
|
Certain Relationships and Related
Transactions
|
87
|
|
Item 14.
|
Principal Accounting Fees and
Services
|
89
|
|
PART IV
|
|
||
Item 15.
|
Exhibits, Financial Statements and
Schedules
|
89
|
|
Signatures
|
99
|
||
Consolidated Financial
Statements
|
F-1
|
iii
|
PART
I
|
ITEM
1. BUSINESS
General
Elite
Pharmaceuticals, Inc. (“Elite
Pharmaceuticals”) was incorporated on October 1, 1997 under the laws of
the State of Delaware, and its wholly-owned subsidiaries, Elite Laboratories,
Inc. (“Elite Labs”) and
Elite Research, Inc. (“Elite
Research”), were incorporated on August 23, 1990 and December 20, 2002,
respectively, under the laws of the State of Delaware.
On
October 24, 1997, Elite Pharmaceuticals merged with and into our predecessor
company, Prologica International, Inc. (“Prologica”), an inactive
publicly held Pennsylvania corporation. At the same time, Elite Labs
merged with a wholly-owned subsidiary of Prologica. Following these
mergers, Elite Pharmaceuticals survived as the parent to its wholly-owned
subsidiary, Elite Labs.
On
September 30, 2002, pursuant to a termination agreement, dated as of September
30, 2002 (the “Elan
Termination Agreement”), between us and Elan Corporation, plc and Elan
International Services, Ltd. (together “Elan”), we acquired from Elan
its 19.9% interest in Elite Research, Ltd. (“ERL”), a joint venture formed
between Elite and Elan in which our initial interest was 80.1% of the
outstanding capital stock (100% of the outstanding common stock). As a result of
the termination of the joint venture, we owned 100% of ERL’s capital
stock. On December 31, 2002, ERL (a Bermuda Corporation) was merged
into Elite Research, our wholly-owned subsidiary.
The
address of our principal executive offices and our telephone and facsimile
numbers at that address are:
Elite
Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647; Phone
No.: (201) 750-2646; Facsimile No.: (201) 750-2755.
We file
registration statements, periodic and current reports, proxy statements and
other materials with the Securities and Exchange Commission (the “SEC”). You may read and copy
any materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, N.W., Washington, DC 20549, on official business days during the hours
of 10:00 am to 3:00 pm. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
web site at www.sec.gov that contains reports, proxy and information statements
and other information regarding issuers, such as us, that file electronically
with the SEC. You may also visit our website at www.elitepharma.com
for information regarding the Company including information relating to our SEC
filings.
Business
Overview and Strategy
We are a specialty pharmaceutical
company principally engaged in the development and manufacture of oral,
controlled-release products, using proprietary technology. Our strategy includes
improving off-patent drug products for life cycle management and developing
generic versions of controlled-release drug products with high barriers to
entry. Our technology is applicable to develop delayed-, sustained- or
targeted-release pellets, capsules, tablets, granules and
powders.
4
We have two products, Lodrane 24® and
Lodrane 24D®, currently being sold commercially, and a pipeline of five
additional drug candidates under active development in the therapeutic areas
that include pain management, allergy and infection. Of the products under
development, ELI-216, a once-a-day, abuse-deterrent oxycodone product, and
ELI-154, a once-a-day oxycodone product, are in clinical trials and we have
completed pilot studies on two of our other generic product
candidates. We have also submitted an abbreviated new drug
application (“ANDA”)
with the United States Food and Drug Administration (the “FDA”) with our co-development
partner, The PharmaNetwork, for a pain management generic product. We estimate,
as to which there is no assurance, the addressable market for the pipeline of
products is approximately $6 billion. Our facility in Northvale, New Jersey is a
Good Manufacturing Practice (“GMP”) and United States Drug
Enforcement Agency (“DEA”) registered facility for
research, development and manufacturing.
Strategy
We are
focusing our efforts on the following areas: (i) development of our pain
management products, (ii) manufacturing of Lodrane 24® and Lodrane 24D® product;
(ii) the development of the other products in our pipeline; and (iii) commercial
exploitation of our products either by license and the collection of royalties,
or through the manufacture of our formulations, and (iv) development of new
products and the expansion of our licensing agreements with other pharmaceutical
companies, including co-development projects, joint ventures and other
collaborations.
We are
focusing on the development of various types of drug products, including branded
drug products (which require new drug applications (“NDAs”) under Section
505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration
Act of 1984 (the “Drug Price
Competition Act”)) as well as generic drug products (which require
ANDAs).
We intend
to continue to collaborate in the development of additional products with our
current partners, which includes Epic Pharma LLC pursuant to the Epic Strategic
Alliance Agreement (as defined below). Under the Epic Strategic Alliance
Agreement (i) at least eight additional generic drug products will be developed
by Epic at Elite’s facility located at 165 Ludlow Avenue, Northvale, New Jersey
(the “Facility”) with the intent of
filing ANDAs approval of such generic drugs, (ii) Elite will be entitled to 15%
of the profits generated from the sales of such additional generic drug products
upon approval by the FDA, and (iii) Epic and Elite will share with each other
certain resources, technology and know-how in the development of drug products,
which Elite believes will benefit the continued development of its current drug
products.
We also
plan to seek additional collaborations to develop more drug
products.
We
believe that our business strategy enables us to reduce our risk by having a
diverse product portfolio that includes both branded and generic products in
various therapeutic categories and build collaborations and establish licensing
agreements with companies with greater resources thereby allowing us to share
costs of development and to improve cash-flow.
Research
and Development
During
each of the last three fiscal years, we have focused on research and development
activities. We spent $3,631,425 for the fiscal year ended March 31,
2009, $5,795,779 for the fiscal year ended March 31, 2008 and $5,777,865 for the
fiscal year ended March 31, 2007 on research and development
activities. We have reduced our research and development spending
this past year to conserve our cash, but we continue our development and scale
up work in preparation for Phase III clinical trials for ELI-216 and
ELI-154.
Of our
five products in the pipeline, three are for treatment or management of
pain. They are ELI-216, which is an abuse-resistant oxycodone;
ELI-154, which is a once-daily oxycodone; and a generic drug product that is an
analgesic. The other non-pain products are a generic product that is an
anti-infective, and a generic product that is for gastrointestinal
disorders
5
It is our
general policy not to disclose products in our development pipeline or the
status of such products until a product reaches a stage that we determine, for
competitive reasons, in our discretion, to be appropriate for disclosure and
because the disclosure of such information might suggest the occurrence of
future matters or events that may not occur. In this instance, we
believe that disclosure of the information in the following table is helpful for
the description of the general nature, orientation and activity of the Company,
and the disclosures are made for such purpose. No inference should be
made as to the occurrence of matters or events not specifically
described. We may or may not disclose such information in the future
based on competitive reasons and/or contractual obligations. We
believe that the information is helpful on a one-time basis for the purpose
described above.
The
following table provides information concerning the products that Elite is
currently developing and to which we are devoting substantial resources and
attention. None of these products has been approved by the FDA and
all are in development.
Product
|
Approx. U.S.
Sales
for Brand
and/or
Generic
Products
(2008) $MM(a)
|
NDA/
ANDA (b)
|
Partner
|
Indication
|
||||
ELI
154
Once
Daily oxycodone
|
N/A(c)
|
NDA
|
None
|
Pain
Management
|
||||
ELI
216
Once
daily oxycodone
with
abuse resistant
technology
(ART™)
|
N/A(c)
|
NDA
|
None
|
Pain
Management
|
||||
Generic
|
$33
|
ANDA
|
None
|
Infection
|
||||
Generic
|
$3,000
|
ANDA
|
IntelliPharmaceutics
(Toronto,
Canada)
|
Gastrointestinal
disorders(d)
|
||||
Generic
|
$48
|
ANDA
|
The
PharmaNetwork, LLC (Montvale,
NJ)
|
Pain
Management
|
(a)
|
Indicates
the approximate amount of sales of our competitor’s product and any
generics (if there are any). It does not represent the sales of
any of our products.
|
(b)
|
“NDA”
represents a new drug application which is filed with the FDA for new drug
products and “ANDA” represents an abbreviated new drug application which
is filed with the FDA for generic drug
products.
|
(c)
|
N/A
means not applicable because there is no branded product on the
market. There is neither a once-daily oxycodone nor an
abuse-resistant oxycodone on the market. The market for
sustained-release oxycodone was approximately $2.8 billion in
2008.
|
(d)
|
This
includes an agreement that grants to Elite a percentage of payments paid
to IntelliPharmaCeutics Corp., its Canadian partner for commercial sale of
a generic of this product.
|
6
The table
below presents information with respect to the development of our five products
under development. For some of the products, we intend to make NDA
filings under Sections 505(b)(1) or 505(b)(2) of the Drug Price Competition
Act. Accordingly, we anticipate, as to which there is no assurance,
that the development timetable for the products for which such NDA filings are
made would be shorter and less expensive. Completion of development
of products by us depends on a number of factors, however, and there can be no
assurance that specific time frames will be met during the development process
or that the development of any particular products will be
continued.
In the
table below, Pilot Phase I studies for the NDA products are generally
preliminary studies done in healthy human subjects to assess the
tolerance/safety and pharmacokinetics of the product. The Phase II
study listed below was done in recreational drug users and a visual analog scale
for euphoria was measured in the study. Additional larger studies in
humans will be required prior to submission of the product to the FDA for
review. Pilot bioequivalence studies are initial studies done in
humans for generic products and are used to assess the likelihood of achieving
bioequivalence for generic products. Larger pivotal bioequivalence
studies will be required prior to submission of the product to the FDA for
review.
Development Stage
|
Number of
Products
|
NDA/ANDA
|
||
Filed
|
1
|
ANDA
|
||
Pilot
bioequivalence study
|
2
|
ANDA
|
||
Pilot
Phase I study
|
1
|
NDA
|
||
Phase
II
|
1
|
NDA
|
Commercial
Products
Elite
manufactures two once-daily allergy products, Lodrane 24® and Lodrane 24D®, that
were co-developed with our partner, ECR Pharmaceuticals (“ECR”). Elite
entered into development agreements on these two products with ECR in June 2001
whereby Elite agreed to commercially develop two products in exchange for
development fees, certain payments, royalties and manufacturing rights. The
products are being marketed by ECR which also has the responsibility for
regulatory matters. In addition to receiving revenues for manufacture
of these products, Elite receives a royalty on in-market sales.
Lodrane
24®, was first commercially offered in November 2004 and Lodrane 24D® was first
commercially offered in December, 2006. Elite’s revenues for
manufacturing these products and a royalty on sales for the years ended March
31, 2009, 2008 and 2007 aggregated $2,274,825, $1,413,119 and $1,143,841,
respectively.
Products
Under Development
ELI-154
and ELI-216
For
ELI-154, Elite has developed a once-daily oxycodone formulation using its
proprietary technology. An investigational new drug application, or IND, has
been filed and Elite has completed two pharmacokinetic studies in healthy
subjects that compared blood levels of oxycodone from dosing ELI-154 and the
twice-a-day product that is on the market currently, OxyContin® marketed in the
U.S. by Purdue Pharma LP. ELI-154, when compared to twice-daily
delivery, demonstrated an equivalent onset, more constant blood levels of the
drug over the 24 hours and equivalent blood levels to the twice-a-day product at
the end of 24 hours. We are now scaling up that product using commercial size
equipment for manufacture of batches. ELI-154 is targeted primarily
for markets outside the United States, including Europe.
7
ELI-216
utilizes our patent-pending abuse-deterrent technology that is based on a
pharmacological approach. ELI-216 is a combination of a narcotic agonist,
oxycodone hydrochloride, in a sustained-release formulation intended for use in
patients with moderate to severe chronic pain, and an antagonist, naltrexone
hydrochloride, formulated to deter abuse of the drug. Both of these
compounds, oxycodone hydrochloride and naltrexone hydrochloride, have been on
the market for a number of years and sold separately in various dose
strengths. Elite has filed an IND for the product and has tested the
product in a series of pharmacokinetic studies. In single-dose
studies for ELI-216, it was demonstrated that no quantifiable blood levels of
naltrexone hydrochloride were released at a limit of quantification (“LOQ”) of 7.5
pg/ml. When crushed, however, naltrexone hydrochloride was released
at levels that would be expected to eliminate the euphoria from the crushed
oxycodone hydrochloride. This data is consistent with the premise of
Elite’s abuse resistant technology, or ART, that essentially no naltrexone is
released and absorbed when administered as intended. Products
utilizing the pharmacological approach such as Suboxone®, a product marketed in
the United States by Reckitt Benckiser Pharmaceuticals, Inc., have been approved
by the FDA and are being marketed in the United States.
In
further studies, ELI-216 demonstrated the euphoria-blocking effect when the
product is crushed. This study was designed to determine the
optimal ratio of oxycodone hydrochloride and the opioid antagonist, naltrexone
hydrochloride, to significantly block the euphoric effect of the opioid if the
product is abused by physically altering it (i.e., crushing). The study
also helped determine the appropriate levels of naltrexone hydrochloride
required to reduce or eliminate the euphoria experienced by subjects who might
take crushed product to achieve a “high”. Elite intends to complete and
submit to the FDA a second stage of this study that will be a double-blinded,
cross-over pivotal study.
Elite met
with the FDA for a Type C clinical guidance meeting regarding the NDA
development program for ELI-216. Elite has incorporated the FDA’s guidance
into its developmental plan. Elite has begun scale up of ELI-216 to
commercial size batches and Elite has obtained a special protocol assessment, or
SPA, with the FDA for the ELI-216 Phase III protocol. Elite will conduct
additional Phase I studies including, but not limited to, food effect, ascending
dose and a multi-dose studies.
Elite has
developed ELI-154 and ELI-216 and retains the rights to these
products. Elite has currently chosen to develop these products itself
but expects to license these products at a later date to a third party for sales
and distribution. The drug delivery technology underlying ELI-154 was originally
developed under a joint venture with Elan which terminated in 2002.
According
to the Elan Termination Agreement, Elite acquired all proprietary, development
and commercial rights for the worldwide markets for the products developed by
the joint venture, including ELI-154. Upon licensing or commercialization of
ELI-154, Elite will pay a royalty to Elan pursuant to the termination agreement
with Elan. If Elite were to sell the product itself, Elite would pay
a 1% royalty to Elan based on the product’s net sales, and if Elite enters into
an agreement with another party to sell the product, Elite will pay a 9% royalty
to Elan based on Elite’s net revenues from this product (Elite’s net product
revenues would include license fees, royalties, manufacturing profits and
milestones). Elite is allowed to recoup all development costs including
research, process development, analytical development, clinical development and
regulatory costs before payment of any royalties to Elan.
Epic
Strategic Alliance Agreement
On March
18, 2009, Elite entered into a Strategic Alliance Agreement (as amended by an
Amendment, dated as of April 30, 2009 (the “First Amendment”), and Second
Amendment, dated as of June 1, 2009 (the “Epic Strategic Alliance
Agreement”) with Epic Pharma, LLC (the “Parent”) and Epic
Investments, LLC, a subsidiary controlled by the Parent (the “Purchaser”, and collectively
with the Parent, "Epic”), pursuant to which
Elite commenced a strategic relationship with Epic, a pharmaceutical company
that operates a business synergistic to that of Elite in the research and
development, manufacturing, sales and marketing of oral immediate and
controlled-release drug products.
8
Under the
Epic Strategic Alliance Agreement (i) at least eight additional generic drug
products will be developed by Epic at the Facility with the intent of filing
abbreviated new drug applications for obtaining FDA approval of such generic
drugs, (ii) Elite will be entitled to 15% of the profits generated from the
sales of such additional generic drug products upon approval by the FDA, and
(iii) Epic and Elite will share with each other certain resources, technology
and know-how in the development of drug products, which Elite believes will
benefit the continued development of its current drug products.
For
additional information regarding the Epic Strategic Alliance Agreement, please
see our disclosures under “Epic Strategic Alliance Agreement” in Item 7 of Part
II of this Annual Report on Form 10-K, and in our Current Reports on Form
8-K, filed with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which
such disclosures are incorporated herein by reference.
Manufacturing,
Co-Development and License Agreements
On June
21, 2005, Elite entered into a product development and commercialization
agreement with IntelliPharmaCeutics Corp. (“IPC”), a Canadian
privately-held, specialty pharmaceutical company, which develops generic
controlled-release drug products. It is affiliated with IntelliPharmaCeutics,
Ltd. The agreement provides for the co-development and
commercialization of a controlled-released generic product. IPC has
taken a formulation for the product into a pilot bioequivalence
biostudy. Upon commercialization, Elite is to share the profits, if
any, realized upon sales. A successful pivotal biostudy and an
approved ANDA filing is required to commercialize this product.
On
December 12, 2005, Elite and IPC amended their obligations to suspend their
obligations under their product and commercialization agreement with respect to
the development and commercialization of the controlled-release drug product in
Canada. IPC, in turn, entered into an agreement with Ratiopharm, Inc., a
Canadian company, for the development and commercialization of the product in
Canada and will pay Elite a certain percentage of any payments received by IPC
with respect to the commercial sale of this product by Ratiopharm, Inc. in
Canada.
On
November 10, 2006, Elite entered into a product collaboration agreement with The
PharmaNetwork, LLC (“TPN”) for the development of
the generic product equivalent of a synthetic narcotic analgesic drug
product. TPN is to perform development services and prepare and file
an ANDA in the name of TPN with the FDA. Elite is to provide
development support, including the purchase of active pharmaceutical ingredients
and materials and supplies to manufacture the batch, provide adequate facilities
to TPN for use in its development work and following ANDA approval, Elite will
manufacture the drug product developed. Elite is to pay TPN for the
development services rendered upon the attainment of certain
milestones. The out-of-pocket costs are to be shared by TPN and
Elite, with TPN’s obligation to be payable from the royalty
compensation. An ANDA was submitted and the application was accepted
for review by the FDA in September 2008.
9
Novel
Labs Investment
At the
end of 2006, Elite entered into a joint venture with VGS Pharma, LLC (“VGS”) and created Novel
Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing,
licensing, acquisition and marketing of specialty generic pharmaceuticals.
Novel's business strategy is to focus on its core strength in identifying and
timely executing niche business opportunities in the generic pharmaceutical
area. Elite’s ownership interest in Novel’s Class A Voting Common Stock of Novel
is approximately 10% of the outstanding shares of Class A Voting Common Stock of
Novel. As of October 1, 2007, Elite deconsolidated its financial statements from
Novel. In order to value Elite’s ownership in Novel, Elite has made
numerous requests to Novel for financial and pipeline information. As
of the date hereof, Elite has yet to receive any responses from Novel to such
requests.
Novel has publicly disclosed the
following information:
|
§
|
Novel
has filed eleven ANDAs.
|
|
§
|
One
of Novel’s ANDAs has been approved.
|
|
§
|
Four
of Novel’s ANDAs have been granted first-to-file status. Another ANDA
filed by Novel is expected to be granted first-to-file
status.
|
|
§
|
Novel
acquired three ANDAs to supplement its own in-house
products.
|
|
§
|
Novel
has identified over 50 drug products in
development.
|
|
§
|
Novel
intends to launch as many as six products in 2009 beginning in first
quarter.
|
|
§
|
Novel
employs approximately 50 people.
|
Using the above information for
guidance, Elite has estimated a net present value of cash flows for 2009, 2010,
2011 and 2012, based upon the following assumptions:
|
§
|
Sales
potential for Novel’s products;
|
|
§
|
Capital
and operating costs for Novel;
|
|
§
|
Stock
option shares that might be issued;
|
|
§
|
Assuming
a terminal value based on a 12.50% discount rate on 2012 net cash flow;
and
|
|
§
|
$1
million in capital expenditures per
year.
|
Based solely upon the above publicly
disclosed information and our assumptions, Elite’s investment in Novel as of
March 31, 2009 was estimated to be $3,400,000. Novel has not provided
Elite with its current financial information and therefore such estimate is
based on limited information.
Patents
Since our incorporation, we have
secured seven United States patents of which two have been assigned for a fee to
another pharmaceutical company. Elite’s patents are:
U.S.
patent 5,871,776
U.S.
patent 5,902,632
U.S.
patent 5,837,284 (assigned to Celgene Corporation)
U.S.
patent 6,620,439
U.S.
patent 6,635,284 (assigned to Celgene Corporation)
U.S.
patent 6,926,909
U.S.
patent 6,984,402
We have
pending applications for three additional U.S. patents. The pending
patent applications relate to two different controlled-release pharmaceutical
products on which we are working. Two of these patents are for an
opioid agonist and antagonist product that we are developing to be used with
oxycodone and other opioids to minimize the abuse potential for the
opioids. Another U.S. patent is for formulation of oral
sustained-release opioids intended to improve the delivery of the
opioids. We intend to apply for patents for other products in the
future; however, there can be no assurance that any of the pending applications
or other applications which we may file will be granted. We have also
filed corresponding foreign applications for key patents.
10
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 GAAT, the term of any U.S. Patent granted on an application
filed subsequent to June 8, 1995 terminates 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 Act, 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. Such benefits
under the Drug Price Competition 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 we will be able to take
advantage of this law.
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 us 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 our 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 us using the
resulting alternative technology.
We also
rely upon unpatented proprietary and trade secret technology that we seek to
protect, in part, by confidentiality agreements with our 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 we will have
adequate remedies for any such breach, or that our 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 us,
others have not and will not obtain access to our proprietary
technology.
Trademarks
We
currently plan to license our products to marketing partners and not to sell
under our own brand name and so we do not currently intend to register any
trademarks related to our products.
Government
Regulation and Approval
The
design, development and marketing of pharmaceutical compounds, on which our
success depends, are intensely regulated by governmental regulatory agencies, in
particular the FDA. 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 FDA to approve ANDAs and NDAs. The FDA also has
the authority to withdraw approval of drugs in accordance with statutory due
process procedures.
11
Before a
drug may be marketed, it must be approved by the FDA either by an NDA or an
ANDA, each of which is discussed below.
NDAs
and NDAs under Section 505(b) of the Drug Price Competition Act
The FDA
approval procedure for an NDA is generally a two-step process. During the
Initial Product Development stage, an investigational new drug application
(“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
clinical testing. 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, they must be answered to the satisfaction of the FDA
before initial clinical testing may begin. In some instances this process could
result in substantial delay and expense. Initial clinical studies
generally constitute Phase I of the NDA process and are conducted to demonstrate
the product tolerance/safety and pharmacokinetic in healthy
subjects.
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 application and
must include the results of extensive clinical and other testing, the cost of
which is substantial. However, the NDA filings contemplated by us,
which are already marketed drugs, would be made under Sections 505 (b)(1) or 505
(b)(2) of the Drug Price Competition Act, which do not require certain studies
that would otherwise be necessary; accordingly, the development timetable should
be shorter. While the FDA is required to review applications within a
certain timeframe, during the review process, the FDA frequently requests that
additional information be 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 our 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.
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. We intend
to conduct all marketing in territories other than the United States 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.
ANDAs
The FDA
approval procedure for an ANDA differs from the procedure for a NDA in that the
FDA waives the requirement of conducting complete clinical studies, although it
normally requires bioavailability and/or bioequivalence studies.
“Bioavailability” indicates the rate and extent of absorption and levels of
concentration of a drug product in the blood stream needed to produce a
therapeutic effect. “Bioequivalence” compares the bioavailability of one drug
product with another, and when established, indicates that the rate of
absorption and levels of concentration of the active drug substance in the body
are equivalent for the generic drug and the previously approved drug. An ANDA
may be submitted for a drug on the basis that it is the equivalent of a
previously approved drug or, in the case of a new dosage form, is suitable for
use for the indications specified.
12
The
timing of final FDA approval of an ANDA depends on a variety of factors,
including whether the applicant challenges any listed patents for the drug and
whether the brand-name manufacturer is entitled to one or more statutory
exclusivity periods, during which the FDA may be prohibited from accepting
applications for, or approving, generic products. In certain circumstances, a
regulatory exclusivity period can extend beyond the life of a patent, and thus
block ANDAs from being approved on the patent expiration date.
In May
1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows
the FDA to impose debarment and other penalties on individuals and companies
that commit certain illegal acts relating to the generic drug approval process.
In some situations, the Generic Drug Enforcement Act requires the FDA to not
accept or review ANDAs for a period of time from a company or an individual that
has committed certain violations. It also provides for temporary denial of
approval of applications during the investigation of certain violations that
could lead to debarment and also, in more limited circumstances, provides for
the suspension of the marketing of approved drugs by the affected company.
Lastly, the Generic Drug Enforcement Act allows for civil penalties and
withdrawal of previously approved applications. Neither we nor any of
our employees have ever been subject to debarment. We do not believe that we
receive any services from any debarred person.
Controlled Substances
We are
also subject to federal, state, and local laws of general applicability, such as
laws relating to working conditions. We are also licensed by,
registered with, and subject to periodic inspection and regulation by the Drug
Enforcement Agency (“DEA”) and New Jersey state
agencies, pursuant to federal and state legislation relating to drugs and
narcotics. Certain drugs that we currently develop or may develop in
the future may be subject to regulations under the Controlled Substances Act and
related statutes. As we manufacture such products, we may become
subject to the Prescription Drug Marketing Act, which regulates wholesale
distributors of prescription drugs.
GMP
All
facilities and manufacturing techniques used for the manufacture of products for
clinical use or for sale must be operated in conformity with GMP regulations
issued by the FDA. We engage in manufacturing on a commercial basis for
distribution of products, and operate our facilities in accordance with GMP
regulations. If we hire another company to perform contract manufacturing for
us, we must ensure that our contractor’s facilities conform to GMP
regulations.
Compliance
with Environmental Laws
We are
subject to comprehensive federal, state and local environmental laws and
regulations that govern, among other things, air polluting emissions, waste
water discharges, solid and hazardous waste disposal, and the remediation of
contamination associated with current or past generation handling and disposal
activities, including the past practices of corporations as to which we are the
successor legally or in possession. We do not expect that compliance
with such environmental laws will have a material effect on our capital
expenditures, earnings or competitive position in the foreseeable
future. There can be no assurance, however, that future changes in
environmental laws or regulations, administrative actions or enforcement
actions, or remediation obligations arising under environmental laws will not
have a material adverse effect on our capital expenditures, earnings or
competitive position.
13
Competition
We have
competition with respect to our two principal areas of operation. We
develop and manufacture products using controlled-release drug technology for
other pharmaceutical companies, and we develop and market (either on our own or
by license to other companies) proprietary controlled-release pharmaceutical
products. In both areas, our competition consists of those companies which
develop controlled-release drugs and alternative drug delivery
systems.
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. We expect 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 we do in commercializing pharmaceutical
products. Certain companies have a track record of success in
developing controlled-release drugs. Significant among these are King
Pharmaceuticals Sandoz (a Novartis company), Durect Corporation, Mylan
Laboratories, Inc., Par Pharmaceuticals, Inc., Teva Pharmaceuticals Industries
Ltd., Biovail Corporation, Ethypharm S.A., Eurand, Impax Laboratories, Inc., K-V
Pharmaceutical Company and Penwest Pharmaceuticals Company. Each of
these companies has 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 we can. In addition, almost all of our
competitors have vastly greater resources than we do. While our
product development capabilities and, if obtained, patent protection may help us
to maintain our 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 our patents, if any, or that even
if patent protection is obtained, such patents will not be successfully
challenged in the future.
In
addition to competitors that are developing products based on drug delivery
technologies, there are also companies that have announced that they are
developing opioid abuse-deterrent products that might compete directly or
indirectly with Elite’s products. These include, but are not limited
to Alpharma, Inc., Pain Therapeutics (which has an agreement with Durect
Corporation), Shire Pharmaceuticals Group plc (which purchased New River
Pharmaceuticals Inc.), Endo Pharmaceuticals, Inc. through an agreement with
Collegium Pharmaceuticals, Inc., Purdue Pharma LP, and Acura Pharmaceuticals,
Inc.
We also
face competition in the generic pharmaceutical market. The principal competitive
factors in the generic pharmaceutical market include: (i) introduction of other
generic drug manufacturers’ products in direct competition with our products
under development, (ii) introduction of authorized generic products in
direct competition with any of our products under development, particularly if
such products are approved and sold during exclusivity periods,
(iii) consolidation among distribution outlets through mergers and
acquisitions and the formation of buying groups, (iv) ability of generic
competitors to quickly enter the market after the expiration of patents or
exclusivity periods, diminishing the amount and duration of significant profits,
(v) the willingness of generic drug customers, including wholesale and
retail customers, to switch among pharmaceutical manufacturers,
(vi) pricing pressures and product deletions by competitors, (vii) a
company’s reputation as a manufacturer and distributor of quality products,
(viii) a company’s level of service (including maintaining sufficient
inventory levels for timely deliveries), (ix) product appearance and
labeling and (x) a company’s breadth of product offerings.
14
Sources
and Availability of Raw Materials; Manufacturing
We
manufacture for commercial sale by our partner, ECR, two products, Lodrane 24®
and Lodrane 24D®, for which to date we have obtained sufficient amounts of the
raw materials for its production. We are not currently in the
manufacturing phase for any other products and do not expect that significant
amounts of raw materials will be required for their production. We
currently obtain the raw materials that we need from over twenty
suppliers.
We have
acquired pharmaceutical manufacturing equipment for manufacturing our
products. We have registered our facilities with the FDA and the
DEA.
Dependence
on One or a Few Major Customers
Each year
we have had one or a few customers that have accounted for a large percentage of
our limited revenues therefore the termination of a contract with a customer may
result in the loss of substantially all of our revenues. We are
constantly working to develop new relationships with existing or new customers,
but despite these efforts we may not, at the time that any of our current
contracts expire, have other contracts in place generating similar or material
revenue. We have an agreement with ECR which sells and distributes
two products that we manufacture: Lodrane 24® and Lodrane
24D®. We receive revenues to manufacture these products and also
receive royalties based on in-market sales of the products. These are
our only products that are being sold commercially now and are the primary
source of our revenue currently.
Employees
As of
June 15, 2009, we had 12 employees. Full-time employees are engaged
in administration, research and development. None of our employees is
represented by a labor union and we have never experienced a work stoppage. We
believe our relationship with our employees to be good. However, our
ability to achieve our financial and operational objectives depends in large
part upon our continuing ability to attract, integrate, retain and motivate
highly qualified personnel, and upon the continued service of our senior
management and key personnel.
ITEM
1A. RISK
FACTORS
In
addition to the other information contained in this report, the following risk
factors should be considered carefully in evaluating an investment in us and in
analyzing our forward-looking statements.
Risks
related to our Business
We
have a relatively limited operating history, which makes it difficult to
evaluate our future prospects.
Although we have been in operation
since 1990, we have a relatively short operating history and limited financial
data upon which you may evaluate our business and prospects. In addition, our
business model is likely to continue to evolve as we attempt to expand our
product offerings and our presence in the generic pharmaceutical market. As a
result, our potential for future profitability must be considered in light of
the risks, uncertainties, expenses and difficulties frequently encountered by
companies that are attempting to move into new markets and continuing to
innovate with new and unproven technologies. Some of these risks relate to our
potential inability to:
15
|
·
|
develop
new products;
|
|
·
|
obtain
regulatory approval of our
products;
|
|
·
|
manage
our growth, control expenditures and align costs with
revenues;
|
|
·
|
attract,
retain and motivate qualified personnel;
and
|
|
·
|
respond
to competitive developments.
|
If we do not effectively address the
risks we face, our business model may become unworkable and we may not achieve
or sustain profitability or successfully develop any products.
We
have not been profitable and expect future losses.
To date, we have not been profitable
and we may never be profitable or, if we become profitable, we may be unable to
sustain profitability. We have sustained losses in each year since our
incorporation in 1990. We incurred net losses of $6,604,708, $13,893,060,
$11,803,512, $6,883,914, and $5,906,890 for the years ended March 31, 2009,
2008, 2007, 2006 and 2005, respectively. We expect to incur losses for the
current year of operation and to continue to incur losses until we are able to
generate sufficient revenues to support our operations and offset operating
costs.
There
is doubt as to our ability to continue as a going concern.
On June
3, 2009, after giving effect to the initial closing of the Epic Strategic
Alliance Agreement, we had cash reserves of $737,000 which permits us to
continue at our anticipated level of operations, including, but not limited to,
the continued development of our pipeline products, through September 2009.
The completion of
all transactions contemplated by the Epic Strategic Alliance Agreement,
including the consummation of the second and third closings thereof, will
provide additional funds to permit us to continue development of our product
pipeline for more than 2 years. Beyond 2 years, we are anticipating
that, with growth of Lodrane and the launch of the ANDA for a pain management
generic product that we submitted last year with our co-development partner, The
Pharma Network,, Elite could be profitable. In addition, the
commercialization of the Epic products developed at the Facility under the
Epic Strategic Alliance Agreement will add a new revenue source for Elite.
However, there can be no assurances as to the success of the development of such
Epic products or the commercialization of such Epic products.
Despite
the successful completion of the initial closing of the Epic Strategic Alliance
Agreement, there can be no assurances that we will be able to consummate the
second and third closings pursuant to the terms and conditions of the Epic
Strategic Alliance Agreement. If such transactions are consummated,
we will receive additional cash proceeds of $2.75 million. Even
if we were able to successfully complete the second and third closings of the
Epic Strategic Alliance Agreement, we still may be required to seek additional
capital in the future and there can be no assurances that we will be able to
obtain such additional capital on favorable terms, if at all. For additional
information regarding the Epic Strategic Alliance Agreement, please see our
disclosures under “Epic Strategic Alliance Agreement” in Item 7 of Part II of
this Annual Report on Form 10-K, and in our Current Reports on Form 8-K, filed
with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which such
disclosures are incorporated herein by reference.
16
If
we are unable to obtain additional financing needed for the expenditures for the
development and commercialization of our drug products, it would impair our
ability to continue to meet our business objectives.
We
continue to require additional financing to ensure that we will be able to meet
our expenditures to develop and commercialize our products. As of
June 3, 2009, after giving effect to the initial closing of the Epic Strategic
Alliance Agreement, we had cash and cash equivalents of $737,000. We believe
that our existing cash and cash equivalents plus revenues from sale of our
Lodrane 24® and Lodrane 24D® products will be sufficient to fund our anticipated
operating expenses and capital requirements through September
2009. We will require additional funding in order to continue to
operate thereafter. If the second and third closings of the
transactions contemplated by the Epic Strategic Alliance Agreement are not
closed on a timely basis, or if another financing or strategic alternative
providing sufficient resources to allow us to continue operations is not
consummated upon exhaustion of our current capital, we will be required to cease
operations and liquidate our assets. No assurance can be given that we will be
able to consummate the second and third closings under the Epic Strategic
Alliance Agreement on a timely basis, or consummate such other financing or
strategic alternative in the time necessary to avoid the cessation of our
operations and liquidation of our assets. Moreover, even if we consummate the
second and third closings under the Epic Strategic Alliance Agreement, or such
other financing or strategic alternative, we may be required to seek additional
capital in the future and there can be no assurances that the Registrant will be
able to obtain such additional capital on favorable terms, if at
all.
If
Novel Laboratories issues additional equity in the future our equity interest in
Novel may be diluted, resulting in a decrease in our share of any dividends or
other distributions which Novel may issue in the future.
As a
result of our determination not to fund our remaining contributions to Novel at
the valuation set forth in the Novel Alliance Agreement and the resulting
purchase from us of a portion of our shares of Class A Voting Common Stock of
Novel by VGS Pharma, LLC, our remaining ownership interest in equity of Novel
was reduced to approximately 10% of the outstanding shares of
Novel. Novel may seek to raise additional operating capital in the
future and may do so by the issuance of equity. If Novel issues
additional equity, our future equity interest in Novel will decrease and we will
be entitled to a decreased portion of any dividends or other distributions which
Novel may issue in the future. Novel also has a company sponsored
stock option plan and any equity issued from this stock plan will also reduce
Elite’s equity interest in Novel.
Substantially all of our product
candidates are at an early stage of development and only a portion of these are
in clinical development.
ELI-154 and ELI-216 are pre-Phase III
and two of our generic products are still at an early stage of development.
Other than Lodrane 24® and Lodrane 24D®, which are commercial drug products, and
a generic drug product for which an ANDA was filed in 2008, we will need to
perform additional development work for the additional product candidates in our
pipeline before we can seek the regulatory approvals necessary to begin
commercial sales.
If
we are unable to satisfy regulatory requirements, we may not be able to
commercialize our product candidates.
We need FDA approval prior to marketing
our product candidates in the United States of America. If we fail to obtain FDA
approval to market our product candidates, we will be unable to sell our product
candidates in the United States of America and we will not generate any revenue
from the sale of such products.
This regulatory review and approval
process, which includes evaluation of preclinical studies and clinical trials of
our product candidates is lengthy, expensive and uncertain. To receive approval,
we must, among other things, demonstrate with substantial evidence from
well-controlled clinical trials that our product candidates are both safe and
effective for each indication where approval is sought. Satisfaction of these
requirements typically takes several years and the time needed to satisfy them
may vary substantially, based on the type, complexity and novelty of the
pharmaceutical product. We cannot predict if or when we might submit for
regulatory approval any of our product candidates currently under development.
Any approvals we may obtain may not cover all of the clinical indications for
which we are seeking approval. Also, an approval might contain significant
limitations in the form of narrow indications, warnings, precautions, or
contra-indications with respect to conditions of use.
17
The FDA has substantial discretion in
the approval process and may either refuse to accept an application for
substantive review or may form the opinion after review of an application that
the application is insufficient to allow approval of a product candidate. If the
FDA does not accept our application for review or approve our application, it
may require that we conduct additional clinical, preclinical or manufacturing
validation studies and submit the data before it will reconsider our
application. Depending on the extent of these or any other studies that might be
required, approval of any applications that we submit may be delayed by several
years, or we may be required to expend more resources than we have available. It
is also possible that any such additional studies, if performed and completed,
may not be considered sufficient by the FDA to make our applications approvable.
If any of these outcomes occur, we may be forced to abandon our applications for
approval.
We will also be subject to a wide
variety of foreign regulations governing the development, manufacture and
marketing of our products. Whether or not an FDA approval has been obtained,
approval of a product by the comparable regulatory authorities of foreign
countries must still be obtained prior to manufacturing or marketing the product
in those countries. The approval process varies from country to country and the
time needed to secure approval may be longer or shorter than that required for
FDA approval. We cannot assure you that clinical trials conducted in one country
will be accepted by other countries or that approval of our product in one
country will result in approval in any other country.
Before
we can obtain regulatory approval, we need to successfully complete clinical
trials, outcomes of which are uncertain.
In order to obtain FDA approval to
market a new drug product, we must demonstrate proof of safety and effectiveness
in humans. To meet these requirements, we must conduct extensive preclinical
testing and “adequate and well-controlled” clinical trials. Conducting clinical
trials is a lengthy, time-consuming, and expensive process. Completion of
necessary clinical trials may take several years or more. Delays associated with
products for which we are directly conducting preclinical or clinical trials may
cause us to incur additional operating expenses. The commencement and rate of
completion of clinical trials may be delayed by many factors, including, for
example:
|
·
|
ineffectiveness
of our product candidate or perceptions by physicians that the product
candidate is not safe or effective for a particular
indication;
|
|
·
|
inability
to manufacture sufficient quantities of the product candidate for use in
clinical trials;
|
|
·
|
delay
or failure in obtaining approval of our clinical trial protocols from the
FDA or institutional review boards;
|
|
·
|
slower
than expected rate of patient recruitment and
enrollment;
|
|
·
|
inability
to adequately follow and monitor patients after
treatment;
|
|
·
|
difficulty
in managing multiple clinical
sites;
|
|
·
|
unforeseen
safety issues;
|
|
·
|
government
or regulatory delays; and
|
|
·
|
clinical
trial costs that are greater than we currently
anticipate.
|
18
Even if we achieve positive interim
results in clinical trials, these results do not necessarily predict final
results, and positive results in early trials may not be indicative of success
in later trials. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after achieving
promising results in earlier trials. Negative or inconclusive results or adverse
medical events during a clinical trial could cause us to repeat or terminate a
clinical trial or require us to conduct additional trials. We do not know
whether our existing or any future clinical trials will demonstrate safety and
efficacy sufficiently to result in marketable products. Our clinical trials may
be suspended at any time for a variety of reasons, including if the FDA or we
believe the patients participating in our trials are exposed to unacceptable
health risks or if the FDA finds deficiencies in the conduct of these
trials.
Failures or perceived failures in our
clinical trials will directly delay our product development and regulatory
approval process, damage our business prospects, make it difficult for us to
establish collaboration and partnership relationships, and negatively affect our
reputation and competitive position in the pharmaceutical
community.
Because of these risks, our research
and development efforts may not result in any commercially viable products. Any
delay in, or termination of, our preclinical or clinical trials will delay the
filing of our drug applications with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. If a
significant portion of these development efforts are not successfully completed,
required regulatory approvals are not obtained, or any approved products are not
commercially successful, our business, financial condition, and results of
operations may be materially harmed.
If
our collaboration or licensing arrangements are unsuccessful, our revenues and
product development may be limited.
We have entered into several
collaborations and licensing arrangements for the development of generic
products. However, there can be no assurance that any of these agreements will
result in FDA approvals, or that we will be able to market any such finished
products at a profit. Collaboration and licensing arrangements pose the
following risks:
|
·
|
collaborations
and licensing arrangements may be terminated, in which case we will
experience increased operating expenses and capital requirements if we
elect to pursue further development of the related product
candidate;
|
|
·
|
collaborators
and licensees may delay clinical trials and prolong clinical development,
under-fund a clinical trial program, stop a clinical trial or abandon a
product candidate;
|
|
·
|
expected
revenue might not be generated because milestones may not be achieved and
product candidates may not be
developed;
|
|
·
|
collaborators
and licensees could independently develop, or develop with third parties,
products that could compete with our future
products;
|
|
·
|
the
terms of our contracts with current or future collaborators and licensees
may not be favorable to us in the
future;
|
|
·
|
a
collaborator or licensee with marketing and distribution rights to one or
more of our products may not commit enough resources to the marketing and
distribution of our products, limiting our potential revenues from the
commercialization of a product;
|
|
·
|
disputes
may arise delaying or terminating the research, development or
commercialization of our product candidates, or result in significant and
costly litigation or arbitration;
|
|
·
|
one
or more third-party developers could obtain approval for a similar product
prior to the collaborator or licensee resulting in unforeseen price
competition in connection with the development product;
and
|
19
|
·
|
Epic
may decide that the further or continuing development of one or more of
the eight designated drug products being developed by Epic at our Facility
is no longer commercially feasible, delaying a potential source of revenue
to us pursuant to the Epic Strategic Alliance Agreement; in addition,
there can be no assurance that any drug product designated by the parties
as a replacement would be as strong a candidate for commercial viability
as the drug product that it
replaced.
|
If
we are unable to protect our intellectual property rights or avoid claims that
we infringed on the intellectual property rights of others, our ability to
conduct business may be impaired.
Our success depends on our ability to
protect our current and future products and to defend our intellectual property
rights. If we fail to protect our intellectual property adequately, competitors
may manufacture and market products similar to ours.
We currently hold five patents and we
have three patents pending. We intend to file further patent
applications in the future. We cannot be certain that our pending patent
applications will result in the issuance of patents. If patents are issued,
third parties may sue us to challenge our patent protection, and although we
know of no reason why they should prevail, it is possible that they could. It is
likewise possible that our patent rights may not prevent or limit our present
and future competitors from developing, using or commercializing products that
are similar or functionally equivalent to our products.
In addition, we may be required to
obtain licenses to patents, or other proprietary rights of third parties, in
connection with the development and use of our products and technologies as they
relate to other persons’ technologies. At such time as we discover a need to
obtain any such license, we will need to establish whether we will be able to
obtain such a license on favorable terms, if at all. The failure to obtain the
necessary licenses or other rights could preclude the sale, manufacture or
distribution of our products.
We rely particularly on trade secrets,
unpatented proprietary expertise and continuing innovation that we seek to
protect, in part, by entering into confidentiality agreements with licensees,
suppliers, employees and consultants. We cannot provide assurance that these
agreements will not be breached or circumvented. We also cannot be certain that
there will be adequate remedies in the event of a breach. Disputes may arise
concerning the ownership of intellectual property or the applicability of
confidentiality agreements. We cannot be sure that our trade secrets and
proprietary technology will not otherwise become known or be independently
developed by our competitors or, if patents are not issued with respect to
products arising from research, that we will be able to maintain the
confidentiality of information relating to these products. In addition, efforts
to ensure our intellectual property rights can be costly, time-consuming and/or
ultimately unsuccessful.
Litigation
is common in our industry, particularly the generic pharmaceutical industry, and
can be protracted and expensive and could delay and/or prevent entry of our
products into the market, which, in turn, could have a material adverse effect
on our business.
Litigation
concerning patents and proprietary rights can be protracted and expensive.
Companies that produce brand pharmaceutical products routinely bring litigation
against applicants that seek FDA approval to manufacture and market generic
forms of their branded products. These companies allege patent infringement or
other violations of intellectual property rights as the basis for filing suit
against an applicant. Because the eight drug products being developed
by Epic at our Facility are generics, such drug products may be subject to such
litigation brought by companies that produce brand pharmaceutical
products. If Epic were to become subject to litigation in connection
with any drug products it is developing at our Facility under the Epic Strategic
Alliance Agreement, Epic may choose to, or be required to, decrease or cease its
development and commercialization of such product for an indefinite period of
time, which may prevent or delay the first commercial sale of such product and
cause us to receive reduced or no product fees payable to us by Epic based on
the commercial sales of such product in accordance with the Epic Strategic
Alliance Agreement.
20
Likewise,
other patent holders may bring patent infringement suits against us alleging
that our products, product candidates and technologies infringe upon
intellectual property rights. Litigation often involves significant expense and
can delay or prevent introduction or sale of our products.
There may
also be situations where we use our business judgment and decide to market and
sell products, notwithstanding the fact that allegations of patent
infringement(s) have not been finally resolved by the courts. The risk involved
in doing so can be substantial because the remedies available to the owner of a
patent for infringement include, among other things, damages measured by the
profits lost by the patent owner and not by the profits earned by the infringer.
In the case of a willful infringement, the definition of which is subjective,
such damages may be trebled. Moreover, because of the discount pricing typically
involved with bioequivalent products, patented brand products generally realize
a substantially higher profit margin than bioequivalent products. An adverse
decision in a case such as this or in other similar litigation could have a
material adverse effect on our business, financial position and results of
operations and could cause the market value of our Common Stock to
decline.
The
pharmaceutical industry is highly competitive, and we may be unable to compete
effectively. In addition, the pharmaceutical industry is undergoing rapid and
significant technological change, and we expect competition to intensify as
technical advances in each field are made and become more widely known. An
increasing number of pharmaceutical companies have been or are becoming
interested in the development and commercialization of products incorporating
advanced or novel drug delivery systems. We expect that competition in the field
of drug delivery will increase in the future as other specialized research and
development companies begin 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 specialized drug delivery
companies. Many of our competitors have longer operating histories and greater
financial, research and development, marketing and other resources than we do.
Such companies may develop new formulations and products, or may improve
existing ones, more efficiently than we can. Our success, if any, will depend in
part on our ability to keep pace with the changing technology in the fields in
which we operate.
As we
expand our presence in the generic pharmaceuticals market our product candidates
may face intense competition from brand-name companies that have taken
aggressive steps to thwart competition from generic companies. In particular,
brand-name companies continue to sell or license their products directly or
through licensing arrangements or strategic alliances with generic
pharmaceutical companies (so-called “authorized generics”). No significant
regulatory approvals are required for a brand-name company to sell directly or
through a third party to the generic market, and brand-name companies do not
face any other significant barriers to entry into such market. In addition, such
companies continually seek to delay generic introductions and to decrease the
impact of generic competition, using tactics which
include:
21
|
·
|
obtaining
new patents on drugs whose original patent protection is about to
expire;
|
|
·
|
filing
patent applications that are more complex and costly to
challenge;
|
|
·
|
filing
suits for patent infringement that automatically delay approval of the
FDA;
|
|
·
|
filing
citizens’ petitions with the FDA contesting approval of the generic
versions of products due to alleged health and safety
issues;
|
|
·
|
developing
controlled-release or other “next-generation” products, which often reduce
demand for the generic version of the existing product for which we may be
seeking approval;
|
|
·
|
changing
product claims and product
labeling;
|
|
·
|
developing
and marketing as over-the-counter products those branded products which
are about to face generic competition;
and
|
|
·
|
making
arrangements with managed care companies and insurers to reduce the
economic incentives to purchase generic
pharmaceuticals.
|
These strategies may increase the costs
and risks associated with our efforts to introduce our generic products under
development and may delay or prevent such introduction altogether.
If
our product candidates do not achieve market acceptance among physicians,
patients, health care payors and the medical community, they will not be
commercially successful and our business will be adversely
affected.
The degree of market acceptance of any
of our approved product candidates among physicians, patients, health care
payors and the medical community will depend on a number of factors,
including:
|
·
|
acceptable
evidence of safety and efficacy;
|
|
·
|
relative
convenience and ease of
administration;
|
|
·
|
the
prevalence and severity of any adverse side
effects;
|
|
·
|
availability
of alternative treatments;
|
|
·
|
pricing
and cost effectiveness;
|
|
·
|
effectiveness
of sales and marketing strategies;
and
|
|
·
|
ability
to obtain sufficient third-party coverage or
reimbursement.
|
If we are unable to achieve market
acceptance for our product candidates, then such product candidates will not be
commercially successful and our business will be adversely
affected.
We
are dependent on a small number of suppliers for our raw materials and any delay
or unavailability of raw materials can materially adversely affect our ability
to produce products.
The FDA requires identification of raw
material suppliers in applications for approval of drug products. If raw
materials were unavailable from a specified supplier, FDA approval of a new
supplier could delay the manufacture of the drug involved. In addition, some
materials used in our products are currently available from only one supplier or
a limited number of suppliers.
Further, a significant portion of our
raw materials may be available only from foreign sources. Foreign sources can be
subject to the special risks of doing business abroad, including:
|
·
|
greater
possibility for disruption due to transportation or
communication problems;
|
|
|
·
|
the
relative instability of some foreign governments and
economies;
|
|
·
|
interim
price volatility based on labor unrest, materials or equipment shortages,
export duties, restrictions on the transfer of funds, or fluctuations in
currency exchange rates; and
|
22
|
·
|
uncertainty
regarding recourse to a dependable legal system for the enforcement of
contracts and other rights.
|
In addition, recent changes in patent
laws in certain foreign jurisdictions (primarily in Europe) may make it
increasingly difficult to obtain raw materials for research and development
prior to expiration of applicable United States or foreign patents. Any delay or
inability to obtain raw materials on a timely basis, or any significant price
increases that cannot be passed on to customers, can materially adversely affect
our ability to produce products. This can materially adversely affect our
business and operations.
Even
after regulatory approval, we will be subject to ongoing significant regulatory
obligations and oversight.
Even if regulatory approval is obtained
for a particular product candidate, the FDA and foreign regulatory authorities
may, nevertheless, impose significant restrictions on the indicated uses or
marketing of such products, or impose ongoing requirements for post-approval
studies. Following any regulatory approval of our product candidates, we will be
subject to continuing regulatory obligations, such as safety reporting
requirements, and additional post-marketing obligations, including regulatory
oversight of the promotion and marketing of our products. If we become aware of
previously unknown problems with any of our product candidates here or overseas
or our contract manufacturers’ facilities, a regulatory agency may impose
restrictions on our products, our contract manufacturers or on us, including
requiring us to reformulate our products, conduct additional clinical trials,
make changes in the labeling of our products, implement changes to or obtain
re-approvals of our contract manufacturers’ facilities or withdraw the product
from the market. In addition, we may experience a significant drop in the sales
of the affected products, our reputation in the marketplace may suffer and we
may become the target of lawsuits, including class action suits. Moreover, if we
fail to comply with applicable regulatory requirements, we may be subject to
fines, suspension or withdrawal of regulatory approvals, product recalls,
seizure of products, operating restrictions and criminal prosecution. Any of
these events could harm or prevent sales of the affected products or could
substantially increase the costs and expenses of commercializing and marketing
these products.
If
key personnel were to leave us or if we are unsuccessful in attracting qualified
personnel, our ability to develop products could be materially
harmed.
Our success depends in large part on
our ability to attract and retain highly qualified scientific, technical and
business personnel experienced in the development, manufacture and marketing of
oral, controlled-release drug delivery systems and generic products. Our
business and financial results could be materially harmed by the inability to
attract or retain qualified personnel.
If
we were sued on a product liability claim, an award could exceed our insurance
coverage and cost us significantly.
The design, development and manufacture
of our products involve an inherent risk of product liability claims. We have
procured product liability insurance; however, a successful claim against us in
excess of the policy limits could be very expensive to us, damaging our
financial position. The amount of our insurance coverage, which has been limited
due to our limited financial resources, may be materially below the coverage
maintained by many of the other companies engaged in similar activities. To the
best of our knowledge, no product liability claim has been made against us as of
March 31, 2009.
23
Risks
related to our Common Stock
Future
sales of our Common Stock could lower the market price of our Common
Stock.
Sales of substantial amounts of our
shares in the public market could harm the market price of our Common Stock,
even if our business is doing well. A significant number of shares of our Common
Stock are eligible for sale in the public market under Rule 144, promulgated
under the Securities Act of 1933, as amended (the “Securities Act”), subject in
some cases to volume and other limitations. These sales, or the perception in
the market that the holders of a large number of shares intend to sell shares,
could reduce the market price of our Common Stock.
Our
stock price has been volatile and may fluctuate in the future.
The market price for the publicly
traded stock of pharmaceutical companies is generally characterized by high
volatility. There has been significant volatility in the market prices for our
Common Stock. For the twelve months ended March 31, 2009, the closing
sale price on the American Stock Exchange (“AMEX”) of our Common Stock
fluctuated from a high of $0.83 per share to a low of $0.03 per
share. The price per share of our Common Stock may not exceed or even
remain at current levels in the future. The market price of our Common Stock may
be affected by a number of factors, including:
|
·
|
Results
of our clinical trials;
|
|
·
|
Approval
or disapproval of our ANDAs or
NDAs;
|
|
·
|
Announcements
of innovations, new products or new patents by us or by our
competitors;
|
|
·
|
Governmental
regulation;
|
|
·
|
Patent
or proprietary rights developments;
|
|
·
|
Proxy
contests or litigation;
|
|
·
|
News
regarding the efficacy of, safety of or demand for drugs or drug
technologies;
|
|
·
|
Economic
and market conditions, generally and related to the pharmaceutical
industry;
|
|
·
|
Healthcare
legislation;
|
|
·
|
Changes
in third-party reimbursement policies for
drugs;
|
|
·
|
Fluctuations
in our operating results;
|
|
·
|
Commercial
success of the eight drug products of Epic identified under the Epic
Strategic Alliance Agreement; and
|
|
·
|
Our
ability to consummate the second and third closings of the transactions
contemplated by the Epic Strategic Alliance
Agreement
|
The
voluntary delisting from the American Stock Exchange listing of our Common Stock
in order to commence quotation of our Common Stock on the OTC Bulletin Board
could have a material adverse affect on the market for our Common Stock and our
market price.
On May
21, 2009, we announced that our Common Stock would begin trading on the
over-the-counter markets, on the OTC Bulletin Board, under the symbol
ELTP:US. We believe that our commencement of the quotation of our
Common Stock on the OTC Bulletin Board, in accordance with the terms of the Epic
Strategic Alliance Agreement, is an important step in our continuing efforts to
reduce costs. However, our voluntary delisting from the American
Stock Exchange listing of the Common Stock in order to commence quotation the
Common Stock on the OTC Bulletin Board could have a material adverse affect on
the market for our Common Stock and our market price.
24
The OTC
Bulletin Board market is a regulated quotation service that displays real-time
quotes, last-sale prices and volume information for over 3,000 companies. Our
move to the OTC Bulletin Board market does not affect our business operations
and will not change our SEC reporting requirements.
Raising
of additional funding through sales of our securities could cause existing
holders of our Common Stock to experience substantial dilution.
Any
financing that involves the further sale of our securities could cause existing
holders of our Common Stock to experience substantial dilution. On the other
hand, if we incurred debt, we would be subject to risks associated with
indebtedness, including the risk that interest rates might fluctuate and cash
flow would be insufficient to pay principal and interest on such
indebtedness.
The
issuance of additional warrants and shares to Epic under the Epic Strategic
Alliance Agreement will cause existing holders of our Common Stock to experience
substantial dilution.
If Elite
and Epic consummate the second and third closings under the Epic Strategic
Alliance Agreement, Elite will issue to Epic an aggregate of 2,000 shares of
Series E Preferred Stock, convertible into an aggregate of 40,000,000 shares of
Common Stock, and warrants to purchase an additional 80,000,000 shares of Common
Stock. If Epic converts such shares of Series E Preferred Stock into shares of
Common Stock and exercises such warrants shares of Common Stock, the existing
holders of our Common Stock will experience substantial dilution.
In
addition, with respect to the products developed by Epic at the Facility under
the Epic Strategic Alliance Agreement, Elite may issue to Epic (a) warrants to
purchase up to an aggregate of 56,000,000 shares of its Common Stock upon the
receipt by Elite from Epic of written notices of Epic’s receipt of an
acknowledgment from the FDA that the FDA accepted for filing an ANDA for certain
controlled-release and immediate-release products developed by Epic at Elite’s
facility and (b) up to an aggregate of 40,000,000 additional shares of its
Common Stock following the receipt by Elite from Epic of written notices of
Epic’s receipt from the FDA of approval for certain controlled-release and
immediate-release products developed by Epic at the Facility. The existing
holders of our Common Stock will also experience substantial dilution upon the
issuance of such warrants and such additional shares of its Common Stock to Epic
in accordance with the Epic Strategic Alliance Agreement.
The
issuance of additional shares of our Common Stock or our preferred stock could
make a change of control more difficult to achieve.
The issuance of additional shares of
our Common Stock or the issuance of shares of an additional series of preferred
stock could be used to make a change of control of us more difficult and
expensive. Under certain circumstances, such shares could be used to create
impediments to, or frustrate persons seeking to cause, a takeover or to gain
control of us. Such shares could be sold to purchasers who might side with our
Board of Directors (the “Board” or “Board of Directors”) in
opposing a takeover bid that the Board of Directors determines not to be in the
best interests of our stockholders. It might also have the effect of
discouraging an attempt by another person or entity through the acquisition of a
substantial number of shares of our Common Stock to acquire control of us with a
view to consummating a merger, sale of all or part of our assets, or a similar
transaction, since the issuance of new shares could be used to dilute the stock
ownership of such person or entity.
25
If penny stock regulations become
applicable to our Common Stock they will impose restrictions on the
marketability of our Common Stock and the ability of our stockholders to sell
shares of our stock could be impaired.
The SEC has adopted regulations that
generally define a “penny stock” to be an equity security that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share subject to certain exceptions. Exceptions include equity securities issued
by an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for more than three years, (ii) net
tangible assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years, or (iii) average revenue of at least
$6,000,000 for the preceding three years. Unless an exception is available, the
regulations require that prior to any transaction involving a penny stock, a
risk of disclosure schedule must be delivered to the buyer explaining the penny
stock market and its risks. Our Common Stock is currently trading at under $5.00
per share. Although we currently fall under one of the exceptions, if at a later
time we fail to meet one of the exceptions, our Common Stock will be considered
a penny stock. As such, the market liquidity for our Common Stock will be
limited to the ability of broker-dealers to sell it in compliance with the
above-mentioned disclosure requirements.
You should be aware that, according to
the SEC, the market for penny stocks has suffered in recent years from patterns
of fraud and abuse. Such patterns include:
|
·
|
Control
of the market for the security by one or a few
broker-dealers;
|
|
·
|
“Boiler
room” practices involving high-pressure sales
tactics;
|
|
·
|
Manipulation
of prices through prearranged matching of purchases and
sales;
|
|
·
|
The
release of misleading information;
|
|
·
|
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
·
|
Dumping
of securities by broker-dealers after prices have been manipulated to a
desired level, which hurts the price of the stock and causes investors to
suffer loss.
|
We are aware of the abuses that have
occurred in the penny stock market. Although we do not expect to be in a
position to dictate the behavior of the market or of broker-dealers who
participate in the market, we will strive within the confines of practical
limitations to prevent such abuses with respect to our Common
Stock.
Epic
will have the ability to exert substantial influence over Elite.
Under the
Epic Strategic Alliance Agreement, Elite agreed that it and its Board of
Directors will take any and all action necessary so that (i) the size of the
Board of Directors will be set and remain at seven directors, (ii) three
individuals designated by Epic (the “Epic Directors”) will be
appointed to the Board of Directors and (iii) the Epic Directors will be
nominated at each annual or special meeting of stockholders at which an election
of directors is held or pursuant to any written consent of the stockholders;
provided, however, that if at any time following the initial closing of the Epic
Strategic Alliance Agreement and ending on the later of (a) the date immediately
following the first anniversary of the Initial Closing Date and (b) the Third
Closing Date, the Purchaser owns less than (1) a number of shares of Series E
Preferred Stock equal to ninety percent of the aggregate number of shares of
Series E Preferred Stock purchased by the Purchaser at all of the then
applicable Closings or (2) following the conversion by the Purchaser of the
Series E Preferred Stock, a number of shares of Common Stock equal to ninety
percent of the number of shares of Common Stock so converted, neither Elite nor
its Board of Directors will be obligated to nominate Epic Directors or take any
other action with respect to those actions described in (i), (ii) and/or (iii)
above. No Epic Director may be removed from office for cause unless such removal
is directed or approved by (A) a majority of the independent members of the
Board of Directors and (B) all of the non-affected Epic Director(s). Any
vacancies created by the resignation, removal or death of an Epic Director will
be filled by the appointment of an additional Epic Director. Any Epic Director
may be removed from office upon the request of the Purchaser, with or without
cause. Epic, by virtue of having the right to designate the three Epic
Directors, will have the ability to exert substantial influence over the
election of the other members of Elite’s Board of Directors, the outcome of
issues submitted to our stockholders for approval and the management and affairs
of Elite.
In
addition, the Series E
Certificate provides that on any matter presented to the holders of our Common
Stock for their action or consideration at any meeting of our stockholders (or
by written consent of stockholders in lieu of meeting), Epic, as a holder of
Series E Preferred Stock, will be entitled to cast the number of votes equal to
the number of shares of Common Stock into which the shares of Series E Preferred
Stock held by Epic are convertible as of the record date for determining the
stockholders entitled to vote on such matter. Except as provided by law or by
the other provisions of the Series E Certificate, Epic will vote together with
the holders of Common Stock, as a single class. In addition, pursuant to the
Epic Strategic Alliance Agreement and the Series E Certificate, Elite has agreed
that, between the date of the initial closing under the Epic Strategic Alliance
Agreement and the date which is the earlier of (x) the date the Epic Directors
constitute a majority of the Board of Directors and (y) ninety days following
the fifth anniversary of the Initial Closing Date, except as Epic otherwise
agrees in writing, Elite may conduct its operations only in the ordinary and
usual course of business consistent with past
practice. Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take the actions specifically enumerated therein.
Accordingly, such concentration of ownership Epic will have the ability
to exert further influence over Elite and may have the effect of preventing a
change of control of Elite.
26
In
addition, with respect to the products developed by Epic at our Facility under
the Epic Strategic Alliance Agreement, Elite may issue to Epic (a) warrants to
purchase up to an aggregate of 56,000,000 shares of its Common Stock upon the
receipt by Elite from Epic of written notices of Epic’s receipt of an
acknowledgment from the FDA that the FDA accepted for filing an ANDA for certain
controlled-release and immediate-release products developed by Epic at the
Facility and (b) up to an aggregate of 40,000,000 additional shares of its
Common Stock following the receipt by Elite from Epic of written notices of
Epic’s receipt from the FDA of approval for certain controlled-release and
immediate-release products developed by Epic at the Facility. If Elite is
required to issue such warrants and such additional shares of its Common Stock
to Epic in accordance with the Epic Strategic Alliance Agreement, Epic may
beneficially own in excess of 50% of the issued and outstanding Common Stock or
other voting securities of Elite. Under the Epic Strategic Alliance Agreement,
at such time as Epic owns more than 50% of the issued and outstanding Common
Stock or other voting securities of Elite, the number of Epic Directors that the
Purchaser will be entitled to designate under the Alliance Agreement will be
equal to a majority of the Board of Directors.
Holders
of our preferred stock may exercise their veto rights to make it more difficult
for us to take an action or consummate a transaction that may be deemed by the
Board to be in our best interest or the best interest of the other
stockholders.
The holders of Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock have certain veto
rights that may be exercised to prevent us from taking an action or consummating
a transaction that may be deemed by the Board to be in our best interest and the
best interest of the holders of our Common Stock if the holders of our preferred
stock believe such action or transaction would be adverse to their own
interests. If the holders of our preferred stock exercise their veto
rights to prevent us from taking any such action or consummating any such
transaction, our ability to achieve our strategic objectives may be
hindered. The ability of holders of our preferred stock to
affect our actions through use of their veto rights might limit the price that
certain investors would be willing to pay in the future for shares of our Common
Stock.
In
addition, pursuant to the Epic Strategic Alliance Agreement and the Series E
Certificate, Elite has agreed that, between the date of the initial closing
under the Epic Strategic Alliance Agreement and the date which is the earlier of
(x) the date the Epic Directors constitute a majority of the Board of Directors
and (y) ninety days following the fifth anniversary of the Initial Closing Date,
except as Epic otherwise agrees in writing, Elite may conduct its operations
only in the ordinary and usual course of business consistent with past
practice. Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take the certain actions specifically enumerated
therein. Notwithstanding
the foregoing, if at any time after Epic has acquired 25% or more of the
shares of the capital stock of Elite, on an as-converted basis, pursuant to the
terms of Alliance Agreement or the Warrants, the Epic’s ownership percentage of
the shares of capital stock of Elite falls below 20% of the shares of the
capital stock of Elite, on an as-converted basis, as a result of transfers made
by Epic, then the prior written consent of Epic will not be required prior
to the consummation of such actions under the Epic Strategic Alliance
Agreement.
27
Pursuant
to the Alliance Agreement, subject to the satisfaction of certain conditions
precedent contained therein, the Purchaser will not, without the prior written
consent of Elite, transfer any Common Stock acquired by it upon conversion of
the Series E Preferred Stock or otherwise acquired or purchased under the
Alliance Agreement or the other transaction documents for a period commencing on
the Initial Closing Date and ending on the later of (a) the date immediately
following the first anniversary of the Initial Closing Date and (b) the Third
Closing Date (such period, the “Lock-Up
Period”).
Section
203 of the Delaware General Corporation Law may deter a third party from
acquiring us.
Section 203 of the Delaware General
Corporation Law prohibits a merger with a 15% shareholder within three years of
the date such shareholder acquired 15%, unless the merger meets one of several
exceptions. The exceptions include, for example, approval by the holders of
two-thirds of the outstanding shares (not counting the 15% shareholder), or
approval by the Board of Directors prior to the 15% shareholder acquiring its
15% ownership. This provision makes it difficult for a potential acquirer to
force a merger with or takeover of us, and could thus limit the price that
certain investors might be willing to pay in the future for shares of our Common
Stock.
ITEM 1B.
|
UNRESOLVED STAFF
COMMENTS.
|
Not
applicable.
ITEM 2.
|
PROPERTIES.
|
The
Facility, which we own, is located at 165 Ludlow Avenue, Northvale, New Jersey,
and contains approximately 20,000 square feet of floor space. This
real property and the improvements thereon 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 Elite. The mortgage
contains certain customary provisions including, without limitation, the right
of NJEDA to foreclose upon a default by Elite.
We have
entered into a lease for a portion of a one-story warehouse for the storage of
pharmaceutical finished goods, raw materials, equipment and
documents. We have exercised an option to rent the property through
July 31, 2009.
We are
currently using our facilities as a laboratory, manufacturing, storage and
office space. Properties used in our operations are considered
suitable for the purposes for which they are used and are believed to be
adequate to meet our needs for the reasonably foreseeable future.
Under the
Epic Strategic Alliance Agreement (i) at least eight additional generic drug
products will be developed by Epic at the Facility with the intent of
filing ANDAs for obtaining FDA approval of such generic drugs, (ii) Elite
will be entitled to 15% of the profits generated from the sales of such
additional generic drug products upon approval by the FDA, and (iii) Epic and
Elite will share with each other certain resources, technology and know-how in
the development of drug products, which Elite believes will benefit the
continued development of its current drug products.
For
additional information regarding the Epic Strategic Alliance Agreement, please
see our disclosures under “Epic Strategic Alliance Agreement” in Item 7 of Part
II of this Annual Report on Form 10-K, and in our Current Reports on Form 8-K,
filed with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which
disclosures are incorporated herein by reference.
28
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
In the
ordinary course of business we may be subject to litigation from time to time.
There is no past, pending or, to our knowledge, threatened litigation or
administrative action to which we are a party or of which our property is the
subject (including litigation or actions involving our officers, directors,
affiliates, or other key personnel, or holders of record or beneficially of more
than 5% of any class of our voting securities, or any associate of any such
party) which in our opinion has, or is expected to have, a material adverse
effect upon our business, prospects financial condition or
operations.
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.
|
In connection with the transactions
contemplated by the Epic Strategic Alliance Agreement, the Registrant sought the
written consent of holders of a majority of, in number, of the shares of our
outstanding Series B Preferred Stock, par value $0.01 per share, Series C
Preferred Stock, par value $0.01 per share, and Series D Preferred Stock, par
value $0.01 per share (collectively, the “Existing Preferred Stock”) to
the consummation of the transactions contemplated by the Epic Strategic Alliance
Agreement, including the creation and issuance of our Series E Preferred
Stock. As of March 23, 2009, the holders of the Existing
Preferred Stock voted in favor of such actions, in accordance with the
respective terms and conditions of the Existing Preferred Stock, by written
consent of the holders 13,919 shares of Existing Preferred Stock, or 57.6% of
the then-outstanding Existing Preferred Stock.
The
holders of our Common Stock took the following actions at the Special Meeting of
the Stockholders held on December 19, 2008:
|
1.
|
Approved
and ratified the sale of up to 30,000 shares of Series D Preferred Stock,
convertible into shares of Common Stock; the exchange of certain shares of
the Company’s Series B Preferred Stock and Series C Preferred Stock for
shares of Series D Preferred Stock; and the issuance of related warrants
to purchase additional shares of Common Stock, by a vote of a majority of
the shares of Common Stock then outstanding with: 8,720,253 shares FOR;
2,825,853 shares AGAINST; and 13,287 shares ABSTAINING;
and
|
|
2.
|
Approved
and ratified an amendment to our Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 150,000,000 to
210,000,000, by a vote of a majority of the shares of Common Stock then
outstanding with: 20,571,216 shares FOR; 4,734,415 shares
AGAINST; and 18,557 shares
ABSTAINING.
|
PART II
ITEM 5.
|
MARKET FOR COMPANY’S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS.
|
Our
Common Stock was quoted on NYSE Amex (formerly, the American Stock Exchange)
under the symbol “ELI” until May 21, 2009, at which time Elite’s Common Stock
commenced trading on the over-the-counter markets under the symbol ELTP:US on
the OTC Bulletin Board. The following table shows, for the periods
indicated, the high and low sales prices per share of our Common Stock as
reported by the American Stock Exchange.
29
Common
Stock
|
||||||||
Quarter
ended
|
High
|
Low
|
||||||
Fiscal
Year ending March 31, 2009:
|
||||||||
March
31, 2009
|
$ | 0.24 | $ | 0.03 | ||||
December
31, 2008
|
$ | 0.16 | $ | 0.05 | ||||
September
30, 2008
|
$ | 0.45 | $ | 0.06 | ||||
June
30, 2008
|
$ | 0.80 | $ | 0.48 | ||||
Fiscal
Year ending March 31, 2008:
|
||||||||
March
31, 2008
|
$ | 1.80 | $ | 0.72 | ||||
December
31, 2007
|
$ | 2.75 | $ | 1.45 | ||||
September
30, 2007
|
$ | 2.77 | $ | 1.95 | ||||
June
30, 2007
|
$ | 2.70 | $ | 2.08 |
On June
23, 2009, the last reported sale price of our Common Stock, as quoted by the OTC
Bulletin Board, was $0.069 per share.
As of
June 25, 2009, there were approximately 118 holders of record of our Common
Stock. There were approximately 2,947 beneficial owners of our Common
Stock as of November 7, 2008, the latest practicable date for which such
information is available to us. We are informed and believe that as of
June 25, 2009, Cede & Co. held 39,180,485 shares of our Common Stock as
nominee for Depository Trust Company, 55 Water Street, New York, New York
10004. It is
our understanding that Cede & Co. and Depository Trust Company both disclaim
any beneficial ownership therein and that such shares are held for the account
of numerous other persons.
We have
never paid cash dividends on our Common Stock. During the fiscal year
ended March 31, 2009, we have paid dividends in the aggregate principal amount
of $2,206,683 on our Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock. Of such amount, $100,148 was paid in cash
and the remaining amount was paid in 13,901,178 shares of Common Stock. We
currently anticipate that we will retain all available funds for use in the
operation and expansion of our business.
Please
see our Quarterly Reports on Form 10-Q for the quarterly periods ended September
30, 2008 and December 31, 2008 and our Current Report on Form 8-K, filed with
the SEC on September 16, 2008, each of which is incorporated herein by reference
for information concerning our sale of unregistered securities in connection
with the private placement of our Series D Preferred Stock that closed on
September 15, 2008. Please see Items 1 and 7 of this Annual Report on
Form 10-K and our Current Reports on Form 8-K, filed with the SEC on March 23,
2009, May 6, 2009 and June 5, 2009, each of which is incorporated herein by
reference, for information concerning our sales of unregistered securities in
connection with the initial closing of the Epic Strategic Alliance Agreement on
June 3, 2009. Please see Notes 9 and 12 to the Consolidated
Financial Statements attached to this Annual Report on Form 10-K, our Quarterly
Reports on Form 10-Q for the quarterly periods ended June 30, 2008, September
30, 2008 and December 31, 2008 and our Current Reports on Form 8-K, filed with
the SEC on November 3, 2008 and December 4, 2008, each of which is
incorporated herein by reference, for information concerning other issuances of
unregistered securities during the 12 months ended March 31, 2009, including
securities issued in exchange for property, services, or other securities of
ours, and new securities resulting from the modification of outstanding
securities.
30
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth certain information regarding Elite’s equity
compensation plans as of March 31, 2009.
Plan Category
|
Number of
securities
to be issued upon
exercise of
outstanding options,
warrants and
rights
|
Weighted-average
exercise price per
share of outstanding
options, warrants and
rights
|
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity
compensation plans approved by security holders
|
2,479,900 | (1) | $ | 1.90 | 7,520,100 | |||||||
Equity
compensation plans not approved by security holders
|
75,000 | (2) | $ | 1.12 | — | |||||||
Total:
|
2,554,900 | $ | 1.87 | 7,520,100 |
(1) Represents
options issued under the 2004 Stock Option Plan
(2) Represents
75,000 non-qualified options to The Investor Relations Group.
2004 Stock Option
Plan
Our 2004
Stock Option Plan (the “Stock
Option Plan”) permits us to grant both incentive stock options (“Incentive Stock Options” or
“ISOs”) within the
meaning of Section 422 of the Internal Revenue Code (the “Code”), and other options
which do not qualify as Incentive Stock Options (the “Non-Qualified Options”) to
employees, officers, Directors of and consultants to Elite.
Unless
earlier terminated by the Board of Directors, the Stock Option Plan (but not
outstanding options issued thereunder) terminates on March 1, 2014, after which
no further awards may be granted under the Stock Option Plan. The Stock Option
Plan is administered by the full Board of Directors or, at the Board of
Directors’ discretion, by a committee of the Board of Directors consisting of at
least two persons who are “disinterested persons” as defined under Rule
16b-2(c)(ii) under the Securities Exchange Act of 1934, as amended (the “Committee”).
Recipients
of options under the Stock Option Plan (“Optionees”) are selected by
the Board of Directors or the Committee. The Board of Directors or Committee
determines the terms of each option grant including (1) the purchase price of
shares subject to options, (2) the dates on which options become exercisable and
(3) the expiration date of each option (which may not exceed ten years from the
date of grant). The minimum per share purchase price of options granted under
the Stock Option Plan for Incentive Stock Options is the fair market value (as
defined in the Stock Option Plan) or for Nonqualified Options is 85% of fair
market value of one share of the Common Stock on the date the option is
granted.
Optionees
have no voting, dividend or other rights as stockholders with respect to shares
of Common Stock covered by options prior to becoming the holders of record of
such shares. The purchase price upon the exercise of options may be paid in
cash, by certified bank or cashier’s check, by tendering stock held by the
Optionee, as well as by cashless exercise either through the surrender of other
shares subject to the option or through a broker. The total number of shares of
Common Stock available under the Stock Option Plan, and the number of shares and
per share exercise price under outstanding options will be appropriately
adjusted in the event of any stock dividend, reorganization, merger or
recapitalization or similar corporate event. Subject to limitations set forth in
the Stock Option Plan, the terms of option agreements will be determined by the
Board of Directors or Committee, and need not be uniform among
Optionees.
31
The Board
of Directors may at any time terminate the Stock Option Plan or from time to
time make such modifications or amendments to the Stock Option Plan as it may
deem advisable and the Board of Directors or Committee may adjust, reduce,
cancel and regrant an unexercised option if the fair market value declines below
the exercise price except as may be required by any national stock exchange or
national market association on which the Common Stock is then listed. In no
event may the Board of Directors, without the approval of stockholders, amend
the Stock Option Plan to increase the maximum number of shares of Common Stock
for which options may be granted under the Stock Option Plan or change the class
of persons eligible to receive options under the Stock Option Plan.
FEDERAL
INCOME TAX CONSEQUENCES. The following is a brief discussion of the
Federal income tax consequences of transactions under the Stock Option
Plan. This discussion is not intended to be exhaustive and does not
describe state or local tax consequences.
Incentive
Options
No
taxable income is realized by the Optionee upon the grant or exercise of an
Incentive Option, except as noted below with respect to the alternative minimum
tax. If Common Stock is issued to an Optionee pursuant to the
exercise of an Incentive Option, and if no disqualifying disposition of such
shares is made by such Optionee within two years after the date of grant or
within one year after the transfer of such shares to such Optionee, then
(1) upon sale of such shares, any amount realized in excess of the option
price will be taxed to such Optionee as a long-term capital gain and any loss
sustained will be a long-term capital loss, and (2) no deduction will be allowed
to the Optionee’s employer for Federal income tax purposes.
Except as
noted below for corporate “insiders,” if the Common Stock acquired upon the
exercise of an Incentive Stock Option is disposed of prior to the expiration of
either holding period described above, generally (1) the Optionee will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of such shares at exercise (or, if
less, the amount realized on the disposition of such shares) over the option
price paid for such shares and (2) the Optionee’s employer will be entitled to
deduct such amount for Federal income tax purposes if the amount represents an
ordinary and necessary business expense. Any further gain (or loss)
realized by the Optionee will be taxed as short-term or long-term capital gain
(or loss), as the case may be, and will not result in any deduction by the
employer.
Subject
to certain exceptions for disability or death, if an Incentive Stock Option is
exercised more than three months following termination of employment, the
exercise of the Option will generally be taxed as the exercise of a
Non-Qualified Option.
For
purposes of determining whether an Optionee is subject to any alternative
minimum tax liability, an Optionee who exercises an Incentive Stock Option
generally would be required to increase his or her alternative minimum taxable
income, and compute the tax basis in the stock so acquired, in the same manner
as if the Optionee had exercised a Non-Qualified Option. Each
Optionee is potentially subject to the alternative minimum tax. In
substance, a taxpayer is required to pay the higher of his/her alternative
minimum tax liability or his/her “regular” income tax liability. As a
result, a taxpayer has to determine his potential liability under the
alternative minimum tax.
32
Non-Qualified
Options
With
respect to Non-Qualified Options: (1) no income is realized by the Optionee
at the time the Option is granted; (2) generally, at exercise, ordinary
income is realized by the Optionee in an amount equal to the difference between
the option price paid for the shares and the fair market value of the shares, if
unrestricted, on the date of exercise, and the Optionee’s employer is generally
entitled to a tax deduction in the same amount subject to applicable tax
withholding requirements; and (3) at sale, appreciation (or depreciation)
after the date of exercise is treated as either short-term or long-term capital
gain (or loss) depending on how long the shares have been held.
Pursuant
to Section 409A of the Internal Revenue Code (the “Code”), Non-Qualified Options
must be issued at fair market value at the time of the grant in order to achieve
the federal tax consequences described above and to avoid substantial
penalties.
Compliance with Section 409A
of the Code
To the extent that the Board of
Directors or Committee determines that any option granted under the Stock Option
Plan is subject to Section 409A of the Code, the award
agreement evidencing such option shall incorporate the terms and conditions
required by Section 409A. To the extent applicable, the Stock Option
Plan and award agreements shall be interpreted in accordance with Section
409A. Notwithstanding any provision of the Stock Option Plan to the
contrary, in the event that, following the effective date of this amendment to
the Stock Option Plan, the Board of Directors or Committee determines that any
option may be subject to Section 409A of the Code, the Board of Directors or
Committee may adopt such amendments to the Stock Option Plan and the applicable
award agreement or adopt such other policies and procedures (including
amendments, policies and procedures with retroactive effect), or take any other
actions that the Board of Directors or Committee determines are necessary or
appropriate to (a) exempt the option from Section 409A and/or preserve the
intended tax treatment of the benefits provided with respect to the option or
(b) comply with the requirements of Section 409A of the Code.
Special Rules Applicable to
Corporate Insiders
As a
result of the rules under Section 16(b) of the Exchange Act, “insiders” (as
defined in the Securities Exchange Act of 1934), depending upon the particular
exemption from the provisions of Section 16(b) utilized, may not receive
the same tax treatment as set forth above with respect to the grant and/or
exercise of options. Generally, insiders will not be subject to
taxation until the expiration of any period during which they are subject to the
liability provisions of Section 16(b) with respect to any particular
option. Insiders should check with their own tax advisers to
ascertain the appropriate tax treatment for any particular option.
COMPARATIVE
STOCKHOLDER RETURN
The graph
and table that follows compares the yearly percentage change in Elite’s
cumulative total stockholder return on its Common Stock for the five year period
ended March 31, 2009 with the cumulative total stockholder return of (1) all
United States companies traded on the American Stock Exchange (where Elite’s
Common Stock was traded until May 21, 2009 when it commenced quotation on the
OTC Bulletin Board) and (2) all companies traded on the American Stock Exchange
which carry the Standard Industrial Classification (SIC) code 283
(Pharmaceuticals). The graph and table were prepared by the Research Data Group,
Inc.
33
Elite’s Common Stock was traded on the
NASDAQ over-the-counter bulletin board from July 23, 1998 until February 24,
2000. Elite’s Common Stock was traded on the American Stock Exchange
from February 24, 2000 until May 21, 2009. Elite’s Common Stock began
trading on the OTC Bulletin Board on May 21, 2009. Elite’s fiscal
year ends on March 31.
![](https://www.sec.gov/Archives/edgar/data/0001053369/000114420409034990/chart.jpg)
The data represented in the above
graph is also set out below in tabular form.
34
Elite Pharmaceuticals Inc
|
AMEX Composite
|
Amex Stocks (SIC 2830-2839 US
Companies)
|
||||||||||
03/04
|
100.00 | 100.00 | 100.00 | |||||||||
04/04
|
109.43 | 95.77 | 91.18 | |||||||||
05/04
|
101.01 | 94.42 | 89.02 | |||||||||
06/04
|
77.78 | 97.83 | 88.79 | |||||||||
07/04
|
74.07 | 97.06 | 71.75 | |||||||||
08/04
|
44.11 | 97.61 | 67.10 | |||||||||
09/04
|
40.40 | 99.94 | 66.96 | |||||||||
10/04
|
58.92 | 104.20 | 71.59 | |||||||||
11/04
|
109.43 | 112.25 | 80.41 | |||||||||
12/04
|
123.57 | 115.31 | 95.68 | |||||||||
01/05
|
139.73 | 115.18 | 89.94 | |||||||||
02/05
|
161.28 | 122.56 | 83.69 | |||||||||
03/05
|
148.15 | 120.58 | 76.96 | |||||||||
04/05
|
119.53 | 119.41 | 76.17 | |||||||||
05/05
|
101.01 | 121.44 | 75.50 | |||||||||
06/05
|
103.70 | 128.83 | 79.80 | |||||||||
07/05
|
97.64 | 132.13 | 85.76 | |||||||||
08/05
|
92.59 | 138.78 | 74.10 | |||||||||
09/05
|
100.34 | 146.31 | 67.96 | |||||||||
10/05
|
82.49 | 136.34 | 67.07 | |||||||||
11/05
|
60.94 | 139.62 | 72.18 | |||||||||
12/05
|
61.95 | 145.81 | 70.86 | |||||||||
01/06
|
68.35 | 154.50 | 83.85 | |||||||||
02/06
|
78.45 | 152.83 | 89.69 | |||||||||
03/06
|
83.84 | 161.83 | 86.15 | |||||||||
04/06
|
76.77 | 166.89 | 88.51 | |||||||||
05/06
|
74.07 | 160.77 | 79.80 | |||||||||
06/06
|
77.44 | 160.23 | 77.12 | |||||||||
07/06
|
74.07 | 162.35 | 73.32 | |||||||||
08/06
|
80.81 | 168.88 | 79.41 | |||||||||
09/06
|
80.47 | 161.37 | 70.64 | |||||||||
10/06
|
68.69 | 165.72 | 73.99 | |||||||||
11/06
|
71.72 | 175.75 | 73.60 | |||||||||
12/06
|
73.40 | 173.96 | 77.12 | |||||||||
01/07
|
67.34 | 177.39 | 79.34 | |||||||||
02/07
|
67.68 | 178.01 | 73.30 | |||||||||
03/07
|
79.12 | 184.40 | 75.63 | |||||||||
04/07
|
74.41 | 187.40 | 80.16 | |||||||||
05/07
|
77.44 | 201.23 | 79.54 | |||||||||
06/07
|
86.20 | 200.14 | 73.77 | |||||||||
07/07
|
79.12 | 192.80 | 67.52 | |||||||||
08/07
|
80.81 | 188.83 | 66.10 | |||||||||
09/07
|
77.44 | 204.26 | 68.19 | |||||||||
10/07
|
92.59 | 214.82 | 70.39 | |||||||||
11/07
|
70.71 | 202.37 | 59.05 | |||||||||
12/07
|
70.03 | 207.73 | 55.49 | |||||||||
01/08
|
30.64 | 192.70 | 51.07 | |||||||||
02/08
|
52.19 | 205.41 | 49.70 | |||||||||
03/08
|
30.98 | 199.00 | 47.02 | |||||||||
04/08
|
26.60 | 204.16 | 43.25 | |||||||||
05/08
|
21.21 | 208.23 | 49.32 | |||||||||
06/08
|
17.85 | 197.61 | 39.82 | |||||||||
07/08
|
11.72 | 189.98 | 38.08 | |||||||||
08/08
|
7.74 | 184.45 | 41.55 | |||||||||
09/08
|
5.72 | 159.27 | 33.62 | |||||||||
10/08
|
3.36 | 131.99 | 27.86 | |||||||||
11/08
|
1.85 | 123.62 | 22.35 | |||||||||
12/08
|
2.36 | 127.35 | 26.62 | |||||||||
01/09
|
2.36 | 129.57 | 23.99 | |||||||||
02/09
|
1.35 | 122.50 | 20.05 | |||||||||
03/09
|
4.38 | 126.25 | 21.99 |
35
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
The
following consolidated selected financial data, at the end of and for the last
five fiscal years, should be read in conjunction with our Consolidated Financial
Statements and related Notes thereto appearing elsewhere in this Annual Report
on Form 10-K. The consolidated selected financial data are derived from our
audited Consolidated Financial Statements. The audit report of Rosen
Seymour Shapss Martin & Company LLP, our independent auditors, for
the year ended March 31, 2009, and the audit report of Miller, Ellin &
Company LLP, our former independent auditors, for the years ended March 31, 2008
and 2007, are included in this Annual Report on Form 10-K. The selected
financial data provided below is not necessarily indicative of our future
results of operations or financial performance.
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Net
revenues
|
$ | 2,274,825 | $ | 1,413,119 | $ | 1,143,841 | $ | 550,697 | $ | 301,480 | ||||||||||
Net
(loss)
|
$ | (6,604,708 | ) | $ | (13,893,060 | ) | $ | (11,803,512 | ) | $ | (6,883,914 | ) | $ | (5,906,890 | ||||||
Net
(loss) per common share
|
$ | (.27 | ) | $ | (0.73 | ) | $ | (0.64 | ) | $ | (0.49 | ) | $ | (0.47 | ||||||
Total
assets
|
$ | 10,920,148 | $ | 15,310,270 | $ | 9,208,006 | $ | 15,702,241 | $ | 9,245,292 | ||||||||||
Long-term
obligations
|
$ | 3,416,600 | $ | 3,637,388 | $ | 3,795,000 | $ | 3,980,000 | $ | 2,367,128 | ||||||||||
Weighted
average number of common
|
||||||||||||||||||||
shares
outstanding
|
32,047,421 | 21,801,042 | 19,815,780 | 18,463,514 | 12,869,924 |
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
General
The
following discussion and analysis should be read with the financial statements
and accompanying notes, included elsewhere in this Annual Report on Form 10-K.
It is intended to assist the reader in understanding and evaluating our
financial position.
Overview
Elite is a specialty pharmaceutical
company principally engaged in the development and manufacture of oral,
controlled-release products, using proprietary technology. Elite’s strategy
includes improving off-patent drug products for life cycle management and
developing generic versions of controlled-release drug products with high
barriers to entry. Elite’s technology is applicable to develop delayed,
sustained or targeted release pellets, capsules, tablets, granules and
powders.
36
Elite
has two products, Lodrane 24® and Lodrane 24D®, currently being sold
commercially, and a pipeline of five additional drug candidates under active
development in the therapeutic areas that include pain management, allergy and
infection. Of the products under development, ELI-216, a once-a-day, abuse
deterrent oxycodone product, and ELI-154, a once-a-day oxycodone product, are in
clinical trials and Elite has completed pilot studies on two of Elite’s other
generic product candidates. Elite has also submitted an ANDA with Elite’s
co-development partner, The PharmaNetwork, for a pain management generic
product. The addressable market for the pipeline of products is approximately $6
billion. The Facility in Northvale, New Jersey is a Good Manufacturing
Practice (“GMP”) and
DEA registered facility for research, development and
manufacturing.
In
January 2006, the FDA accepted Elite’s Investigational New Drug Application (an
“IND”) for ELI-154,
Elite’s once-a-day oxycodone painkiller. Elite has completed two pharmacokinetic
studies to evaluate ELI-154’s controlled-release formation of which the most
recent study was completed in 2006. Elite is currently scaling up the product
and it will begin its Phase III studies for this product upon the completion of
a joint development and distribution agreement. Currently there is no once-daily
oxycodone available commercially.
In May 2005, the FDA accepted Elite’s
IND for ELI-216, Elite’s once-a-day, abuse resistant oxycodone painkiller. After
the acceptance of the IND, Elite completed two pharmacokinetic studies and a
euphoria study in recreational drug users to assess the abuse deterrent
properties of ELI-216. Elite met with the FDA in October 2006 and received
guidance for the ELI-216 development program and in November 2007, Elite reached
agreement with the FDA on a Special Protocol Assessment for the Phase III
protocol for ELI-216. Elite is currently scaling up the product and preparing
for additional studies including a multi-dose study in opioid dependent
patients, a food effect study and the Phase III study for ELI-216, Currently
there is no abuse deterrent oxycodone product available commercially. Elite
estimate that the U.S. market for controlled-release, twice-daily oxycodone was
about $2.8 billion in 2008.
Strategy
Elite is
focusing its efforts on the following areas: (i) development of Elite’s pain
management products, (ii) manufacturing of Lodrane 24(R) and Lodrane 24D(R)
products; (ii) the development of the other products in Elite’s pipeline; and
(iii) commercial exploitation of Elite’s products either by license and the
collection of royalties, or through the manufacture of Elite’s formulations, and
(iv) development of new products and the expansion of Elite’s licensing
agreements with other pharmaceutical companies, including co-development
projects, joint ventures and other collaborations.
Elite
is focusing on the development of various types of drug products, including
branded drug products (which require new drug applications (“NDA”) under Section 505(b)(1)
or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of
1984 as well as generic drug products (which require abbreviated new drug
applications (“ANDA”)).
Elite
believes that its business strategy enables Elite to reduce Elite’s risk by
having a diverse product portfolio that includes both branded and generic
products in various therapeutic categories and build collaborations and
establish licensing agreements with companies with greater resources thereby
allowing Elite to share costs of development and to improve
cash-flow.
Epic
Strategic Alliance Agreement
On March
18, 2009, Elite entered into the Epic Strategic Alliance Agreement, pursuant to
which Elite commenced a strategic relationship with Epic, a pharmaceutical
company that operates a business synergistic to that of Elite in the research
and development, manufacturing, sales and marketing of oral immediate and
controlled-release drug products.
37
Use
of Facility and Joint Development of Drug Products
Pursuant
to the Epic Strategic Alliance Agreement, on June 3, 2009 (the “Initial Closing Date”), Elite
and Epic conducted the initial closing (the “Initial Closing”) of the
transactions contemplated by the Epic Strategic Alliance Agreement,
and Epic and its employees and consultants commenced use of a portion
of Elite’s facility located at 165 Ludlow Avenue, Northvale, New Jersey (the
“Facility”), for the
purpose of developing new generic drug products, all at Epic’s sole cost and
expense (other than Facility-related expenses), for a period of at least three
years (the “Initial
Term”), unless sooner terminated or extended pursuant to the Epic
Strategic Alliance Agreement or by mutual agreement of Elite and Epic (the
Initial Term, as shortened or extended, the “Term”). In
addition to the use of the Facility, Epic will use Elite’s machinery, equipment,
systems, instruments and tools residing at the Facility (collectively the “Personal Property”) in
connection with its joint drug development project at the
Facility. Under the Epic Strategic Alliance Agreement, Epic has the
right, exercisable in its sole discretion, to extend the Initial Term for two
periods of one year each by giving written notice to Elite of such extension
within ninety days of the end of the Initial Term or any extension
thereof. Any such extension will be on the same terms and conditions
contained in the Epic Strategic Alliance Agreement. Elite will be
responsible for (and Epic will have no responsibility for) any maintenance,
services, repairs and replacements in, to or of the Facility and the Personal
Property, unless any such maintenance, service, repair or replacement is
required as a result of the negligence or misconduct of Epic’s employees or
representatives, in which case Epic will be responsible for the costs and
expenses associated therewith.
During
the Term, Epic will use and occupy a portion of the Facility and use the
Personal Property for the purpose of developing (i) at least four
controlled-release products (the “Identified CR Products”) and
(ii) at least four immediate-release products (the “Identified IR Products”), the
identity of each have been agreed upon by Epic and Elite. If, during
the Term, Epic determines, in its reasonable business judgment, that the further
or continuing development of any Identified CR Product and/or Identified IR
Product is no longer commercially feasible, Epic may, upon written notice to
Elite, eliminate from development under the Epic Strategic Alliance Agreement
such Identified CR Product and/or Identified IR Product, and replace such
eliminated product with another controlled-release or immediate-release product,
as applicable.
Pursuant
to the Epic Strategic Alliance Agreement, Epic will also use a portion of the
Facility and use the Personal Property for the purpose of developing (x)
additional controlled-release products of Epic (the “Additional CR Products”),
subject to the mutual agreement of Epic and Elite, and/or (y) additional
immediate-release products of Epic (the “Additional IR Products”),
subject to the mutual agreement of Elite and Epic (each Identified CR Product,
Identified IR Product, Additional CR Product and Additional IR Product,
individually, a “Product,” and collectively,
the “Products”). Under
the Epic Strategic Alliance Agreement, Epic may not eliminate an Identified CR
Product or an Identified IR Product unless it replaces such Product with an
Additional CR product or Additional IR Product, as the case may be. Subject to
the mutual agreement of Elite and Epic as to additional consideration and other
terms, Epic may use and occupy the Facility for the development of other
products of Epic (in addition to the Products).
As
additional consideration for Epic’s use and occupancy of a portion of the
Facility and its use of the Personal Property during the Term and the issuance
and delivery by Elite to Epic of the Milestone Shares (as defined below) and
Milestone Warrants (as defined below), for the period beginning on the First
Commercial Sale (as defined in the Epic Strategic Alliance Agreement) of each
Product and continuing for a period of ten years thereafter (measured
independently for each Product), Epic will pay Elite a cash fee (the “Product Fee”) equal to
fifteen percent of the Profit (as defined in the Epic Strategic Alliance
Agreement), if any, on each of the Products.
38
With
respect to each Identified CR Product and Additional CR Product developed by
Epic at the Facility: (i) Elite will issue and deliver to Epic a seven-year
warrant to purchase up to 10,000,000 shares of Common Stock, at an exercise
price of $0.0625, following the receipt by Elite from Epic of each written
notice of Epic’s receipt of an acknowledgment from the FDA that the FDA accepted
for filing an ANDA for such Identified CR Products and/or Additional CR
Products, up to a maximum of four such warrants for the right to purchase up to
an aggregate of 40,000,000 shares of Common Stock (such warrants, the “CR Related Warrants”), and
(ii) Elite will issue and deliver to Epic 7,000,000 shares of Common Stock
following the receipt by Elite from Epic of each written notice of Epic’s
receipt from the FDA of approval for such Identified CR Products and/or
Additional CR Products, up to a maximum of an aggregate of 28,000,000 shares of
Common Stock (such shares, the “CR Related
Shares”).
With
respect to each Identified IR Product and Additional IR Product developed by
Epic at the Facility, (i) Elite will issue and deliver to Epic a seven year
warrant to purchase up to 4,000,000 shares of Common Stock, at an exercise price
of $0.0625, following the receipt by Elite from Epic of each written notice of
Epic’s receipt of an acknowledgment from the FDA that the FDA accepted for
filing an ANDA for such Identified IR Products and/or Additional IR Products, up
to a maximum of four such warrants for the right to purchase up to an aggregate
of 16,000,000 shares of Common Stock (such warrants, together with the CR
Related Warrants, the “Milestone Warrants”), and
(ii) Elite will issue and deliver to Epic 3,000,000 shares of Common Stock
following the receipt by Elite from Epic of each written notice of Epic’s
receipt from the FDA of approval for such Identified IR Products and/or
Additional IR Products, up to a maximum of an aggregate of 12,000,000 shares of
Common Stock (such shares, together with the CR Related Shares, the “Milestone
Shares”). The Milestone Warrants may only be exercised by
payment of the applicable cash exercise price. Elite will have no
obligation to register with the United States Securities and Exchange Commission
(the “SEC”) or any
state securities commission the resale of the Milestone Shares, Milestone
Warrants or the shares of Common Stock issuable upon exercise of the Milestone
Warrants.
Subject
to the mutual agreement of Epic and Elite with respect to the selection of
Additional CR Products and/or Additional IR Products pursuant to the Epic
Strategic Alliance Agreement, Epic will have the sole right to make all
decisions regarding all aspects of the Products, including, but not be limited
to, (i) research and development, formulation, studies and validation of each
Product, (ii) identifying, evaluating and obtaining ingredients for each
Product, (iii) preparing and filing the ANDA for each Product with the FDA and
addressing and handling all regulatory inquiries, audits and investigations
pertaining to the ANDA, and (iv) the manufacture, marketing, supply and
commercialization of each Product. In addition, Epic will be the sole
and exclusive owner of all right, title and interest in and to each of the
Products.
Pursuant to the Epic Strategic Alliance
Agreement, the use by each of Elite and Epic of the other
party’s confidential and proprietary information is restricted by customary
confidentiality provisions. Elite and Epic also agreed in the Epic Strategic
Alliance Agreement to indemnify and hold each other harmless from certain losses
under the Epic Strategic Alliance Agreement.
39
Under
certain circumstances Epic will be entitled to terminate the Term early in the
event that the Facility is totally damaged or destroyed such that the Facility
is rendered wholly untenantable. In addition, subject to certain
exceptions, either Elite or Epic may terminate the Term at any time if the other
party is in breach of any material obligations under Article V of the Epic
Strategic Alliance Agreement and has not cured such breach within sixty days
after receipt of written notice requesting cure of such breach.
Elite may
also terminate the Term by written notice to Epic if (i) all conditions
precedent that Elite is obligated to satisfy pursuant to Article II of the Epic
Strategic Alliance Agreement on or prior to a Closing (as defined in the Epic
Strategic Alliance Agreement) have been, or will have been, satisfied by Elite
in accordance with the terms thereof and (ii) Epic does not consummate such
Closing in accordance with Article II. Notwithstanding the foregoing, if Elite
terminates the Epic Strategic Alliance Agreement as described in this paragraph,
then any and all product fees to which it would otherwise be entitled will
remain the obligation of Epic and must be paid to Elite in accordance with the
terms of Epic Strategic Alliance Agreement.
Infusion
of Additional Capital Necessary for Product Development
At the
Initial Closing, which occurred on June 3, 2009, in order to fund the continued
development of Elite’s drug products, Elite issued and sold to the Purchaser, in
a private placement, pursuant to an exemption from registration under Section
4(2) of the Securities Act, 1,000 shares of its Series E Convertible Preferred
Stock, par value $0.01 per share (the “Series E Preferred Stock”),
at a price of $1,000 per share, each share convertible, at $0.05 per share (the
“Conversion Price”),
into 20,000 shares of Common Stock, par value $0.01 per share (the “Common Stock”). The
Conversion Price is subject to adjustment for certain events, including, without
limitation, dividends, stock splits, combinations and the like. The Conversion
Price is also subject to adjustment for (a) the sale of Common Stock or
securities convertible into or exercisable for Common Stock, for which the
Purchaser’s consent was not required under the Certificate of Designation of
Preferences, Rights and Limitations of the Series E Convertible Preferred Stock,
at a price less than the then applicable Conversion Price, (b) the issuance of
Common Stock in lieu of cash in satisfaction of Elite’s dividend obligations on
outstanding shares of its Series B 8% Convertible Preferred Stock, par value
$0.01 per share, Series C 8% Convertible Preferred Stock, par value $0.01 per
share, and/or Series D 8% Convertible Preferred Stock, par value $0.01 per share
(the “Series D Preferred
Stock”), and (c) the issuance of Common Stock as a result of any holder
of Series D Preferred Stock exercising its right to require Elite to redeem all
of such holder’s shares of Series D Preferred Stock pursuant to the terms
thereof. The Purchaser also acquired a warrant to purchase 20,000,000 shares of
Common Stock (the "Initial Warrant"), exercisable on or
prior to June 3, 2016, at a per share exercise price of $0.0625 (the “Exercise Price”), subject to
adjustments for certain events, including, but not limited to, dividends, stock
splits, combinations and the like. The Exercise Price of the Initial Warrant
will also be subject to adjustment for the sale of Common Stock or securities
convertible into Common Stock, for which the Purchaser’s consent was not
required under the Alliance Agreement, at a price less than the then applicable
Exercise Price of the Initial Warrant. The Purchaser paid an aggregate purchase
price of $1,000,000 for the shares of Series E Preferred Stock and the Initial
Warrant issued and sold by Elite to the Purchaser at the Initial Closing, of
which $250,000 was received by Elite, in the form of a cash deposit, on April
30, 2009, pursuant to the First Amendment. The remaining $750,000 of such
aggregate purchase price was paid to Elite by the Purchaser at the Initial
Closing.
40
On the
fifth trading day following the Special Meeting of Stockholders (as defined in
the Epic Strategic Alliance Agreement) at which the Shareholder Approval (as
defined in the Epic Strategic Alliance Agreement) is obtained, Elite and Epic will conduct a
second closing (the “Second
Closing” and the date of such Second Closing, the “Second Closing Date”),
provided that all conditions precedent to such Second Closing contained in the
Epic Strategic Alliance Agreement have been satisfied or waived by the
appropriate party on or before the Second Closing Date. The Second
Closing must occur within 180 days of the Initial Closing Date. At the Second
Closing, Epic will pay to Elite a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, which such
shares of Series E Preferred Stock will be convertible, at the Conversion Price,
subject to adjustment, into 20,000,000 shares of Common Stock, and a warrant
(the “Second Warrant”)
to purchase an additional 40,000,000 shares of Common Stock. The Second Warrant
will be exercisable until the date that is the seventh anniversary of the Second
Closing Date and will have a per share exercise price equal to $0.0625, subject
to adjustments for certain events, including, but not limited to, dividends,
stock splits, combinations and the like. The per share exercise price of the
Second Warrant will also be subject to adjustment for the sale of Common Stock
or securities convertible into Common Stock at a price less than the then
applicable per share exercise price of the Second Warrant, for which Epic’s
consent was not required under the Epic Strategic Alliance
Agreement.
On the
first trading day following the first anniversary of the Initial Closing Date,
Elite and Epic will conduct a third closing (the “Third Closing” and the date
of such Third Closing, the “Third Closing Date”),
provided that all conditions precedent to such Third Closing contained in the
Epic Strategic Alliance Agreement have been satisfied or waived by the
appropriate party on or before such Third Closing Date. The Third
Closing must occur within thirty days following the first anniversary of the
Initial Closing Date. At the Third Closing, Epic will pay to Elite a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, which such
shares of Series E Preferred Stock will be convertible, at the Conversion Price,
subject to adjustment, into 20,000,000 shares of Common Stock, and a warrant
(the “Third Warrant”
and collectively with the Initial Warrant and the Second Warrant, the “Warrants”) to purchase an
additional 40,000,000 shares of Common Stock. The Third Warrant will be
exercisable until the date that is the seventh anniversary of the Third Closing
Date and will have a per share exercise price equal to $0.0625, subject to
adjustments for certain events, including, but not limited to, dividends, stock
splits, combinations and the like. The per share exercise price of the Third
Warrant will also be subject to adjustment for the sale of Common Stock or
securities convertible into Common Stock at a price less than the then
applicable per share exercise price of the Third Warrant, for which the
Purchaser’s consent was not required under the Epic Strategic Alliance
Agreement.
In
addition, within ten business days following the last day of each calendar
quarter, beginning with the first calendar quarter following the Initial Closing
Date and continuing for each of the eleven calendar quarters thereafter, Epic
will pay to Elite a sum of
$62,500, for an aggregate purchase price over such period of $750,000, in
exchange for an additional 62.5 shares of Series E Preferred Stock per quarter
and 750 shares of Series E Preferred Stock, in the aggregate, over such period,
which such shares will be convertible into 1,250,000 shares of Common Stock per
quarter and 15,000,000 shares of Common Stock, in the aggregate, over such
period, subject to adjustment.
If Elite
determines, in its reasonable judgment, that additional funding is required for
the development of its pharmaceutical products, then, either (i) Elite will
issue, and Epic will purchase, such additional number of shares of Series E
Preferred Stock or Common Stock from Elite, upon such terms and conditions as
may be agreed upon by Elite and Epic at the time of such determination; or (ii)
on or after September 15, 2011, Epic will provide a loan to Elite, in an
aggregate principal amount not to exceed $1,000,000, which such loan will (A)
have an interest rate equal to the then prime interest rate as published in the
Wall Street Journal on the date of such loan, (B) mature on the second
anniversary of date of such loan, and (C) be on such other terms and conditions
which are customary and reasonable to loans of a similar nature and which are
mutually agreed upon between Epic and Elite.
41
Elite
believes, which as to such belief there can be no assurances, the completion of
the transactions contemplated by the Epic Strategic Alliance Agreement creates
value for our stockholders by adding a new revenue source for Elite upon the commercialization
of the Epic products developed at our facility, providing an experienced partner
to assist in the development, manufacture and licensing of our pharmaceutical
products, and contributing funding for the products. Importantly, Elite will continue the
development of its pain products and, with the help of our new partner, work
towards securing licensing arrangements for such pain products.
Board
of Directors Composition and Voting Rights
As
of the Initial Closing Date and at all times thereafter, except as otherwise set
forth in the Epic Strategic Alliance Agreement, Elite and its Board of Directors
will take any and all action necessary so that (i) the size of the Board of
Directors will be set and remain at seven directors, (ii) three individuals
designated by Epic (the “Epic
Directors”) will be appointed to the Board of Directors and (iii) the
Epic Directors will be nominated at each annual or special meeting of
stockholders at which an election of directors is held or pursuant to any
written consent of the stockholders; provided, however, that if at any time
following the Lock-Up Period (as defined above) the Purchaser owns less than (i)
a number of shares of Series E Preferred Stock equal to ninety percent of the
aggregate number of shares of Series E Preferred Stock purchased by the
Purchaser at all of the then applicable Closings or (ii) following the
conversion by the Purchaser of the Series E Preferred Stock, a number of shares
of Common Stock equal to ninety percent of the number of shares of Common Stock
so converted, neither Elite nor its Board of Directors will be obligated to
nominate Epic Directors or take any other action with respect to those actions
described in (i), (ii) and/or (iii) above. No Epic Director may be removed from
office for cause unless such removal is directed or approved by (x) a majority
of the independent members of the Board of Directors and (y) all of the
non-affected Epic Director (s). Any vacancies created by the resignation,
removal or death of an Epic Director will be filled by the appointment of an
additional Epic Director. Any Epic Director may be removed from office upon the
request of the Purchaser, with or without cause. At such time as the Purchaser
owns more than 50% of the issued and outstanding Common Stock or other voting
securities of Elite, the number of Epic Directors that the Purchaser will be
entitled to designate under the Epic Strategic Alliance Agreement will be equal
to a majority of the Board of Directors.
The
Series E Certificate provides that on any matter presented to the holders of our
Common Stock for their action or consideration at any meeting of our
stockholders (or by written consent of stockholders in lieu of meeting), Epic,
as a holder of Series E Preferred Stock, will be entitled to cast the number of
votes equal to the number of shares of Common Stock into which the shares of
Series E Preferred Stock held by Epic are convertible as of the record date for
determining the stockholders entitled to vote on such matter. Except as provided
by law or by the other provisions of the Series E Certificate, Epic will vote
together with the holders of Common Stock, as a single class.
In
addition, pursuant to the Epic Strategic Alliance Agreement and the Series E
Certificate, Elite has agreed that, between the date of the initial closing
under the Epic Strategic Alliance Agreement and the date which is the earlier of
(x) the date the Epic Directors constitute a majority of the Board of Directors
and (y) ninety days following the fifth anniversary of the Initial Closing Date,
except as Epic otherwise agrees in writing, Elite may conduct its operations
only in the ordinary and usual course of business consistent with past
practice. Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take the actions specifically enumerated
therein.
For information regarding composition
of the Board and voting rights in connection with the Epic Strategic Alliance
Agreement, refer to the “Risk Factors” under Item 1A of this
Annual Report on Form 10-K and our Current Reports on Form 8-K, filed with the
SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which are incorporated
herein by reference.
Novel
Labs Investment
At the
end of 2006, Elite entered into a joint venture with VGS Pharma, LLC (“VGS”) and created Novel
Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing,
licensing, acquisition and marketing of specialty generic pharmaceuticals.
Novel's business strategy is to focus on its core strength in identifying and
timely executing niche business opportunities in the generic pharmaceutical
area. Elite’s ownership interest in Novel’s Class A Voting Common Stock of Novel
is approximately 10% of the outstanding shares of Class A Voting Common Stock of
Novel. As of October 1, 2007, Elite deconsolidated its financial statements from
Novel. In order to value Elite’s ownership in Novel, Elite has made
numerous requests to Novel for financial and pipeline information. As
of the date hereof, Elite has yet to receive any responses from Novel to such
requests.
42
Novel has
publicly disclosed the following information:
|
§
|
Novel
has filed eleven ANDAs.
|
|
§
|
One
of Novel’s ANDAs has been approved.
|
|
§
|
Four
of Novel’s ANDAs have been granted first-to-file status. Another ANDA
filed by Novel is expected to be granted first-to-file
status.
|
|
§
|
Novel
acquired three ANDAs to supplement its own in-house
products.
|
|
§
|
Novel
has identified over 50 drug products in
development.
|
|
§
|
Novel
intends to launch as many as six products in 2009 beginning in first
quarter.
|
|
§
|
Novel
employs approximately 50 people.
|
Using the above information for
guidance, Elite has estimated a net present value of cash flows for 2009, 2010,
2011 and 2012, based upon the following assumptions:
|
§
|
Sales
potential for Novel’s products;
|
|
§
|
Capital
and operating costs for Novel;
|
|
§
|
Stock
option shares that might be issued;
|
|
§
|
Assuming
a terminal value based on a 12.50% discount rate on 2012 net cash flow;
and
|
|
§
|
$1
million in capital expenditures per
year.
|
Based solely upon the above publicly
disclosed information and our assumptions, Elite’s investment in Novel as of
March 31, 2009 was estimated to be $3,400,000. Novel has not provided
Elite with its current financial information and therefore such estimate is
based on limited information.
Critical
Accounting Policies and Estimates
Management’s
discussion addresses our Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates
its estimates and judgment, including those related to bad debts, intangible
assets, income taxes, workers compensation, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Management
believes the following critical accounting policies, among others, affect its
more significant judgments and estimates used in the preparation of its
Consolidated Financial Statements. Our most critical accounting policies include
the recognition of revenue upon completion of certain phases of projects under
research and development contracts. We also assess a need for an allowance to
reduce our deferred tax assets to the amount that we believe is more likely than
not to be realized. We assess the recoverability of long-lived assets and
intangible assets whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. We assess our exposure to
current commitments and contingencies. It should be noted that actual results
may differ from these estimates under different assumptions or
conditions.
43
Recently
Issued Accounting Pronouncements Not Yet Effective
Effective
for fiscal year beginning after December 15, 2008
Statements
of Financial Accounting Standards (SFAS):
SFAS 157,
"Fair Value
Measurements" -
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
where the Board previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. However, for some entities,
the application of this Statement will change current practice. This Statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statements for an
interim period within that fiscal year.
SFAS 159,
"The Fair Value Option for
Financial Assets and Financial Liabilities-including an amendment of FASB
Statement No. 115" - permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This Statement is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007, and interim periods within those fiscal years. Early adoption is
permitted as of the beginning of a fiscal year that begins on or before November
15,2007, provided the entity also elects to apply the provisions of FASB
Statement No. 157, ''Fair
Value Measurements".
Effective
for fiscal years and interim periods beginning after November 15, 2008. Early
application is encouraged.
FASB
Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement 133"
- enhances required disclosures regarding derivatives and hedging
activities, including enhanced disclosures regarding how: (a) an entity uses
derivative instruments; (b) derivative instruments and related hedged items are
accounted for under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities; and (c) derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. Specifically, Statement 16 1 requires:
|
·
|
Disclosure
of the objectives for using derivative instruments be disclosed in terms
of underlying risk and accounting
designation;
|
|
·
|
Disclosure
of the fair values of derivative instruments and their gains and losses in
a tabular format;
|
|
·
|
Disclosure
of information about credit-risk-related contingent features;
and
|
44
|
·
|
Cross-reference
from the derivative footnote to other footnotes in which derivative
related information is disclosed.
|
SFAS 141
(R), "Business
Combinations"- retains
the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This Statement defines the acquirer as the entity that obtains
control of one or more businesses in the business combination and establishes
the acquisition date as the date that the acquirer achieves
control.
|
·
|
replaces
Statement 141's cost-allocation process and requires an acquirer to
recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured
at their fair values as of that
date,
|
|
·
|
requires
the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets
and liabilities, as well as the noncontrolling interest in the
acquiree, at the full amounts of their fair
values,
|
|
·
|
requires
that an acquirer evaluate new information and measure a liability at the
higher of its acquisition-date fair value or the amount that would be
recognized if applying Statement 5, then measuring an asset at the lower
of its acquisition-date fair value or the best estimate of its future
settlement amount,
|
|
·
|
requires
the acquirer to recognize contingent consideration at the acquisition
date, measured at its fair value at that
date,
|
Effective
for fiscal years beginning after November 15, 2007
SFAS 160,
"Noncontrolling Interests in
Consolidated Financial Statements" - changes the way the consolidated
income statement is presented. It requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
the noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. Previously, net
income attributable to the noncontrolling interest generally was reported as an
expense or other deduction in arriving at consolidated net income. It also was
often presented in combination with other financial statement amounts. Effective
for fiscal years beginning after December 15, 2008.
FASB
Staff Positions (FSP):
FSP APB
14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) " - clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting
for Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally,
this FSP specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity's nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.
45
FSP FAS
140-3, "Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions" -
amends FASB Statement 140 to state that a transferor and transferee shall not
separately account for a transfer of a financial asset and a related repurchase
financing unless (a) the two transactions have a valid and distinct business or
economic purpose for being entered into separately and (b) the repurchase
financing does not result in the initial transferor regaining control over the
financial asset. This FSP is effective for financial statements issued for
fiscal years beginning after November 15, 2008, and interim periods within those
fiscal years. Earlier application is not permitted.
FSP FAS
142-3, "Determination of the
Useful Life of Intangible Assets”- amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. Paragraph 1
l(d) of Statement 142 precluded an entity from using its own assumptions
about renewal or extension of an arrangement where there is likely to be
substantial cost or material modifications. This FSP amends paragraph 1 l(d) of
Statement 142 so that an entity will use its own assumptions about renewal or
extension of an arrangement, adjusted for the entity-specific factors in
paragraph 11 of Statement 142, even when there is likely to be substantial cost
or material modifications. Therefore, in determining the useful life of the
asset for amortization purposes, an entity shall consider the period of expected
cash flows used to measure the fair value of the recognized intangible asset,
adjusted for the entity-specific factors including, but are not limited to, the
entity's expected use of the asset and the entity's historical experience in
renewing or extending similar arrangements. This FSP shall be effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is
prohibited.
FSP FAS
157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13" - amends FASB Statement No. 157, Fair
Value Measurements, to exclude FASB Statement No. 13, Accounting for Leases, and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under Statement 13. However,
this scope exception does not apply to assets acquired and liabilities assumed
in a business combination that are required to be measured at fair value under
FASB Statement No. 141, Business Combinations, or No. 141 (revised 2007),
Business Combinations, regardless of whether those assets and liabilities are
related to leases.
FSP FAS
157-2, "Effective Date of FASB
Statement No. 157" - delays the effective date of FASB Statement No. 157,
Fair Value Measurements, for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The delay is intended to
allow the Board and constituents additional time to consider the effect of
various implementation issues that have arisen, or that may arise, from the
application of Statement 157. This FSP defers the effective date of Statement
157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of this FSP.
FSP SOP
07-1-1, - indefinitely delays the effective date of AICPA Statement of Position
07-1, "Clarification
of the Scope of the
Audit and Accounting Guide Investment Companies and Accounting by Parent
Companies and Equity Method Investors for Investments in Investment
Companies."
46
EITF
Consensuses (EITF):
EITF
Issue No. 07-1, “Accounting
for Collaborative Arrangement” - when entities enter into arrangements to
participate in a joint operating activity a collaborative arrangement may
provide that one participant has sole or primary responsibility for certain
activities or that two or more participants have shared responsibility for
certain activities. Participants should evaluate whether an arrangement is a
collaborative arrangement at the inception of the arrangement based on the facts
and circumstances present at that time. Revenue generated and costs incurred by
participants from transactions with parties should be reported gross or net on
the appropriate line item in each participant's respective financial statements
depending on the nature of the participation. Disclosures should include
information about the nature and purpose of its collaborative arrangements, the
entity's rights and obligations under the collaborative arrangements, the
accounting policy for collaborative arrangements, and the income statement
classification and amounts attributable to transactions arising from the
collaborative arrangement. Effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years.
Year
Ended March 31, 2009 vs. Year Ended March 31, 2008
Elite’s
revenues for the year ended March 31, 2009 were $2,274,825, an increase of
$861,706 over revenues for the prior year, and consisted of $1,927,062 in
manufacturing fees and $347,763 in royalty fees. Revenues for the year ended
March 31, 2008 consisted of $1,173,890 in manufacturing fees and $239,229 in
royalty fees. Manufacturing fees increased by approximately 70% and royalties
increased by approximately 45% due to growth of product sales.
Research and development costs for the
year ended March 31, 2009 were $3,631,425, a decrease of $2,164,354, or
approximately 37%, from $5,795,779 of such costs for the prior
year. Decreases were attributed to decreases in salaries and wages,
consulting fees associated with the development of products and lower active
pharmaceutical ingredient (“API”) costs for product
development. To conserve cash, Elite has reduced its number of
employees from 41 employees in March 2008, to 14 employees in May
2009. The reduction in force was primarily implemented in the third
quarter with cost savings beginning in the later part of the
year. Research and development costs are expected to increase,
however, in future periods, once Phase III and other clinical trials for ELI-216
are initiated.
General
and administrative expenses for the year ended March 31, 2009, were $2,146,895,
a decrease of $287,908, or approximately 12% from $2,434,803 of general and
administrative expenses for the prior year. The decrease was primarily
attributable to decreases in salaries and fringe benefits from Elite’s force
reduction offset by increases in legal and accounting fees from Elite’s
preferred stock offering in September 2008 and other one-time
events.
Non-cash
compensation satisfied by the issuance of stock options and warrants decreased
$1,686,028 to $921,442 for the year ended March 31, 2009 from $2,607,470 for the
year ended March 31, 2008. Decreases were the result of previously issued
options becoming vested and forfeitures as a result of the reduction in
workforce.
Depreciation
and amortization decreased by $24,076, or approximately 5%, from $524,893 for
the prior year to $500,817. The decrease was due to the cessation of acquisition
of new machinery and equipment in the current year.
Other
income (expenses) for the year ended March 31, 2009 were ($211,266) compared to
income of $63,997 for the year ended March 31, 2008. Decreases in interest
expense of $40,094 were more than offset by decreases in interest income of
$315,357 due to lower compensating balances as a result of the use of cash to
sustain Elite’s operating activities.
Elite’s
prior years financial statements were restated as a result of Elite’s decision
not to continue to fund Novel and therefore not include Novel’s expenses as part
of Elite’s operating activities for years ending March 31, 2009 and 2008.
Consequently, losses from discontinued operations of $-0- and $2,979,600,
respectively, are reflected in the 2009 and 2008 financial
statements.
As a
result of the foregoing, Elite’s net loss for the year ended March 31, 2009 was
$6,604,708 compared to $13,893,060 for the year ended March 31,
2008.
47
Year
Ended March 31, 2008 vs. Year Ended March 31, 2007
Our
revenues for the year ended March 31, 2008 were $1,413,119, an increase of
$269,278 or approximately 24%, over revenues for the prior year, and consisted
of $1,173,890 in manufacturing fees and $239,229 in royalty fees. Revenues for
the year ended March 31, 2007 consisted of $1,038,916 in manufacturing fees and
$104,925 in royalty fees. The increase in manufacturing fees and royalties was
primarily due to the launch of our second product, Lodrane 24D® in the later
part of the fiscal year ended March 31, 2007.
Research
and development costs for the year ended March 31, 2008 were $5,795,779, a
negligible increase of $17,914 from $5,777,865 of such costs for the prior year,
primarily due to costs associated with increased spending on raw materials which
are primarily for scale up of the pain products.
General
and administrative expenses (“G&A”) for the year ended
March 31, 2008 were $2,434,803, an increase of $238,649, or approximately 11%
from $2,196,154 of G&A for the prior year. The increase was attributable to
increases in salaries and fringe benefits as a result of the hiring of
managerial level employees and consulting fees associated with seeking potential
strategic transactions.
Non-cash
compensation satisfied by the issuance of stock options and warrants decreased
$871,600 to $2,607,470 for the year ended March 31, 2008 from $3,479,070 for the
year ended March 31, 2007. Decreases were the result of previously issued
options becoming vested and therefore fully amortized and newly issued options
being priced at lower values due to the reduction in Elite’s stock
price.
Depreciation
and amortization for the year ended March 31, 2008 increased by $116,079 from
$408,814 for the prior year to $524,893. The increase in 2008 was due to
acquired new machinery and equipment and continued upgrading of the corporate
and warehouse facilities.
Other
income (expenses) for the year ended March 31, 2008 were $63,997, a decrease of
$324,835, or approximately 84%, from $388,832 for the prior year due an increase
in interest income of $69,671, due to higher compensating balances as a result
of the Series C private placement offset by a decrease of $377,259 in sale of
New Jersey tax losses, and an increase of $17,247 in interest expense resulting
from a loan to finance the purchase of a new truck.
Our prior
year financial statements were restated as a result of the Company's decision
not to continue to fund Novel and therefore not include Novel's expenses as part
of the Company's operating activities for the year ending March 31, 2008 and
2007. Consequently, losses from discontinued operations of $2,979,600
and $642,032 respectively are reflected in the 2008 and 2007 financial
statements.
As a
result of the foregoing, our net loss for the year ended March 31, 2008 was
$13,893,060 compared to $11,803,512 for the year ended March 31,
2007.
Material
Changes in Financial Condition
Our
working capital (total current assets less total current liabilities), decreased
to $758,676 as of March 31, 2009 from $5,029,930 as of March 31, 2008, primarily
due to our net loss from operations, exclusive of non-cash charges offset by net
proceeds received as a result of our private placement of Series D 8%
Convertible Preferred Stock.
48
We
experienced negative cash flows from operations of $4,540,068 for the year ended
March 31, 2009, primarily due to our net loss from operations of $6,604,708, an
increase in accrued interest receivable and prepaid expenses of $56,195, offset
by increases in accounts payable, accrued expenses and other liabilities of
$130,615 and reductions in accounts receivable of $147,307 and by non-cash
charges of $1,422,259 which included $921,442 in connection with the issuance of
stock options and warrants and $500,817 in depreciation and amortization
expenses.
On
November 15, 2004 and on December 18, 2006, Elite’s partner, ECR, launched
Lodrane 24® and Lodrane 24D®, respectively. Under its agreement with ECR, Elite
is currently manufacturing commercial batches of Lodrane 24® and Lodrane 24D® in
exchange for manufacturing margins and royalties on product revenues.
Manufacturing revenues and royalty income earned for the year ended March 31,
2009 was $1,927,062 and $347,763, respectively. We expect future cash flows from
manufacturing fees and royalties to provide additional cash to help fund our
operations. However, no assurance can be given that we will generate any
material revenues from the manufacturing fees and royalties earned on the
Lodrane products.
Liquidity
and Capital Resources
As of March 31, 2009, our principal
source of liquidity was approximately $283,000 of cash and cash equivalents, or
approximately two months of cash or cash equivalents available based on our
current operations. On June 3, 2009, in connection with the Initial
Closing of the Epic Strategic Alliance Agreement, we received $1 million in cash
from Epic (including $250,000 previously paid to us by Epic as a good faith
deposit) in exchange for 1,000 shares of Series E Preferred Stock and a warrant
to purchase 40 million shares of Common Stock. Our strategic alliance
with Epic may also generate (i) an additional $2.75 million in cash proceeds to
us through Epic’s purchase of additional shares of Series E Preferred Stock over
the course of additional closings pursuant to the terms and conditions of the
Epic Strategic Alliance Agreement and (ii) profit sharing in the revenue from
commercialized products which were developed at Elite’s Facility pursuant to the
Epic Strategic Alliance Agreement. However, no assurance can be given
that we will consummate such additional closings of the transactions
contemplated by, or successfully commercialize the products developed under, the
Epic Strategic Alliance Agreement. If adequate funds are not
available to us as we need them, it would raise substantial doubt over our
ability to continue as a going concern.
From time
to time we will consider potential strategic transactions including
acquisitions, strategic alliances, joint ventures and licensing arrangements
with other pharmaceutical companies. There can be no assurance that any such
transaction will be available or consummated in the future.
For the year ended March 31, 2009, we
expended $4,540,068 in operating activities which we funded through the
$1,777,000 in gross proceeds raised through our private placement of Series D
Preferred Stock and from cash on hand as of March 31, 2008. Our working capital
at March 31, 2009 was $.8 million compared with working capital of $5.0 million
at March 31, 2008. Cash and cash equivalents at March 31, 2009 were
$.3 million, a decrease of $3.4 million from the $3.7 million at March 31,
2008.
We spent
approximately $46,000 on improvements and machinery and equipment during the
year ended March 31, 2009.
49
On
September 15, 2008, Elite completed a private placement of 1,777 shares of its
Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred
Stock”), for gross proceeds of $1,777,000. The shares were issued at
a price of $1,000 per share with each share initially convertible at $0.20 into
5,000 shares of Elite’s Common Stock, par value $0.01 per share (the “Common
Stock”), or an aggregate of 8,885,000 shares of Common Stock. Each purchaser of
Series D Preferred Stock also received a warrant to purchase shares of Elite’s
Common Stock. The warrants are exercisable on or before September 15, 2013 and
represent the right to purchase an aggregate of 17,770,000 shares of Common
Stock at an exercise price of $0.25 per share. The newly-created Series D
Preferred Stock is senior as to dividends, liquidation and redemption to Elite’s
Series B Preferred Stock and Series C Preferred Stock (collectively, the
“Existing Preferred Stock”). Elite has authorized, in total, 30,000
shares of Series D Preferred Stock.
The gross
proceeds of the private placement for shares of Elite’s Series D Preferred Stock
were $1,777,000 before payment of $263,743 in expenses. Pursuant to the
placement agent agreement, Elite issued to the placement agent warrants to
purchase 355,400 shares of Common Stock exercisable at $0.25 per share. Elite
will account for these warrants as a cost of raising capital and will include
the instrument as equity in our financial statements. Accordingly, there will be
no net impact on Elite’s financial position or results of
operations.
As part
of the private placement for shares of Elite’s Series D Preferred Stock, holders
of existing preferred stock who met a pre-defined level of participation in this
placement (“Qualifying Holders”) received the right to exchange (the
“Exchange”): (i) shares of their existing preferred stock for shares of Series D
Preferred Stock at a rate equal to one share of Series D Preferred Stock for
each share of existing preferred stock held by the Qualifying Holder and (ii)
warrants to purchase Common Stock which were originally issued to each Qualified
Holder in connection with the purchase of such exchanged existing preferred
stock (such originally issued warrants, the “Original Warrants”) for warrants
exercisable for the same number of shares of Common Stock with terms identical
to the warrants issued to the purchasers of Series D Preferred Stock (such
warrants, the “Exchange Warrants”). The Exchange Warrants have an
exercise price of $0.25 per share. To be a Qualifying Holder, a holder of
existing preferred stock was required to purchase shares of Series D Preferred
Stock with a stated value of at least the lesser of (x) $400,000 and (y) 20% of
the aggregate stated value of the shares of Existing Preferred Stock then held
by such holder. In connection with the private placement for shares of Elite’s
Series D Preferred Stock, Qualifying Holders exchanged (a) shares of their
existing preferred
stock for an aggregate of approximately 12,037 additional shares of Series D
Preferred Stock, which such shares of Series D Preferred Stock are convertible
into an aggregate of approximately 60,185,000 shares of Common Stock, and (b)
their Original Warrants for Exchange Warrants to purchase an aggregate of
approximately 2,336,000 shares of Common Stock.
As of March 31, 2009 our principal
source of liquidity was approximately $283,000 of cash and cash equivalents. On
June 3, 2009, we consummated the Initial Closing of the transactions
contemplated by the Epic Strategic Alliance Agreement, and received from Epic a
cash payment of $1,000,000 (including $250,000 previously paid to us as a good
faith deposit) in exchange for 1,000 shares of our Series E Preferred Stock,
which provides us additional capital necessary for the product development and
synergies presented by the strategic relationship with Epic. The Epic
Strategic Alliance Agreement also contemplates two additional closings, which
together could generate an additional $2.75 million in cash proceeds through
Epic’s purchase of additional shares of Series E Preferred
Stock.
50
The Company had outstanding, as of
March 31, 2009, bonds in the aggregate principal amount of $3,595,000 consisting
of $3,280,000 of 6.5% tax exempt bonds with an outside maturity of September 1,
2030 and $315,000 of 9.0% bonds with an outside maturity of September 1, 2012.
The bonds are secured by a first lien on the Facility in Northvale, New
Jersey. Pursuant to the terms of the bonds, several restricted cash
accounts have been established for the payment of bond principal and
interest. Bond proceeds were utilized for the redemption of
previously issued tax exempt bonds issued by the Authority in September 1999 and
to refinance equipment financing, as well as provide approximately $1,000,000 of
capital for the purchase of additional equipment for the manufacture and
development at the Facility of pharmaceutical products and the maintenance of a
$415,500 debt service reserve. The interest payment due on March 1, 2009 was
paid from this restricted cash and will be repaid when funds become
available. All of the restricted cash, other than the debt service,
was expended within the year ended March 31, 2007. Pursuant to the
terms of the related bond indenture agreement, the Company is required to
observe certain covenants, including covenants relating to the incurrence of
additional indebtedness, the granting of liens and the maintenance of certain
financial covenants. As of March 31, 2009, the Company was in
compliance with the bond covenants.
The
following table depicts our obligations and commitments to make future payments
under existing contracts or contingent commitments.
Payments Due by Period
|
||||||||||||||||||||
Contractual Obligations
|
Total
|
Less than 1
Year
|
1-3 Years
|
4-5 Years
|
After 5
Years
|
|||||||||||||||
NJEDA
Bonds payable
|
$ | 3,595,000 | $ | 210,000 | $ | 730,000 | $ | 380,000 | $ | 2,275,000 | ||||||||||
Note
Payable-Niagara Bank
|
$ | 42,388 | $ | 10,788 | $ | 31,600 | $ | — | — |
Off-balance
sheet arrangements
None.
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We do not
invest in or own any market risk sensitive instruments entered into for trading
purposes or for purposes other than trading. All loans to us have
been made at fixed interest rates and accordingly, the market risk to us prior
to maturity is minimal.
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Attached
hereto and filed as a part of this Annual Report on Form 10-K are our
Consolidated Financial Statements, beginning on page F-1.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM
9AT.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our acting Chief Executive Officer and our
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this
report. Based on that evaluation, our acting Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms; and (ii) accumulated and
communicated to management, including our acting Chief Executive Officer and our
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
51
Management's
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
has been designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States of America.
Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, that receipts and expenditures are being made
only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements or fraudulent actions. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.
Our
management assessed the effectiveness of our internal control over financial
reporting as of March 31, 2009. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework. Based on that assessment
under those criteria, management has determined that, at March 31, 2009, our
internal control over financial reporting was effective.
As
previously reported in our Annual Report on Form 10-K/A for the year ended March
31, 2008, filed with the SEC on January 16, 2009, and our Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 2008, filed with the SEC
on February 17, 2009, which reports are incorporated herein by reference, in
October 2008, we learned that certain reimbursements of expenses were made by
Elite to Bernard J. Berk, its then-President, Chief Executive Officer and
Chairman of Board, without prior receipt from Mr. Berk of adequate
substantiation of such expenses. In light of this information
regarding Mr. Berk, we determined that our disclosure controls and procedures as
of September 30, 2008 had deficiencies that caused our controls and procedures
to be ineffective, particularly with respect to our expense reimbursement
procedures. As a result, our management conducted an assessment of
our internal control over financial reporting, which assessment was limited in
scope to a review of the revised accounting procedures and internal controls
over expenditures and expense reimbursement that were implemented by the Audit
Committee of after it learned of the information regarding Mr. Berk described
above.
52
We took
various remedial measures to correct deficiencies in our accounting procedures
and internal controls over expenditures and expense reimbursement to prevent the
reimbursement of unsubstantiated expenses in the future, including the
following:
|
•
|
At
the direction of our audit committee, our Chief Financial Officer
implemented check writing restrictions to our bank accounts that require
the signatures of each of our acting Chief Executive Officer and Chief
Financial Officer for all payments (including expense reimbursements) over
$5,000.
|
|
•
|
We
commenced a review of our internal control and compliance policies and
procedures, including (1) reviewing, expanding, and formalizing our
policies relating to all potential advances and/or extensions of credit to
employees, executive officers and directors, including, without
limitation, with respect to the use of our credit cards, and advances of
any other kind; and (2) enhancing our training of employees, executive
officers and directors regarding compliance with the letter and the spirit
of our Code of Ethics.
|
|
•
|
We
engaged our registered independent accounting firm, Rosen Seymour Shapss
Martin & Company, LLP (“Rosen Seymour”), to
evaluate our revised accounting procedures and related internal controls
over expenditures and expense
reimbursements.
|
Rosen
Seymour completed its review, on January 23, 2009, of the revised accounting
procedures and related internal controls over expenditures and expense
reimbursements implemented by the Audit Committee and concluded that they are
effective.
Changes in Internal Control over
Financial Reporting
There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth quarter of fiscal year 2007 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B.
|
OTHER
INFORMATION.
|
In
accordance with the Epic Strategic Alliance Agreement, Chris Dick voluntarily
resigned as a member of the Board, effective as of June 24, 2009, and, effective
immediately following such resignation, Messrs. Nigalaye, Narine and Potti were
appointed as members of the Board, representing the three directors designated
by Epic for appointment to the Board, in accordance with the terms of the Epic
Strategic Alliance Agreement. For additional information regarding
Messrs. Nigalaye, Narine and Potti, please see our disclosures in this Annual
Report on Form 10-K in Item 7, under the heading “Epic Strategic Alliance
Agreement – Board of Directors Composition and Voting Rights” Item 10, under
the heading “Directors and Executive Officers” and Item 13, under the heading
“Certain Related Person Transactions - Transactions with Epic Pharma LLC and
Epic Investments LLC,” which are incorporated herein by
reference.
PART III
ITEM 10.
|
DIRECTORS , EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
|
Directors
and Executive Officers
On June 8, 2009, at a Special Meeting
of the Board of Directors, the Board took the following actions, in accordance
with the terms of the Epic Strategic Alliance Agreement: (1)
increased the size of the Board from five directors to seven directors and (2)
appointed each of Ashok G. Nigalaye, Jeenarine Narine and Ram Potti as directors
effective immediately following the resignation of one of the existing
directors. In accordance with Epic Strategic Alliance
Agreement, Chris Dick voluntarily resigned as a member of the Board, effective
as of June 24, 2009, and, effective immediately following such resignation,
Messrs. Nigalaye, Narine and Potti were appointed as members of the Board,
representing the three directors designated by Epic for appointment to the Board
(such three directors, the “Epic Directors”), in
accordance with the terms of the Epic Strategic Alliance Agreement.
53
Our
current directors, executive officers and key employees, and such persons’
biographical information are set forth below:
Name
|
Age
|
Title
|
||
Jerry
Treppel
|
55
|
Director,
Chairman of the Board
|
||
Barry
Dash, Ph. D
|
77
|
Director
|
||
Robert
J. Levenson
|
68
|
Director
|
||
Melvin
M. Van Woert, M.D.
|
78
|
Director
|
||
Ashok
G. Nigalaye
|
57
|
Director
|
||
Jeenarine
Narine
|
59
|
Director
|
||
Ram
Potti
|
56
|
Director
|
||
Chris
Dick
|
54
|
Chief
Operating Officer, President and Acting Chief Executive Officer and Former
Director
|
||
Mark
I. Gittelman
|
49
|
Chief
Financial Officer, Secretary and Treasurer
|
||
Stuart
Apfel
|
49
|
Chief
Scientific Officer and Chief Medical
Officer
|
The
principal occupations and employment of each such person during the past five
years is set forth below. In each instance in which dates are not provided in
connection with a nominee’s business experience, such nominee has held the
position indicated for at least the past five years.
Jerry Treppel, Director since
October 28, 2008, Chairman of the Board since November 6, 2008. Mr.
Treppel has served as the managing member of Wheaten Capital Management LLC, a
capital management company focusing on investment in the health care sector
since 2003. In October 2008, Mr. Treppel was also appointed managing director of
Ledgemont Capital Group LLC, a boutique merchant bank that provides access to
capital and corporate advisory services to public and private companies. Over
the past 20 years, Mr. Treppel was an equity research analyst focusing on the
specialty pharmaceuticals and generic drug sectors at several investment banking
firms including Banc of America Securities, Warburg Dillon Read LLC (now UBS),
and Kidder, Peabody & Co. He previously served as a healthcare services
analyst at various firms, including Merrill Lynch & Co. He also held
administrative positions in the healthcare services industry early in his
career. Since 2003, Mr. Treppel has served as a member of the board of directors
of Akorn, Incorporated (NASDAQ: AKRX), a specialty pharmaceutical company
engaged in the development, manufacturing and marketing of branded and
multi-source pharmaceutical products and vaccines. Mr. Treppel also serves as
the Chair of Akorn’s Nominating and Corporate Governance Committee and as a
member of its Audit Committee and Compensation Committee. Mr. Treppel holds a BA
in Biology from Rutgers College in New Brunswick, N.J., an MHA in Health
Administration from Washington University in St. Louis, Mo., and an MBA in
Finance from New York University. Mr. Treppel has been a Chartered Financial
Analyst (CFA) since 1988.
54
Dr. Barry Dash, Director
since April 2005, Member of the Audit Committee since April 2005, Member of the
Nominating Committee since April 2005 and Member and Chairman of the
Compensation Committee since June 2007. Dr. Dash has been, since 1995, President
and Managing Member of Dash Associates, L.L.C., an independent consultant to the
pharmaceutical and health industries. From 1983 to 1996 he was
employed by American Home Products Corporation (now known as Wyeth) its
Whitehall-Robins Healthcare Division, initially as Vice President of Scientific
Affairs, then Senior Vice President of Scientific Affairs and then Senior Vice
President of Advanced Technologies during which time he personally supervised
six separate departments: Medical and Clinical Affairs, Regulatory
Affairs, Technical Affairs, Research and Development, Analytical R&D and
Quality Management/Q.C. Dr. Dash had been employed by the Whitehall
Robins Healthcare Division from 1960 to 1976, during which time he served as
Director of Product Development Research, Assistant Vice President of Product
Development and Vice President of Scientific Affairs. Dr. Dash had
been employed by J.B. Williams Company (Nabisco Brands, Inc.) from 1978 to
1982. From 1976 to 1978 he was Vice President and Director of
Laboratories of the Consumer Products Division of American Can
Company. He currently serves on the board of directors of GeoPharma,
Inc. (NASDQ: GORX). Dr. Dash holds a Ph.D. from the University of
Florida and M.S. and B.S. degrees from Columbia University where he was
Assistant Professor at the College of Pharmaceutical Sciences from 1956 to
1960. He is a member of the American Pharmaceutical Association, the
American Association for the Advancement of Science and the Society of Cosmetic
Chemist, American Association of Pharmaceutical Scientists, Drug Information
Association, American Foundation for Pharmaceutical Education, and Diplomate
American Board of Forensic Examiners. He is the author of scientific
publications and patents in the pharmaceutical field.
Robert J. Levenson, Director
since 2007, Member of the Audit Committee and designated by the Board as an
“audit committee financial expert” as defined under applicable rules under the
Securities Exchange Act of 1934, as amended, since June 2007 and Chairman of the
Audit Committee since June 2008, Member of the Compensation Committee since June
2007 and Member of the Nominating Committee since June 2008. Since
2000, Mr. Levenson has been a Managing Member of the Lenox Capital Group, L.L.C.
Mr. Levenson was previously an Executive Vice President of First Data
Corporation from 1993 to 2000 and a member of its Board of Directors from 1992
to 2003. He was Senior Executive Vice President, Chief Operating
Officer, Member of the Office of the President and Director of Medco Containment
Services, Inc., a provider of managed care prescription benefits, from October
1990 to December 1992. From 1985 until October 1990, Mr. Levenson was
a Group President and Director of Automatic Data Processing, Inc. (ADP-NYSE).
Mr. Levenson was a Director of Emisphere Technologies, Inc., a biopharmaceutical
company, from 1998 to 2005, and has been a director of several other companies,
public and private.
Dr. Melvin Van Woert, Director since April
2005, Member of the Audit Committee since April 2005, Member and Chairman of the
Nominating Committee since April 2005 and Member of the Compensation Committee
since June 2007. Dr. Van Woert has been since 1974 a member of the
staff of Mount Sinai Medical Center and, since 1978 has also been a Professor in
the Department of Neurology and Pharmacology at Mount Sinai School of
Medicine. Dr. Van Woert had been a consultant for
Neuropharmacological Drug Products to the FDA from 1974 to 1980; Associate
Editor for Journal of the Neurological Sciences; Member of the Editorial Board
of the Journal of Clinical Neuropharmacology; and Medical Director of National
Organization for Rare Disorders for which he received in 1993 the Humanitarian
Award. Dr. Van Woert’s other awards include the U.S. Public Health
Service Award for Exceptional Achievement in Orphan Products Development and the
National Myoclonus Foundation Award. He has authored and co-authored
more than 150 articles appearing in pharmacological, medical and other
professional journals or publications.
55
Ashok G. Nigalaye, Director
since June 24, 2009. Mr. Nigalaye was elected as a member of Elite’s
Board in June 2009 as one of three directors designated by Epic pursuant to the
terms of the Epic Strategic Alliance Agreement. Since July
2008, Mr. Nigalaye has been the President and Chief Executive Officer of Epic
Pharma LLC, a manufacturer of generic pharmaceuticals and Elite’s strategic
partner pursuant to the Epic Strategic Alliance Agreement. From
August 1993 to February 2008, Mr. Nigalaye served as Vice President of
Scientific Affairs and Operations of Actavis Totowa LLC, a manufacturer of
generic pharmaceuticals, where he was responsible for directing and organizing
company activities relating to pharmaceutical drug manufacturing, regulatory
affairs and research and development. Mr. Nigalaye currently serves
as a director of GTI Inc., a privately held company. Mr. Nigalaye
holds a B.S. in Pharmacy from the University of Bombay, an M.S. in Industrial
Pharmacy from Long Island University, and a Ph.D. in Industrial Pharmacy from
St. John’s University. Mr. Nigalaye is also a licensed pharmacist in
the State of New York.
Jeenarine Narine, Director
since June 24, 2009. Mr. Narine was elected as a member of Elite’s
Board in June 2009 as one of three directors designated by Epic pursuant to the
terms of the Epic Strategic Alliance Agreement. Since July 2008, Mr.
Narine has been the Executive Vice President of Manufacturing and Operations of
Epic Pharma LLC, a manufacturer of generic pharmaceuticals and Elite’s strategic
partner pursuant to the Epic Strategic Alliance Agreement, in which capacity he
oversees all manufacturing operations. Mr. Narine is also the current
President of Eniran Manufacturing Inc., a contract manufacturer of dietary and
nutritional supplements, and has held such office since 2000. In
addition, Mr. Narine has been since 1989 the President of A&J Machine Inc.,
a company owned by Mr. Narine that is engaged in the sales of new and used
pharmaceutical manufacturing equipment. In addition to this
professional experience, Mr. Narine graduated from the Guyana Industrial
Institute, where he studied Metalology and Welding.
Ram Potti, Director since
June 24, 2009. Mr. Potti was elected as a member of Elite’s Board in
June 2009 as one of three directors designated by Epic pursuant to the terms of
the Epic Strategic Alliance Agreement. Since July 2008, Mr.
Potti has been the Vice President of Business Development of Epic Pharma LLC, a
manufacturer of generic pharmaceuticals and Elite’s strategic partner pursuant
to the Epic Strategic Alliance Agreement, in which capacity he handles the
company’s new ventures and products. Mr. Potti is also the founder
and current President of RSMB Investments LLC, an investment company that
specializes in startup ventures in the healthcare and technology
sectors. In addition, from 2002 to 2006, Mr. Potti was the
President and Chief Operating Officer of Trigen Laboratories, a company which he
founded that manufactures generic pharmaceutical products. Mr. Potti holds a
B.S. in Chemistry from the University of Kerala, St. Albert’s
College.
Chris Dick, Chief
Operating Officer since October 2008, acting Chief Executive Officer since
November 2008, and President since April 2009; Director from October 20, 2008 to
June 24, 2009. Mr.
Dick began at Elite in November 2002 as Vice President of Business
Development. Since March 2002, Mr. Dick has been Executive Vice
President of Corporate Development. From 1999 to 2002, Mr. Dick
served as Director of Business Development for Elan Drug Delivery, Inc.
responsible for licensing and business development of Elan’s portfolio of drug
delivery technologies. From 1978 to 1999, he held various business and
technical positions at FMC Corporation which included responsibility for
business development and marketing for EnTec, a drug delivery business unit
within FMC Corporation’s Pharmaceutical Division and marketing for its
pharmaceutical functional coatings product line. Mr. Dick holds an M.B.A. from
the Stern School of Business, New York University, and a B.S. and M.S. in
Chemical Engineering from Cornell University.
56
Dr. Stuart Apfel, Chief
Medical Officer since January 2008 and Chief Scientific Officer since April
2008. Dr. Apfel is also the founder and current President of Parallax Clinical
Research, a New York-based consulting firm that provides strategic and practical
assistance with clinical trial protocol design, planning, initiating and
management to biotechnology and small pharmaceutical companies with making the
transition from the bench to a clinical development program, and in this
capacity he had served as a consultant to Elite from January 2007 through
December 2007. From 2004 to 2006, Dr. Apfel was employed at DOV
Pharmaceuticals, Inc. (OTC:DOVP), initially as a director of clinical research
and then as a senior director of clinical research. From 2000 to
2004, Dr. Apfel was employed at Purdue Pharma L.P. Dr. Apfel initially worked as
an associate director of clinical research at Purdue Pharma L.P. and then was
promoted to a director of clinical research. Dr. Apfel is a board
certified neurologist, and is currently on faculty as Associate Professor of
Neurology at the Albert Einstein College of Medicine and at Downstate Medical
School, where he continues to teach. From 1990 to 2000, he was a full time
faculty member in the departments of Neurology and Neuroscience at Albert
Einstein College of Medicine, where his research focused on the application of
neurotrophic factors to neurologic disease.
Mark I. Gittelman, Chief
Financial Officer, Secretary and Treasurer of the Company, is the President of
Gittelman & Co., P.C., an accounting firm in Clifton, New
Jersey. 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 Fairleigh 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”), and the New
Jersey State and New York State Societies of CPAs. Other than Elite Labs, no
company with which Mr. Gittelman was affiliated in the past was a parent,
subsidiary or other affiliate of the Company.
There is no family relationship among
our directors and executive officers.
Each
director holds office (subject to our By-Laws) until the next annual meeting of
stockholders and until such director’s successor has been elected and
qualified. There are no family relationships between any of our
directors and executive officers.
Board
Meetings
During the fiscal year ended March
31, 2009, our Board of Directors held 28 meetings and acted via written consent
on 4 occasions. No incumbent director attended fewer than 75% of the
meetings of the Board of Directors held during the fiscal year ended March 31,
2009 except for Jerry Treppel, who was not elected as a director until the third
quarter of such fiscal year, on October 28, 2008. Mr. Treppel
attended all meetings of the Board of Directors that were held from the date of
his election as a member of the Board through the end of the fiscal
year.
We do not
have a formal policy regarding attendance by members of the Board of Directors
at our annual meeting of stockholders, although we do encourage attendance by
the directors. Historically, more than a majority of the directors
have attended the annual meeting.
Committees
of the Board
The Board of Directors has an Audit
Committee, a Compensation Committee and a Nominating Committee.
57
Audit
Committee
During
the fiscal year ended March 31, 2009, the members of the Audit Committee were
Barry Dash, Robert J. Levenson (Chairman of the Audit Committee) and Melvin Van
Woert. The Audit Committee held 11 meetings during the fiscal year
ended March 31, 2009. A copy of the Audit Committee’s written charter (adopted
by the Board of Directors) can be found on our website at
www.elitepharma.com. The Audit Committee reviews and discusses with
management and our auditors our financial statements, the accounting principles
applied in their preparation, the scope of the audit, any comments made by the
auditors on our financial statements and our accounting controls and procedures,
the independence of our auditors, our internal controls, the other matters set
forth in its charter, as adopted by the Board of Directors, and such other
matters as the Audit Committee deems appropriate. The Audit Committee is
directly responsible for the appointment, compensation, retention and oversight
of the work of our independent auditors for the purpose of preparing or issuing
an audit report or performing other audit, review or attest services for
us. We deem the members of our Audit Committee to be independent and
Mr. Levenson to be qualified as an audit committee financial
expert.
Nominating
Committee
During the fiscal year ended March 31,
2009, the members of the Nominating Committee were Melvin Van Woert (Chairman of
the Nominating Committee), Robert J. Levenson and Barry Dash. The
Nominating Committee held 2 meetings during the fiscal year ended March 31,
2009. This committee does not have a charter. The Nominating Committee assists
the Board of Directors in identifying and recommending qualified Board
candidates. The Nominating Committee identifies Board candidates through
numerous sources, including recommendations from Directors, executive officers
and our stockholders. The Nominating Committee seeks to have
available to it qualified candidates from a broad pool of individuals with a
range of talents, experience, backgrounds and perspectives. The
Nominating Committee seeks to identify those individuals most qualified to serve
as Board members and considers many factors with regard to each candidate,
including judgment, integrity, diversity, prior experience, the interplay of the
candidate’s experience with the experience of other Board members, the extent to
which the candidate would be desirable as a member of any committees of the
Board of Directors, and the candidate’s willingness to devote substantial time
and effort to Board responsibilities. The Nominating Committee makes
recommendations to the Board of Directors with respect to Director
nominees.
Compensation
Committee
During
the fiscal year ended March 31, 2009, the members of the Compensation Committee
were Barry Dash (Chairman of the Compensation Committee), Robert J. Levenson and
Melvin Van Woert. The Compensation Committee held no meetings during
the fiscal year ended March 31, 2009. The Compensation Committee was
formed June 26, 2007 and adopted a charter which was included as an appendix to
the proxy statement sent to stockholders in connection with the annual meeting
of the stockholders held on June 26, 2008. The Compensation Committee
reviews our compensation practices and policies, reviews and approves corporate
goals and objectives relevant to the chief executive officer and other executive
officer compensation, evaluates chief executive officer and executive officer
performance in light of those goals and objectives and, either as a committee or
together with other independent directors (as directed by the Board of
Directors), determines and approves chief executive officer and executive
officer compensation based on this evaluation, reviews and approves the terms of
the offer letters, employment agreements, severance agreements,
change-in-control agreements, indemnification agreements and other material
agreements between the Company and its Chief Executive Officer and executive
officers, annually reviews and approves perquisites for the chief executive
officer and executive officers, considers and approves the report of the
Compensation Committee for inclusion in the Company’s proxy statement, makes
recommendations to the Board of Directors with respect to the Company’s employee
benefit plans, administers incentive, deferred compensation and equity based
plans, and has the other responsibilities as set forth in its charter, as
adopted by the Board of Directors, and such other matters as the Compensation
Committee deems appropriate. For more information on the compensation of
directors and officers of the Company, see the “Compensation Discussion and
Analysis” and “Compensation” sections below.
58
Code
of Conduct
At the first meeting of the Board of Directors
following the annual meeting of stockholders held on June 22, 2004, the Board of
Directors adopted a Code of Business Conduct and Ethics for its officers and
employees which it believes complies with the requirements for a company code of
ethics for financial officers that were promulgated by the SEC pursuant to the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) as well
as for the members of our Board of Directors. The directors will be
surveyed annually regarding their compliance with the policies as set forth in
the Code of Conduct for Directors. A copy of the Code of Business
Conduct and Ethics is available on our website at
www.elitepharma.com. To receive a copy of our Code of Business
Conduct and Ethics, at no cost, requests should be directed to the Secretary,
Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647. We
intend to disclose any amendment to, or waiver of, a provision of the Business
Conduct and Ethics for Directors in a report filed under the Exchange Act within
five business days of the amendment or waiver.
Stockholder
Communications
Stockholders
and other interested parties may contact the Board of Directors or the
non-management directors as a group at the following address: Board of Directors
or Outside Directors, Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale,
NJ 07647. All communications received at the above address will be
relayed to the Board of Directors or the non-management directors, as the case
may be. Communications regarding accounting, internal accounting controls or
auditing matters may also be reported to the Board of Directors using the above
address.
Typically, we do not forward to our
directors communications from our stockholders or other communications which are
of a personal nature or not related to the duties and responsibilities of the
Board, including:
|
·
|
Junk
mail and mass mailings
|
|
·
|
New
product suggestions
|
|
·
|
Resumes
and other forms of job inquiries
|
|
·
|
Opinion
surveys and polls
|
|
·
|
Business
solicitations or advertisements
|
Section
16(a) Beneficial Ownership Reporting Compliance
To our
knowledge, there was no person who, at any time during the fiscal year ended
March 31, 2009, was a director, officer or beneficial owner of more than 10% of
any class of our equity securities registered pursuant to Section 12 of the
Exchange Act, who failed to file on a timely basis a report required by Section
16(a) of the Exchange Act during or with respect to such fiscal year, except as
follows. Charan Behl, the former Head of Technical Affairs of
Elite, failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act following his resignation from such office, on November 3, 2008, to
report that he was no longer subject to the reporting requirements of Section
16(a) and Elite’s grant to him on November 3, 2008 of a non-qualified stock
option to purchase 50,000 shares of Common Stock in consideration of his entry
into a separation and release agreement with Elite in connection with the
termination of his status as an employee of Elite. Dr. Barry Dash, a
member of Elite’s Board, failed to file on a timely basis four reports required
by Section 16(a) of the Exchange Act during the fiscal year ended March 31, 2009
to report the Company’s issuance to him of Common Stock in respect of quarterly
dividend obligations on his shares Series C Preferred Stock, on each of April 1,
2008, July 1, 2008, October 1, 2008 and January 1, 2009. Jerry
Treppel, a member of Elite’s Board, failed to file on a timely basis two reports
required to be filed by Section 16(a) of the Exchange Act during the fiscal year
ended March 31, 2009 to report the Company’s issuance to Wheaten Healthcare
Partners LP (“Wheaten”), of which Mr.
Treppel is a general partner, of Common Stock in respect of quarterly dividend
obligations on Series D Preferred Stock held by Wheaten, on each of October 1,
2008 and January 1, 2009.
59
In
addition, Dr. Dash and Mr. Treppel each failed to file one report required by
Section 16(a) of the Exchange Act for transactions since March 31, 2009 to
report (a) in the case of Dr. Dash, the conversion of 20 shares of Series C
Preferred Stock into 12,243 shares of Common Stock and the Company’s issuance to
him of warrant to purchase up to 12,243 shares of Common Stock on June 3, 2009
and (b) in the case of Mr. Treppel, the conversion by Wheaten of 75 shares of
Series D Preferred Stock into 375,000 shares of Common Stock and the Company’s
issuance to Wheaten of a warrant to purchase up to 375,000 shares of Common
Stock on June 3, 2009.
ITEM
11. EXECUTIVE
COMPENSATION.
COMPENSATION
DISCUSSION AND ANALYSIS
SUMMARY
Our
approach to executive compensation, one of the most important and complex
aspects of corporate governance, is influenced by our belief in rewarding people
for consistently strong execution and performance. We believe that
the ability to attract and retain qualified executive officers and other key
employees is essential to our long-term success.
Compensation
Linked to Attainment of Performance Goals
Our plan to obtain and retain highly
skilled employees is to provide significant incentive compensation opportunities
and market competitive salaries. The plan was intended to link individual
employee objectives with overall company strategies and results, and to reward
executive officers and significant employees for their individual contributions
to those strategies and results. We use compensation and performance
data from comparable companies in the pharmaceutical industry to establish
market competitive compensation and performance standards for our employees.
Furthermore, we believe that equity awards serve to align the interests of our
executives with those of our stockholders. As such, equity is a key
component of our compensation program.
Role
of the Compensation Committee and its Advisors
The
Company formed the Compensation Committee in June 2007. Since the
formation of the Compensation Committee all elements of the executives’
compensation are determined by the Compensation Committee, which is comprised
solely of independent non-employee directors. However, the
Compensation Committee’s decisions concerning the compensation of the Company’s
Chief Executive Officer are subject to ratification by the independent directors
of the Board of Directors. As of March 31, 2009, the members of the
Compensation Committee were Barry Dash, Robert J. Levenson and Melvin Van
Woert. The Committee operates pursuant to a charter which was
included as an appendix to the proxy statement sent to stockholders in
connection with the annual meeting of the stockholders held on June 26,
2008. Under the Compensation Committee charter, the Compensation
Committee has authority to retain compensation consultants, outside counsel, and
other advisors that the committee deems appropriate, in its sole discretion, to
assist it in discharging its duties, and to approve the terms of retention and
fees to be paid to such consultants. In September, 2007, the
Compensation Committee directly retained an independent compensation consultant,
Pearl Meyer & Partners (“PM&P”), to assist the
Committee in selecting a comparator group of companies for compensation purposes
as well as benchmarking the Chief Executive Officer’s compensation.
60
The
compensation consultant reported directly and exclusively to the Compensation
Committee and received no other fees from the Company outside its role as
advisor to the Compensation Committee. PM&P periodically
interacted with the Company’s Compensation Committee, predominately with its
Chairman, Dr. Barry Dash, to gather and review information related to the
executive compensation program, but such work is done only at the direction of
the Compensation Committee. PM&P does not perform any services
unrelated to executive and director compensation for the
Company. Accordingly, the Compensation Committee considers PM&P
to be independent from our management.
Compensation
Committee Interlocks and Insider Participation
No members of the Compensation
Committee were officers or employees of the Company or any of its subsidiaries
during the year ended March 31, 2009, or had any relationship otherwise
requiring disclosure.
NAMED
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The named executive officers and key
employees for the fiscal year ending March 31, 2009 are Chris C. Dick,
President, Chief Operating Officer and acting Chief Executive Officer; Mark I.
Gittelman, Chief Financial Officer, Secretary and Treasurer; Stuart Apfel, Chief
Medical Officer and Chief Scientific Officer; and Dr. Charan Behl, Head of
Technical Affairs until November 3, 2008 and a consultant of Elite since
November 3, 2008; Bernard J. Berk, our President, Chief Executive Officer and
Chairman until November 6, 2008; and Veerapan Subramanian, our Chief Scientific
Officer until April 24, 2008. These individuals are referred to
collectively in this Annual Report on Form 10-K as the “Named Executive
Officers.”
OUR
EXECUTIVE COMPENSATION PROGRAM
Overview
The primary elements of our executive
compensation program are base salary, incentive cash and stock bonus
opportunities and equity incentives typically in the form of stock option
grants. Although we provide other types of compensation, these three elements
are the principal means by which we provide the Named Executive Officers with
compensation opportunities.
The emphasis on the annual bonus
opportunity and equity compensation components of the executive compensation
program reflect our belief that a large portion of an executive’s compensation
should be performance-based. This compensation is performance-based because
payment is tied to the achievement of corporate performance goals. To the extent
that performance goals are not achieved, executives will receive a lesser amount
of total compensation. We have entered into employment agreements
with four of our Named Executive Officers. Such employment agreements set forth
base salaries, bonuses and stock option grants. Such stock option grants are
predicated on our achievement of corporate performance goals as set forth in
such agreements.
61
ELEMENTS
OF OUR EXECUTIVE COMPENSATION PROGRAM
Base
Salary
We pay a base salary to certain of
the Named Executive Officers. In general, base salaries for the Named Executive
Officers are determined by evaluating the responsibilities of the executive’s
position, the executive’s experience and the competitive marketplace. Base
salary adjustments are considered and take into account changes in the
executive’s responsibilities, the executive’s performance and changes in the
competitive marketplace. We believe that the base salaries of the Named
Executive Officers are appropriate within the context of the compensation
elements provided to the executives and because they are at a level which
remains competitive in the marketplace.
Bonuses
The Board of Directors may authorize
us to give discretionary bonuses, payable in cash or shares of Common Stock, to
the Named Executive Officers and other key employees. Such bonuses
are designed to motivate the Named Executive Officers and other employees to
achieve specified corporate, business unit and/or individual, strategic,
operational and other performance objectives.
Stock
Options
Stock options constitute
performance-based compensation because they have value to the recipient only if
the price of our Common Stock increases. Stock options for each of
the Named Executive Officers generally vest over time, obtainment of a corporate
goal or a combination.
The grant of stock options at Elite
is the centerpiece of our compensation program and is designed to motivate our
Named Executive Officers to achieve our short-term and long-term corporate
goals.
As the pharmaceutical industry is
characterized by a long product development cycle, including a lengthy research
and product-testing period and a rigorous approval phase involving human testing
and governmental regulatory approval, many of the traditional benchmarking
metrics for vesting, such as product sales, revenues and profits are
inappropriate for an early-stage pharmaceutical company such as Elite. We
consider when determining vesting benchmarks the following which
are aligned with our short-term and long-term corporate
goals:
|
·
|
clinical
trial progress;
|
|
·
|
achievement
of regulatory milestones; and
|
|
·
|
establishment
of key strategic relationships.
|
Retirement
and Deferred Compensation Benefits
We do not
presently provide the Named Executive Officers with a defined benefit pension
plan or any supplemental executive retirement plans, nor do we provide the Named
Executive Officers with retiree health benefits. We have adopted a deferred
compensation plan under Section 401(k) of the Code. The plan provides
for employees to defer compensation on a pretax basis subject to certain limits,
however, Elite does not provide a matching contribution to its
participants.
62
The
retirement and deferred compensation benefits provided to the Named Executive
Officers are not material factors considered in making other compensation
determinations with respect to Named Executive Officers.
Perquisites
As described in more detail below,
the perquisites provided to certain of the Named Executive Officers consist of
car and parking allowances and life insurance premiums. These perquisites
represent a small fraction of the total compensation of each such Named
Executive Officer. The value of the perquisites we provide are taxable to the
Named Executive Officers and the incremental cost to us of providing these
perquisites is reflected in the Summary Compensation Table. The Board of
Directors believes that the perquisites provided are reasonable and appropriate.
For more information on perquisites provided to the Named Executive Officers,
please see the “All Other Compensation” column of the Summary Compensation Table
on page 63 of this Annual Report on Form 10-K and “Agreements with Named
Executive Officers” below.
Post-Termination/
Change of Control Compensation
In addition to retirement and
deferred compensation benefits described above, we have arrangements with
certain of the Named Executive Officers that may provide them with compensation
following termination of employment. These arrangements are discussed below
under “Agreements with Named Executive Officers”.
Tax Implications
of Executive Compensation
Our aggregate deductions for each
Named Executive Officer compensation are potentially limited by
Section 162(m) of the Code to the extent the aggregate amount paid to
an executive officer exceeds $1.0 million, unless it is paid under a
predetermined objective performance plan meeting certain requirements, or
satisfies one of various other exceptions specified in the Code. At our 2006
Named Executive Officer compensation levels, we did not believe that
Section 162(m) of the Code would be applicable, and accordingly, we
did not consider its impact in determining compensation levels for our Named
Executive Officers in 2007.
Agreements
with Named Executive Officers and Key Employees
Chris C.
Dick
On
November 13, 2006, we entered into an employment agreement and, on November 10,
2008, an amendment to the employment agreement, with Mr. Dick, as our Executive
Vice President of Corporate Development and Chief Operating Officer (as amended,
the “Dick
Agreement”). The Dick Agreement is for an initial term ending
November 13, 2009, subject to automatic one-year renewals unless terminated by
Mr. Dick or us upon at least 60 days notice prior to the end of the then
scheduled expiration date. We have the right to terminate Mr. Dick’s
employment due to disability as defined in a long-term disability insurance
policy reasonably satisfactory to him or, in the absence of such policy, due to
Mr. Dick’s inability for 120 days in any 12 month period to substantially
perform his duties as a result of a physical or mental illness.
63
The Dick
Agreement provides for an initial base annual salary of $250,000, a guaranteed
bonus of $25,000 payable within 30 calendar days of the end of each fiscal year
during the term and a $700 per month automobile allowance. The Dick
Agreement provides for payment of a discretionary bonus following the end of
each fiscal year of up to 50% of Mr. Dick’s then annual base salary. The amount,
if any, of the discretionary bonus will be determined by the Board of Directors
or the Compensation Committee. The discretionary bonus, if paid to
Mr. Dick will be based on the achievement of goals discussed with the executive
in good faith and within a reasonable time following the commencement of each
fiscal year and may be paid in cash or shares of our Common Stock valued at the
average of the closing price per share during the five trading days immediately
preceding the date of issuance of the shares. For the year ended March 31, 2009
Mr. Dick is to receive a $25,000 bonus.
The Dick
Agreement provides for the grant under the Stock Option Plan of fully-vested
options to purchase 250,000 shares of Common Stock at an exercise price of $2.25
per share. The Dick Agreement also provides for the grant of options to purchase
up to 300,000 shares of Common Stock, at an exercise price of $2.25 per share,
which vest in two 150,000 share tranches upon the closing of an exclusive
product license for the United States national market, the entire European Union
Market or the Japan market or a product sale transaction of all our ownership
rights in the United States (only once for each product) for our first drug
developed by us for which FDA approval will be sought under a NDA (including a
505(b) (2) application) for a Non-Generic Opiod Product as to the first tranche
and as to our second Non-Generic Opioid Product for the second
tranche.
The Dick Agreement also provides for
the grant of options to purchase up to 200,000 shares of Common Stock at an
exercise price of $2.25 per share (the “Dick Milestone Options”) with the
Dick Milestone Options to vest (A) as to not more than 125,000 shares and 75,000
shares, respectively, upon the commencement of the first Phase III clinical
trial relating to the first and then the second Non–Generic Opioid Product
developed by us; (B) 50,000 shares upon the closing of each product license or
product sale transaction (on a product by product basis and only once for each
product) other than Non-Generic Opioid Products for which options were granted
above; (C) 10,000 shares upon the filing by us (in our name) with the FDA of
either an ANDA or an NDA, for a product not covered by a previous FDA
application; (D) 40,000 shares upon the approval by the FDA of any ANDA or NDA
(filed in our name) for a product not previously approved by the FDA; (E) 25,000
shares upon the filing of an application for a U.S. patent by us (in our name);
and (F) 25,000 shares upon the granting by the PTO of a patent to us filed in
our name or an approval of an ANDA or NDA; provided, however, that the foregoing
options terminate upon the executive’s termination of employment except that
options under (D) and (F) nevertheless vest if the filing was made during the
initial term but prior to termination of Mr. Dick’s employment by us without
cause and the approval was made within 540 days of the filing of the ANDA, NDA
or patent application.
We also
agreed that if all 200,000 Dick Milestone Options have fully vested during the
initial term of the Dick Agreement, we will grant under the Stock Option Plan to
Mr. Dick at the end of the first current fiscal year in which the following
event occurs fully vested additional options to purchase the following shares at
the fair market value on the date of grant (the “Additional Dick Milestone
Options”): (a) to the extent not previously vested with respect to his
comparable Dick Milestone Options: (i) up to 125,000 shares upon the
commencement of the first Phase III clinical trial relating to the first
Non-Generic Opioid Product developed by us; and (ii) up to an additional 125,000
shares as to such trial relating to the second Non-Generic Opioid Product
developed by us, (b) 50,000 shares upon the closing of each product license for
the United States national market or product sale transaction of all ownership
rights (on a product by product basis and only once for each product); (c)
10,000 shares upon the filing by us (in our name) with the FDA of either an ANDA
or NDA for a product not covered by a previous FDA application for each drug
product of us, other than the Non-Generic Opioid Products for which any Opioid
Option was granted under the Dick Agreement; (d) 40,000 shares upon
the approval by the FDA of any ANDA, NDA or 505(b)(2) application filed in our
name for a product not previously approved by the FDA; (e) 25,000 shares in the
event of the filing of an application of an additional U.S. patent by us (filed
in our name); and (f) 25,000 shares in the event of the granting by the PTO of
the foregoing additional patent applications to us (filed in our
name).
64
The Dick
Agreement allows us at our discretion to grant to Mr. Dick additional options
under the Stock Option Plan and provides Mr. Dick the right to register at our
expense for reoffering shares issued upon exercise of the options under the
Securities Act in certain registration statements filed by us with respect to
offerings of securities by us.
The Dick
Agreement provides that in the event we terminate Mr. Dick’s employment for
Cause (as defined in the Dick Agreement) or Mr. Dick terminates employment
without Good Reason (as defined in the Dick Agreement), he is to receive salary
through date of termination, reimbursement for expenses incurred prior to
termination, all unvested options will terminate as of the date of termination
and vested options will be governed by the terms of the Stock Option Plan and
the related option agreement. In the event of a termination due to death,
disability or by us without cause or by Mr. Dick for Good Reason, we are to pay
him or his estate subject to his compliance with certain covenants, including
non-competition, non-solicitation, confidentiality and assignment of
intellectual property, his base salary for the longer of the balance of the
initial term or one year from date of termination, continue health insurance
coverage for 12 months from termination and his vested options are to be
exercisable for 90 days from date of termination.
In the event the employment of Mr. Dick
is terminated by us following a Change of Control (as defined below) of Elite,
Mr. Dick will be entitled to the amounts payable as a result of termination by
us without cause plus a lump sum payment of $500,000 and all unvested options
shall immediately vest and along with unexercised vested options be exercisable
within 90 days from the date of termination. “Change of Control” is
defined as the acquisition of Elite pursuant to a merger or consolidation which
results in the reduction to less than 50% of the shares outstanding upon
consummation of the holders of its outstanding shares immediately prior thereto
or sale of substantially all our assets or capital stock to another person, or
the acquisition by a person or a related group in a single transaction or a
series of related transaction of more than 50% of the combined voting power of
Elite’s outstanding voting securities.
Mr. Dick
has agreed to a one-year non-competition covenant and a two-year
non-solicitation covenant following termination of employment.
Mr. Dick
is to be reimbursed for expenses (including business, travel and entertainment)
reasonably incurred in the performance of his duties, provided, however that
reimbursement of expenses in excess of $2,000 per month are subject to the
approval of our chief executive officer. Mr. Dick is entitled to
participate in such employee benefit and welfare plans and programs, which may
be offered to our senior executives including life insurance, health and
accident insurance, medical plans and programs and profit sharing and retirement
plans.
Mr. Jerry
Treppel
In a
Current Report on Form 8-K filed with the SEC on November 6, 2008, which is
incorporated herein by reference, Elite disclosed that Jerry I. Treppel, a
member of Elite’s Board of Directors, was appointed as the Chairman of the
Board. On December 1, 2008, Elite entered into a compensation agreement with Mr.
Treppel (the “Compensation
Agreement”) providing for the terms under which Mr. Treppel will serve as
the non-executive Chairman of the Board. Pursuant to the Compensation Agreement,
Mr. Treppel will serve as the non-executive Chairman of the Board until
immediately prior to the next annual meeting of the Company’s stockholders;
provided, however, that following such annual meeting, and each subsequent
annual meeting of the Company’s stockholders, if the Board elects Mr. Treppel as
the non-executive Chairman of the Board, the term of the Compensation Agreement
will be extended through the earlier of (a) the date of the next subsequent
annual meeting of the Company’s stockholders and (b) the date upon which Mr.
Treppel no longer serves as the non-executive Chairman.
65
During
the term of the Compensation Agreement, including any applicable extensions
thereof, Mr. Treppel is entitled to cash compensation of $2,083.33 on a monthly
basis in lieu of, and not in addition to, any cash directors’ fees and other
compensation paid to other non-employee members of the Board. Mr. Treppel is
also entitled to reimbursement of any expenses reasonably incurred in the
performance of his duties under the Compensation Agreement upon presentation of
proper written evidence of such expenditures.
In
addition, pursuant to the terms of the Compensation Agreement, Elite granted to
Mr. Treppel under its 2004 Stock Option Plan non-qualified stock options to
purchase 180,000 shares of common stock of Elite, par value $0.01 per share,
exercisable for a period of 10 years at an exercise price per share of $0.06,
subject to the terms and conditions of the related option
agreement.
Under the
Compensation Agreement, Elite has also agreed to indemnify Mr. Treppel to the
fullest extent permitted by law in accordance with the By-Laws of Elite against
(a) reasonable expenses, including attorneys’ fees, incurred by him in
connection with any threatened, pending, or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding (and
any appeal therein) seeking to hold him liable for actions taken in his capacity
as Chairman of the Board, and (b) reasonable payments made by him in
satisfaction of any judgment, money decree, fine (including assessment of excise
tax with respect to an employee benefit plan), penalty or settlement for which
he may have become liable in any such action, suit or proceeding, provided that
any such expenses or payments are not the result of Mr. Treppel’s gross
negligence, willful misconduct or reckless actions.
Either
party may terminate the Compensation Agreement, effective immediately upon the
giving of written notice to the other party.
Mr.
Gittelman
On
February 26, 1998, we entered into an agreement with Gittelman & Co., P.C.,
whereby fees are paid to Gittelman & Co., P.C., a firm wholly-owned by Mark
I. Gittelman, our Chief Financial Officer, Secretary and Treasurer, in
consideration for services rendered by the firm as internal accountant and
financial and management consultant to us. The firm’s services
include the services rendered by Mr. Gittelman in his capacity as Chief
Financial Officer, Secretary and Treasurer. For the fiscal years
ended March 31, 2009, 2008 and 2007, the fees paid by us under the agreement
were $233,181, $176,206 and $151,214, respectively. The services
rendered by the firm to us for the fiscal years ended March 31, 2009, 2008 and
2007 averaged 111, 105 and 98 hours per month, respectively, of which an average
of 28 hours per month were services rendered by Mr. Gittelman in his capacity as
an officer of Elite.
Dr. Stuart
Apfel
On
January 3, 2008, we entered into an employment agreement with Dr. Stuart Apfel
(the “Apfel Agreement”)
providing for Dr. Apfel to serve as our Chief Medical Officer through January 3,
2009. However, as a result of Elite’s continuing efforts to
reorganize its workforce and decrease its operating expenses, Elite requested
that Dr. Stuart Apfel, Elite’s Chief Scientific Officer and Chief Medical
Officer, change the status of his relationship with Elite from employee to
consultant. Dr. Apfel agreed to such change in status and continues to provide
his services as Elite’s Chief Scientific Officer and Chief Medical Officer on an
hourly basis, thereby reducing Elite’s expenses as they relate to Dr.
Apfel.
66
Accordingly,
on October 20, 2008, Elite and Dr. Apfel entered into a Separation Agreement and
General Release of Claims (the “Apfel Release”), whereby the
Apfel Agreement was terminated and Dr. Apfel was terminated as an employee of
Elite. Pursuant to the Apfel Release, Dr. Apfel waived his
entitlement to certain notice and payment provisions upon termination of the
Apfel Agreement. Dr. Apfel acknowledged that there were no payment amounts
outstanding to him under the Apfel Agreement. Dr. Apfel acknowledged that his
obligations under Sections 4 and 5: “Protection of Confidential Information and
Trade Secrets; Non-Competition; No Solicitation” and “Continued Cooperation;
Return of Documents and Property; Injunctive Relief; Non-Exclusivity and
Survival” of the Apfel Agreement survive termination and that he would continue
to be bound by and shall abide by such provisions. Additionally, Dr.
Apfel released Elite from any claims he has or may have against
Elite.
In his
continuing service as Elite’s Chief Scientific Officer and Chief Medical Officer
on a consultancy basis, Dr. Apfel and Elite entered into a consulting agreement,
dated as of October 20, 2008 (the “Apfel Consulting Agreement”),
between Elite and Parallex Clinical Research (“Parallex”). Dr.
Apfel is the founder and current president of Parallex. Pursuant to
the Apfel Consulting Agreement, Parallex is to provide Elite consulting services
for its opioid abuse-resistant product, sustained-release opioid product and
other such products with which Elite may request assistance. Under
the Apfel Consulting Agreement, Dr. Apfel is the primary person to provide such
consulting services. As compensation for consulting services, Elite
agreed to pay Dr. Apfel on an hourly basis at the rate of $250 per hour and any
other Parallex clinical research scientists at the rate of $175 per hour;
provided, however, that, in no event is Parallex entitled to compensation
(together with its employees’, representatives’ or agents’ billable hours) of
more than $10,000.00 in any month, unless it has obtained the prior written
authorization of the Company. Parallex is entitled to reimbursement
of reasonable and necessary travel expenses incurred by Parallex that have been
approved in advance in writing by Elite.
Elite may
terminate the Apfel Consulting Agreement at any time upon written notice to
Parallex. Parallex and Dr. Apfel are subject to covenants not to
disclose confidential information and assignment of intellectual
property. In addition, during the term of the Apfel Consulting
Agreement and for a period of one year thereafter, Dr. Apfel is subject to both
non-competition and non-solicitation covenants.
Under the
Apfel Agreement, prior to its termination on October 20, 2008 by the Apfel
Release, Dr. Apfel was entitled to an initial base annual salary of $220,000 and
a discretionary bonus following the end of each calendar year, commencing with
the calendar year beginning January 1, 2008, of up to 50% of Dr. Apfel’s then
annual base salary. The amount, if any, of the discretionary bonus to
Dr. Apfel, pursuant the Apfel Agreement, was to be determined by the Board or
the Compensation Committee, and was to be based on the achievement of goals
discussed with the executive in good faith and within a reasonable time
following the commencement of each fiscal year. Such discretionary
bonus could be paid in cash or shares of Common Stock valued at the average of
the closing price per share during the five trading days immediately preceding
the date of issuance of the shares. Dr. Apfel was granted 400,000
options under the Apfel Agreement, as set forth in individual Incentive Stock
Option Letter Agreements, dated January 3, 2008 (the “Apfel Option Agreements,” and
such options granted thereby, the “Apfel
Options”). Pursuant to the Apfel Option Agreements, Dr.
Apfel had 90 days following the termination of the status of Dr. Apfel as an
employee of Elite pursuant to the Apfel Release to exercise such Apfel Options.
Dr. Apfel did not exercise any Apfel Options within such 90-day period and,
therefore, such Apfel Options expired without exercise.
During
the fiscal year ended March 31, 2009, Elite paid Dr. Apfel an aggregate of
$124,114 for his service to Elite, representing the annual salary payable to Dr.
Apfel under the Apfel Agreement for his employment as Elite’s Chief Scientific
Officer and Chief Medical Officer, prorated for the period beginning April 1,
2008 and ending October 20, 2008, the date of termination of Dr. Apfel’s status
as an employee of Elite. In addition, during such fiscal year, in
consideration for entering into the Apfel Release, Elite paid Dr. Apfel $4,219
less any payroll or withholding taxes, which such payment Elite and Dr. Apfel
agreed constituted Elite’s sole obligation to Dr. Apfel on account of his
service as an Elite employee under the Apfel Agreement. As of
March 31, 2009, there were no payments made to Dr. Apfel for consulting services
rendered to Elite pursuant to the Apfel Consulting Agreement. No
other compensation was paid by Elite to Dr. Apfel during the fiscal year ended
March 31, 2009.
67
For
additional information regarding the Apfel Release, please see Elite’s
disclosures in its Current Reports on Form 8-K filed with the SEC on October 21,
2008, which such report is incorporated herein by reference.
Charan
Behl
On
February 9, 2007, Elite entered into an Amended and Restated Employment
Agreement with Charan Behl (the “Behl Agreement”), providing
for Dr. Behl’s employment as Elite’s Head of Technical Affairs, a position which
required Dr. Behl to report to Elite’s Executive Officer, Chief Scientific
Officer and any additional executive officer designated by the
Board. However, as a result of Elite’s continuing efforts to
reorganize its workforce and decrease its operating expenses, Elite requested
that Dr. Charan Behl change the status of his relationship with Elite from
employee to consultant. Dr. Behl agreed to such change in status and continues
to provide his services as a consultant to Elite on an hourly basis, thereby
reducing Elite’s expenses as they relate to Mr. Behl.
Accordingly,
on November 3, 2008, Elite and Dr. Behl entered into a Separation Agreement and
General Release of Claims (the “Behl Release”), which
terminated the Behl Agreement and Dr. Behl’s status as an employee of
Elite. Pursuant to the Behl Release, Dr. Behl waived his entitlement
to certain notice and payment provisions upon termination of the Behl
Agreement. Dr. Behl acknowledged that there were no payment amounts
outstanding to him under the Behl Agreement. Dr. Behl acknowledged that his
obligations under Sections 4 and 5: “Protection of Confidential Information and
Trade Secrets; Non-Competition; No Solicitation” and “Continued Cooperation;
Return of Documents and Property; Injunctive Relief; Non-Exclusivity and
Survival” of the Behl Agreement survive termination and agreed that he would
continue to be bound by and abide by such provisions. Additionally,
Dr. Behl released Elite from any claims he has or may have against
Elite.
In
addition, Dr. Behl acknowledged that, of the options to purchase an aggregate of
750,000 shares of Common Stock previously granted to him under the Behl
Agreement, evidenced by three Incentive Stock Option Letter Agreements, dated
November 13, 2006, between Dr. Behl and Elite (the “Behl Option Agreements”), options
to purchase 500,000 shares of Common Stock were unvested and terminated as of
the date of termination of Dr. Behl’s employment with Elite. Dr. Behl
also acknowledged that he had 90 days following the date of his termination as
an employee of Elite to exercise the remaining options to purchase up to 250,000
shares of Common Stock which had vested pursuant to the Behl Option Agreements
(such vested options, the “Vested Behl
Options”). Pursuant to the Behl Option Agreements, Dr. Behl
had 90 days following the termination of the status of Dr. Behl as an employee
of Elite pursuant to the Behl Release to exercise such Vested Behl Options. Dr.
Behl did not exercise any Vested Apfel Options within such 90-day period and,
therefore, such Vested Behl Options expired without exercise.
To set
the terms of Dr. Behl’s service as a consultant to Elite following termination
of his employment relationship with Elite, Elite and Dr. Behl entered into a
consulting agreement, dated as of November 3, 2008 (the “Behl Consulting Agreement”),
pursuant to which Dr. Behl agreed to provide Elite consulting services for its
opioid abuse-resistant product, sustained-release opioid product and other such
products with which Elite may request assistance. Under the
Behl Consulting Agreement, Elite has agreed to compensate Dr. Behl on an hourly
basis for consulting services provided to Elite at the rate of $200 per
hour. In no event shall Dr. Behl be entitled to compensation of more
than $10,000.00 in any month without the prior written authorization of
Elite. Dr. Behl is entitled to reimbursement of reasonable and
necessary travel expenses incurred by Dr. Behl that have been approved in
advance in writing by Elite.
68
Elite may
terminate the Behl Consulting Agreement at any time upon written notice to Dr.
Behl. Dr. Behl is subject to covenants not to disclose confidential
information and assignment of intellectual property. In addition,
during the term of the Behl Consulting Agreement and for a period of one year
thereafter, Dr. Behl is subject to non-competition and non-solicitation
covenants.
The Behl
Consulting Agreement does not provide for any minimum amount of services to be
performed pursuant thereto, and any services to be performed by Dr. Behl
thereunder shall be solely in response to Elite’s request for such
services.
Under the
Behl Agreement, prior to its termination on November 3, 2008 by the Behl
Release, Dr. Behl was entitled to a base annual salary of $250,000, a guaranteed
bonus of $25,000 payable within 30 calendar days of the end of each fiscal year
during the term of the Behl Agreement and a $700-per-month automobile
allowance. The Behl Agreement also provided for payment of a
discretionary bonus following the end of each fiscal year of up to 50% of Dr.
Behl’s then annual base salary. The amount, if any, of the discretionary bonus
to Dr. Behl, pursuant the Behl Agreement, was to be determined by the Board or
the Compensation Committee, and was to be based on the achievement of goals
discussed with the executive in good faith and within a reasonable time
following the commencement of each fiscal year. Such discretionary
bonus could be paid in cash or shares of Common Stock valued at the average of
the closing price per share during the five trading days immediately preceding
the date of issuance of the shares.
During
the fiscal year ended March 31, 2009, Elite paid Dr. Behl an aggregate of
$146,795 for his service to Elite in the capacity of Head of Technical Affairs,
representing the annual salary payable to Dr. Behl under the Behl Agreement
prorated for the period beginning April 1, 2008 and ending November 3, 2008, the
date of termination of Dr. Behl’s status as an employee of
Elite. In addition, during such fiscal year, as consideration
for Dr. Behl’s entry into the Behl Release, Elite paid Dr. Behl $20,548 less any
payroll or withholding taxes and issued to Dr. Behl non-qualified stock options
to purchase 50,000 shares of Common Stock, with a per share exercise price of
$0.10 (representing the closing price of the Common Stock on the American Stock
Exchange on October 31, 2008), vested immediately upon issuance, subject to
Elite’s 2004 Stock Option Plan and the non-qualified stock option letter
agreement between Elite and Dr. Behl, dated as of November 3,
2008. Further, pursuant to the Behl Release, Elite paid Dr. Behl (i)
$25,000 less any payroll or withholding taxes (representing the unpaid
guaranteed bonus owed to Dr. Behl since March 2008 in accordance with the Behl
Agreement), (ii) $12,019 less any payroll or withholding taxes (representing 2.2
weeks of unpaid vacation for the 2008 fiscal year), and (iii) $14,263 in expense
reimbursements. As of March 31, 2009, there were no payments made to
Dr. Behl for consulting services rendered to Elite pursuant to the Behl
Consulting Agreement. No other compensation was paid to Mr. Behl by
Elite during the fiscal year ended March 31, 2009.
For
additional information regarding the Behl Release, please see Elite’s
disclosures in its Current Report on Form 8-K filed with the SEC on November 3,
2008, which such report is incorporated herein by reference.
69
Bernard
Berk
On
November 13, 2006, Elite entered into the Second Amended and Restated Employment
Agreement with Mr. Berk, Elite’s former President, Chief Executive Officer and
Chairman of the Board (the “Berk Agreement”). On November
6, 2008 (the “Separation
Date”), Elite and Mr. Berk entered into a Separation Agreement and
General Release (the “Berk
Release”), which provides for, among other things, the termination of the
Berk Agreement. As of the Separation Date, Mr. Berk voluntarily resigned as
Elite’s President and Chief Executive Officer and also voluntarily resigned as
the Chairman of the Board and as a Board member.
As
consideration for a general release of Elite by Mr. Berk of all claims he
asserted, or may assert in the future, against Elite in connection with his
separation from Elite and in order to amicably resolve these matters without
resorting to litigation in light of Elite’s financial condition as of the
Separation Date, Elite agreed to (i) pay Mr. Berk $34,000 as severance less all
applicable payroll or withholding taxes (the “Cash Severance Amount”), and
(ii) charge to Mr. Berk, as additional income for taxation purposes, the
aggregate amount of all reimbursed expenses paid to Mr. Berk which are
determined by Elite’s Audit Committee not to be in compliance with Elite’s
expense reimbursement policy.
The Berk
Agreement provided for a base annual salary of $330,140. During the fiscal year
ended March 31, 2009, Elite paid Mr. Berk an aggregate of $193,380 for his
service to Elite, representing the base annual salary payable to Mr. Berk under
the Berk Agreement for his employment as Elite’s President, Chief Executive
Officer and Chairman of the Board of Directors, prorated for the period
beginning on April 1, 2008 and ending on the Separation Date.
Mr. Berk
was entitled to an automobile allowance of $800 per month. The Berk
Agreement provided for payment of a discretionary bonus following the end of
each fiscal year of up to 50% of Mr. Berk’s then annual base salary. The amount,
if any, of the discretionary bonus was to be determined by the Compensation
Committee. Mr. Berk’s discretionary bonus was to be based on any
commercialization of products, merger or acquisition, business combination or
collaborations, growth in revenues and earnings, additional financings or other
strategic business transactions that inure to the benefit of Elite’s
stockholders. The discretionary bonus, if any, was to be paid in cash or shares
of Common Stock, valued at the closing price of the Common Stock on the
immediately preceding trading day. For the fiscal year ended March 31, 2008 Mr.
Berk did not receive any discretionary bonus.
The Berk Agreement provided for the
grant of options to purchase up to 300,000 additional shares of Common Stock
(the “Opioid Product
Options”) at a $3.00 exercise price per share, which were to vest in two
150,000 share tranches upon the closing of an exclusive product license for the
United States national market, the entire European Union Market or the Japan
market or a product sale transaction of all Elite’s ownership rights in the
United States (only once for each product) for Elite’s first drug developed by
Elite for which the FDA approval sought under a NDA (including a 505(b) (2)
application) for oxycodone, hydrocodone, hydromorphone, oxymorphone, or
morphine (each a “Non-Generic Opioid Product”)
as to the first tranche and as to Elite’s second Non-Generic Opioid Product for
the second tranche. None of the Opioid Options vested as of the
Separation Date and, therefore, all such Opioid Product Options terminated as of
such Separation Date.
The Berk Agreement provided for the
amendment of the vesting of options as to 400,000 shares of Common Stock which
had been granted on September 2, 2005 to Mr. Berk at an exercise price of $2.69
per share (the “Berk Milestone
Options”) with the Berk Milestone Options to vest (A) as to not more than
125,000 shares and 75,000 shares, respectively, upon the commencement of the
first Phase III clinical trial relating to the first and then the second
Non–Generic Opioid Product developed by Elite; (B) 50,000 shares upon the
closing of each product license or product sale transaction (on a product by
product basis and only once for each product) other than Non-Generic Opioid
Product for which options were granted above; (C) 10,000 shares upon the filing
by Elite (in Elite’s name) with the FDA of either an ANDA or a NDA, for a
product not covered by a previous FDA application; (D) 40,000 shares upon the
approval by the FDA of any ANDA or NDA (filed in Elite’s name) for a product not
previously approved by the FDA; (E) 25,000 shares upon the filing of an
application for a U.S. patent by Elite (in Elite’s name); and (F) 25,000 shares
upon the granting by the U.S. Patent and Trademark Office (the “PTO”) of a patent to Elite
filed in Elite’s name or an approval of an ANDA or NDA; provided, however the
foregoing options were to terminate upon Mr. Berk’s termination of employment
except that options under (D) and (F) nevertheless vest if the filing was made
during the initial term but prior to termination of Mr. Berk’s employment by
Elite without cause and the approval was made within 540 days of the filing of
the ANDA, NDA or patent application. None of the Berk Milestone Options vested
as of the Separation Date and, therefore, all such Berk Milestone Options
terminated as of such Separation Date.
70
Elite
also agreed that in the event that, as to Mr. Berk, all of the options to
purchase the full 400,000 Berk Milestone Options have fully vested during the
initial term of the agreement, Elite agreed to grant under the Stock Option Plan
to Mr. Berk at the end of the first current fiscal year in which the following
event occurs fully vested additional options to purchase the following shares at
the fair market value on the date of grant (the “Additional Berk Milestone
Options”): (a) to the extent not previously vested with respect to his
comparable Berk Milestone Options: (i) up to 125,000 shares upon the
commencement of the first Phase III clinical trial relating to the first
Non-Generic Opioid Product developed by Elite; and (ii) up to an additional
125,000 shares as to such trial relating to the second Non-Generic Opioid
Product developed by Elite, (b) 50,000 shares upon the closing of each product
license for the United States national market or product sale transaction of all
ownership rights (on a product by product basis and only once for each product);
(c) 10,000 shares upon the filing by Elite (in Elite’s name) with the FDA of
either an ANDA or NDA for a product not covered by a previous FDA application
for each of Elite’s drug product, other than the Non-Generic Opioid Products for
which any Opioid Option was granted under the Berk Agreement; (d)
40,000 shares upon the approval by the FDA of any ANDA, NDA or 505(b)(2)
application filed in Elite’s name for a product not previously approved by the
FDA; (e) 25,000 shares in the event of the filing of an application of an
additional U.S. patent by Elite (filed in Elite’s name); and (f) 25,000 shares
in the event of the granting by the PTO of the foregoing additional patent
applications to Elite (filed in Elite’s name). No Additional Berk Milestone
Options were issued to Mr. Berk under the Berk Agreement.
The Berk
Agreement acknowledges that Mr. Berk holds previously granted incentive stock
options to purchase 725,000 shares (the “Vested Berk Options”), of
which 300,000 of the Vested Berk Options were exercisable at $2.01 per share,
225,000 of the Vested Berk Options were exercisable at $2.15 per share and
200,000 Vested Berk Options were exercisable at $2.69 per share. Mr. Berk had 90
days following the Separation Date to exercise the Vested Berk
Options. The Vested Berk Options terminated without exercise at the
expiration of such 90-day period.
The Berk
Agreement allowed Elite, at its discretion, to grant to Mr. Berk additional
options under the Stock Option Plan and provides Mr. Berk the right to register
at Elite’s expense for reoffering shares issued upon exercise of the options
under the Securities Act in certain registration statements filed by Elite with
respect to offerings of securities by Elite. Elite did not grant Mr. Berk any
additional options prior to the Separation Date.
The Berk
Agreement provided that if Elite terminated his employment due to his permanent
disability, without Cause (as defined in the Berk Agreement) or Mr. Berk
terminated his employment for Good Reason (as defined in the Berk Agreement),
Mr. Berk would have been entitled to the following severance: (i) any earned but
unpaid base salary plus any unpaid reimbursable expenses as of the effective
date of termination of his employment, (ii) the then-current base salary and
reimbursement of the cost to replace the life and disability insurance coverages
afforded to Mr. Berk under Elite’s benefit plans with substantially similar
coverages, following the effective date of termination of his employment, for a
period equal to the greater of (x) the remainder of the then-current term, or
(y) two years following the effective date of termination and (iii) payment by
Elite of premiums for health insurance for the period during which Mr. Berk
would have been entitled to continued health insurance coverage as specified in
the Comprehensive Omnibus Budget Reconciliation Act. In the event
that Elite terminated Mr. Berk’s employment because of his permanent disability,
Mr. Berk would have been entitled to the severance specified above, less any
amounts actually received by him under any disability insurance coverage
provided for and paid by Elite. In the event that Elite terminated Mr. Berk’s
employment for Cause or Mr. Berk terminates his employment with Elite without
Good Reason, Mr. Berk would have been entitled to any earned but unpaid base
salary plus any unpaid reimbursable expenses as of the effective date of
termination of his employment.
71
The Berk
Agreement provided that in the event of a change of control in lieu of any
severance that may otherwise be payable to Mr. Berk if he elected to terminate
his employment for any reason within 90 days thereof, or Elite elected to
terminate his employment within 180 days thereof, other than for Cause, Mr. Berk
would have been entitled to the following: (i) any earned but unpaid base salary
plus any unpaid reimbursable expenses as of the effective date of termination of
his employment, (ii) $1,000,000, (iii) the then-current base salary for a period
of 12 months following the effective date of termination, (iv) reimbursement of
the cost, for a period of 12 months following the effective date of termination,
of replacing the life and disability insurance coverage afforded to Mr. Berk
under Elite’s benefit plans with substantially similar coverage and (v) payment
by Elite of premiums for health insurance for the period during which Mr. Berk
would have been entitled to continued health insurance coverage as specified in
the Comprehensive Omnibus Budget Reconciliation Act.
Except
for the Cash Severance Amount, Elite did not pay Mr. Berk any severance as a
result of his separation from Elite.
The Berk
Agreement contained his non-solicitation covenant for a period of one year from
termination. Pursuant to the Berk Release, Mr. Berk also agreed to customary
negative covenants regarding confidentiality, return of corporate property and
non-disparagement. Elite agreed to customary negative covenants regarding
confidentiality of information relating to Mr. Berk (other than as may be
required to be disclosed by applicable law or at the request of the SEC) and
non-disparagement.
Pursuant
to the Berk Agreement, Mr. Berk was entitled reimbursed for expenses (including
business, travel and entertainment) reasonably incurred in the performance of
his duties. Mr. Berk was also entitled to participate in such
employee benefit and welfare plans and programs which were offered to Elite’s
senior executives, including life insurance, health and accident insurance,
medical plans and programs and profit sharing and retirement plans.
For
additional information regarding Mr. Berk’s separation from Elite and the Berk
Release, please see Elite’s disclosures in the Annual Report on Form 10-K/A for
the fiscal year ended March 31, 2008, filed with the SEC on January 16, 2009, as
well as Elite’s Current Reports on Form 8-K, filed with the SEC on October 21,
2008 and November 6, 2008, which such reports are incorporated herein by
reference.
Veerappan
Subramanian
Dr. Subramanian entered into an
Advisory Services Agreement with Elite on December 6, 2006, the terms of which
are summarized below, in Item 13 of this Annual Report on Form 10-K, under
the caption “Certain Related Person Transactions,” which is incorporated herein
by reference. On April 24, 2008, Dr. Subramanian resigned as Elite’s acting
Chief Scientific Officer upon the appointment of Stuart Apfel to the office of
Chief Scientific Officer.
72
Hedging
Policy
We do not permit the Named Executive
Officers to “hedge” ownership by engaging in short sales or trading in any
options contracts involving our securities.
Option
Exercises and Stock Vested
No options have been exercised by our
Named Executive Officers during the fiscal year ended March 31,
2009.
Pension
Benefits
We do not provide pension benefits to
the Named Executive Officers.
Nonqualified
Deferred Compensation
We do not have any defined
contribution or other plan that provides for the deferral of compensation on a
basis that is not tax-qualified.
Potential
Payments Upon Termination or Change of Control
Please
see the discussion under “Compensation Discussion and Analysis – Agreements with
Named Executive Officers” above under this Item 13.
73
COMPENSATION
OF EXECUTIVE OFFICERS AND KEY EMPLOYEES
Summary
Compensation Table
The table
below summarizes the compensation information in respect of the Named Executive
Officers for the fiscal years ended March 31, 2009, 2008 and 2007.
Name and
Principal Position
|
Year
(1)
|
Salary
($)
|
Bonus
(2)
($)
|
Stock
Awards
(3)
($)
|
Option
Awards
(4)
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||||
Mark. Gittelman
Chief Financial
|
2008-09 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Officer,
Secretary
|
2007-08 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
and
Treasurer
|
2006-07 | — | — | — | 83,293 | — | — | — | 83,293 | |||||||||||||||||||||||||||
Chris C. Dick(5)
|
2008-09 | 218,750 | 25,000 | — | — | — | — | 8,400 | (7) | 252,150 | ||||||||||||||||||||||||||
Chief
Operating
|
||||||||||||||||||||||||||||||||||||
Officer,
President and
|
2007-08 | 200,000 | 25,000 | — | — | — | — | 8,400 | (7) | 233,400 | ||||||||||||||||||||||||||
Acting
Chief Executive Officer
|
2006-07 | 168,750 | 25,000 | — | 482,037 | — | — | 3,150 | (7) | 678,937 | ||||||||||||||||||||||||||
Stuart
Apfel(6)
Chief Medical |
2008-09 | 128,333 | — | — | — | — | — | — | 128,333 | |||||||||||||||||||||||||||
Officer
and Chief
|
2007-08 | 55,000 | — | — | 354,760 | — | — | 1,260 | (7) | 411,020 | ||||||||||||||||||||||||||
Scientific
Officer
|
2006-07 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Charan Behl(8)
|
2008-09 | 179,362 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Consultant; Former
Head of
|
2007-08 | 250,000 | 25,000 | — | — | — | — | — | 275,000 | |||||||||||||||||||||||||||
Technical
Affairs
|
2006-07 | 344,135 | 25,000 | — | 482,037 | — | — | — | 851,172 | |||||||||||||||||||||||||||
Bernard J. Berk(9)
|
2008-09 | 227,380 | — | — | — | — | — | 21,260 | (11) | 248,640 | ||||||||||||||||||||||||||
Former
President and Chief Executive
|
2007-08 | 330,140 | 165,070 | — | — | — | — | 21,260 | (11) | 516,470 | ||||||||||||||||||||||||||
Officer
|
2006-07 | 330,140 | 63,063 | — | 574,422 | — | — | 21,260 | (11) | 988,885 | ||||||||||||||||||||||||||
Veerappan Subramanian
(10)
|
2008-09 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Former Chief | 2007-08 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Scientific
Officer
|
2006-07 | — | — | — | 1,114,445 | — | — | — | 1,114,445 |
74
(1)
|
The
information is provided for each fiscal year which begins on April 1 and
ends on March 31.
|
(2)
|
Bonuses
paid to Mr. Dick represent guaranteed
bonuses.
|
(3)
|
No
stock awards were granted to the Named Executive Officers in the fiscal
years ended March 31, 2009, 2008 or
2007.
|
(4)
|
The
amounts reflect the compensation expense in accordance with FAS 123® of
these option awards. The assumptions used to determine the fair value of
the option awards for fiscal year ended March 31, 2008 are set forth as
follows: the per share weighted average of the above mentioned stock
options was 0.8869 using the Black-Scholes options pricing model with the
following weighted average assumptions: no dividend yield; expected
volatility of 33%; risk free interest rate of 4.00% and expected lives of
ten (10) years. The assumptions used to determine the fair
value of the option awards for fiscal year ended March 31, 2007 are set
forth in Note 3 of our financial statements included in our Quarterly
Report on Form 10-Q for the quarter ended December 31,
2006.
|
(5)
|
Effective
November 10, 2008, Mr. Dick’s base salary was raised from $200,000 per
year to $250,000 per year, pursuant to an amendment to the employment
agreement, dated as of November 13, 2006, between the Company and Mr.
Dick, so as to be commensurate with his increased responsibilities as the
acting Chief Operating Officer of the
Company.
|
(6)
|
Dr.
Apfel has been Chief Medical Officer since January 3, 2008 and Chief
Scientific Officer since April 24, 2008. Although Mr. Apfel’s
status as an employee of the Company terminated on October 20, 2008,
pursuant to the employment termination agreement, dated as of October 20,
2008, between Mr. Apfel and the Company, he has agreed to continue to
serve as the Company’s Chief Medical Officer and Chief Scientific Officer
pursuant to the consulting agreement, dated as of October 20, 2008,
between Parallex and the Company as described in greater detail in this
Item 11, above, under the heading “Agreements with Named Executive
Officers and Key Employees.” The 400,000 stock options granted
to Mr. Apfel during the fiscal year ended March 31, 2008 expired without
exercise in January 2008.
|
(7)
|
Represents
amounts paid for auto and parking
allowance.
|
(8)
|
As
described in detail in this Item 11, above, under the heading “Agreements
with Named Executive Officers and Key Employees,” Dr. Behl was employed by
Elite as Head of Technical Affairs pursuant to the Behl Agreement until
November 3, 2008, at which point Dr. Behl’s employment with Elite was
terminated pursuant to the Behl
Release.
|
75
(9)
|
As
described in detail in this Item 11, above, under the heading “Agreements
with Named Executive Officers and Key Employees”, Mr. Berk was employed by
Elite as President and Chief Executive Officer pursuant to the Berk
Agreement until November 6, 2008, at which point Mr. Berk’s employment
with Elite was terminated pursuant to the Berk
Release.
|
(10)
|
As
described in detail in this Item 11, above, under the heading “Agreements
with Named Executive Officers and Key Employees,” Dr. Subramanian served
as Elite’s Chief Scientific Officer until April 24,
2008.
|
(11)
|
Represents
$16,345 for auto and parking allowance and $4,915 for life insurance
premiums.
|
Grants
of Plan-Based Awards
No plan based awards were made to the
Named Executive Officers during the fiscal year ended March 31, 2009.
76
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth
information concerning stock options and stock awards held by the Named
Executive Officers as of March 31, 2009.
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive Plan
Awards
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock Held
That Have
Not Vested
(#)
|
Market Value
of Shares or
Units of
Stock Held
That Have
Not Vested
($)
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
|
||||||||||||||||||||||||
Mark
I.
Gittelman
Chief
Financial
Officer
|
10,000 | (1) | — | — | $ | 2.34 |
03/08/14
|
— | — | — | — | ||||||||||||||||||||||
6,666 | (2) | — | — | $ | 2.80 |
07/14/15
|
— | — | — | — | |||||||||||||||||||||||
6,667 | (2) | — | — | $ | 2.80 |
07/14/15
|
— | — | — | — | |||||||||||||||||||||||
6,667 | (2) | — | — | $ | 2.80 |
07/14/15
|
— | — | — | — | |||||||||||||||||||||||
23,333 | (3) | — | — | $ | 2,26 |
05/03/16
|
— | — | — | — | |||||||||||||||||||||||
23,333 | (3) | — | — | $ | 2.26 |
05/03/16
|
— | — | — | — | |||||||||||||||||||||||
— | 23,334 | (3) | — | $ | 2.26 |
05/03/16
|
— | — | — | — |
77
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive Plan
Awards
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock Held
That Have
Not Vested
(#)
|
Market Value
of Shares or
Units of
Stock Held
That Have
Not Vested
($)
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
|
||||||||||||||||||||||||
Chris
Dick
Chief
Operating Officer, President and Acting CEO
|
10,000 | (4) | — | — | $ | 2.34 |
10/31/12
|
— | — | — | — | ||||||||||||||||||||||
10,000 | (4) | — | — | $ | 2.34 |
10/31/12
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (4) | — | — | $ | 2.34 |
10/31/12
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (5) | — | — | $ | 2.21 |
06/13/13
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (5) | — | — | $ | 2.21 |
06/13/13
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (5) | — | — | $ | 2.21 |
06/13/13
|
— | — | — | — | |||||||||||||||||||||||
40,000 | (6) | — | — | $ | 2.80 |
07/14/15
|
— | — | — | — | |||||||||||||||||||||||
250,000 | (7) | — | — | $ | 2.25 |
11/13/16
|
— | — | — | — | |||||||||||||||||||||||
— | — | 150,000 | (8) | $ | 2.25 |
11/13/16
|
— | — | — | — | |||||||||||||||||||||||
— | — | 150,000 | (9) | $ | 2.25 |
11/13/16
|
— | — | — | — | |||||||||||||||||||||||
— | — | 200,000 | (10) | $ | 2.25 |
11/13/16
|
— | — | — | — | |||||||||||||||||||||||
Charan
Behl*
Consultant;
Former Head of Technical Affairs
|
50,000 |
(11)
|
— | — | $ | 0.10 |
11/3/18
|
— | — | — | — |
78
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive Plan
Awards
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock Held
That Have
Not Vested
(#)
|
Market Value
of Shares or
Units of
Stock Held
That Have
Not Vested
($)
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
|
||||||||||||||||||||||||
Bernard
Berk*
Former
President and Chief Executive Officer
|
|||||||||||||||||||||||||||||||||
300,000 |
(12)
|
— | — | $ | 2.01 |
06/03/13
|
— | — | — | — | |||||||||||||||||||||||
30,000 |
(13)
|
— | — | $ | 2.34 |
06/22/14
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (14) | — | — | $ | 2.75 |
08/30/15
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (14) | — | — | $ | 2.75 |
08/30/15
|
— | — | — | — | |||||||||||||||||||||||
10,000 | (14) | — | — | $ | 2.75 |
08/30/15
|
— | — | — | — | |||||||||||||||||||||||
— | — | 150,000 | $ | 3.00 |
11/13/16
|
— | — | — | — | ||||||||||||||||||||||||
— | — | 150,000 | $ | 3.00 |
11/13/16
|
— | — | — | — |
*
|
See Item 11, above,
under the heading “Executive Compensation – Named Executive Officers and
Key Employees” for more information regarding such former officer of the
Company.
|
79
(1)
|
These
options vested on June 22, 2004.
|
(2)
|
These
options vest in annual increments over a three year period on July 14,
2006, July 14, 2007 and July 14, 2008,
respectively.
|
(3)
|
These
options vest in annual increments over a three year period on May 3, 2007,
May 3, 2008 and May 3, 2009,
respectively.
|
(4)
|
These
options vested on November 1, 2003, 2004 and 2005,
respectively.
|
(5)
|
These
options vested on June 13, 2004, 2005 and 2006,
respectively.
|
(6)
|
These
options vested on July 14, 2005.
|
(7)
|
These
options vested on November 3, 2006.
|
(8)
|
These
options vest upon the closing of an exclusive product license for the
first of the United States national market, the entire European Union
market or the Japan market or product sale transaction of all of our
ownership rights in the United States (only once for each individual
product) for our first Non-Generic Opioid
Product.
|
(9)
|
These
options vest upon the closing of an exclusive product license for the
United States national market, the entire European Union market or the
Japan market or product sale transaction of all of our ownership rights in
the United States (only once for each individual product) for our second
Non-Generic Opioid Product.
|
(10)
|
These
options vest as follows: upon the commencement of the first
Phase III clinical trial relating to the first "Non-Generic Opioid
Product" developed by the Company as to 125,000 options and relating to
the second "Non-Generic Opioid Product" developed by the Company as to
75,000 options.
|
(11)
|
These
options vested as of November 3,
2008.
|
(12)
|
These
options vested as of June 3, 2003.
|
(13)
|
These
options vested as of June 22, 2004.
|
(14)
|
These
options vested in annual increments over a three year period on August 30,
2006, August 30, 2007 and August 30, 2008,
respectively.
|
80
DIRECTOR
COMPENSATION
The following table sets forth director
compensation for the year ended March 31, 2009:
Name
|
Fees Paid or Earned
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non Equity Incentive Plan
Compensation
($)
|
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings
($)
|
All Other Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
Jerry
Treppel
|
8,750 | — | 180,000 | (1) | — | — | 8,333 | 17,083 | ||||||||||||||||||||
Barry
Dash
|
33,000 | — | — | — | — | — | 33,000 | |||||||||||||||||||||
Robert
J. Levenson
|
37,000 | — | — | — | — | — | 37,000 | |||||||||||||||||||||
Melvin
Van Woert
|
35,750 | — | — | — | — | — | 32,000 |
____________________________
(1)
Represents 180,000 options of which 60,000 vest during the period commencing on
December 1, 2008 and ending December 1, 2009; 60,000 vest during the period
commencing on December 1, 2009 and ending on December 1, 2010 and 60,000 vest
during the period commencing on December 1, 2010 and ending on December 1, 2011;
provided, however, that the options shall fully vest upon the director’s death,
disability, retirement as a director or removal as a director without cause at
the request of the Board of Directors.
81
Fee
Compensation
Prior to
January 1, 2008, each Director received $2,000 per meeting attended by such
Director. As of January 1, 2008, the Company’s policy regarding director fees
has been revised as follows: (i) Directors who are employees or consultants of
the Company (and/or any of its subsidiaries) receive no additional remuneration
for serving as directors or members of committees of the Board; (ii) all
Directors are entitled to reimbursement for out-of-pocket expenses incurred by
them in connection with their attendance at the Board or committee meetings;
(iii) Directors who are not employees or consultants of the Company (and/or any
of its subsidiaries) receive $15,000 annual retainer fee for their service on
the Board and all committees; (iv) Directors who are not employees or
consultants of the Company (and/or any of its subsidiaries) receive a per board
meeting fee of $1,000 for each board meeting and a per committee meeting fee of
$1,000 for each committee meeting attended by such Director; provided that the
chairperson of the committee conducting such meeting shall (in place of the
$1,000 meeting fee) receive a per committee meeting fee of $1,500 for each
committee meeting attended; and (v) for purposes of the compensation schedule
set forth above, (x) a meeting shall only constitute a meeting of the Board or a
committee entitling a participant to a meeting fee if such meeting extends to at
least sixty (60) minutes (including the time of any reconvened portion of a
meeting after an adjournment), (y) a meeting shall include all meetings attended
in-person (whether at the Company’s offices or at any other location) or via
telephone conference, and (z) only one fee may be payable to Director and/or
committee member per calendar day. Except as described in this
section, non-employee Directors do not receive any additional compensation for
their services on the Board of Directors, except for Mr. Treppel, who receives
$25,000 per year for serving as Chairman of the Board in lieu of the fees
described above, pursuant to a compensation agreement, dated as of December 1,
2008, between Mr. Treppel and the Company.
Equity
Compensation
Members of the Board of Directors
during the fiscal years ended March 31, 2008 and March 31, 2009 did not receive
any options or equity compensation for serving as directors other than the grant
of 90,000 options to each of the independent directors in January 2008 and the
grant of 180,000 options to the Chairman of the Board in December
2008.
Other
The Company has entered into
indemnification agreements with each of its directors to indemnify them to the
fullest extent permitted under Delaware General Corporation Law.
Compensation
Committee Report
The Compensation Committee has reviewed
and discussed the Compensation Discussion and Analysis set forth above with
management and, based on such review and discussion, has recommended to the
Board of Directors that the Compensation Discussion and Analysis be included in
this Annual Report on Form 10-K.
Barry
Dash (Chairman of the Compensation Committee)
|
Robert
J. Levenson
|
Melvin
Van Woert
|
82
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth
certain information, as of June 23, 2009 (except as otherwise indicated),
regarding beneficial ownership of our Common Stock by (i) each person who
is known by us to own beneficially more than 5% of the Common Stock,
(ii) each of our directors and nominees for director, (iii) each of
the Named Executive Officers (as defined below) and (iv) all our directors
and executive officers as a group. On June 23, 2009, we had 69,969,781 shares of
Common Stock outstanding (exclusive of 100,000 treasury shares). The 1,000
shares of Series E Preferred Stock outstanding as of June 23, 2009 are entitled
to vote, on an as-converted basis, with the Common Stock on any matter presented
to the holders of our Common Stock for their action or consideration at any
meeting of our stockholders (or by written consent of stockholders in lieu of
meeting). The 895.5590 shares of Series B Preferred Stock, 5,418 shares
of Series C Preferred Stock and 9,059.4410 shares of Series D Preferred Stock
outstanding as of June 23, 2009 are nonvoting. As of June 23, 2009,
none of the individuals listed below beneficially owned any shares of Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, except for the following (as further described in the footnotes
to the table): (a) 1,000 shares of Series E Preferred Stock were
beneficially owned by Messrs. Ashok G. Nigalaye, Jeenarine Narine and Ram Potti,
(b) 3,986 shares of Series D Preferred Stock were beneficially owned by
Midsummer Capital LLC and (c) 2,084.4410 shares of Series D Preferred Stock were
beneficially owned collectively by Bushido Capital Master Fund LP and BCMF
Trustees LLC. There are currently no shares of Series A Preferred
Stock outstanding.
As used in the table below and
elsewhere in this Annual Report on Form 10-K, the term beneficial ownership with
respect to a security consists of sole or shared voting power, including the
power to vote or direct the vote, and/or sole or shared investment power,
including the power to dispose or direct the disposition, with respect to the
security through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s) during the 60 days
immediately following June 23, 2009. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
83
Name and Address of Beneficial Owner of Common Stock
|
Amount and
Nature of
Beneficial
Ownership
|
Percent (%)
of Class
Beneficially
Owned
|
||||||
Chris
Dick, President, Chief Operating Officer and Acting Chief Executive
Officer*
|
885,287 |
(1)
|
1.25 | |||||
Robert
J. Levenson, Director*
|
90,000 |
(2)
|
* | |||||
Melvin
Van Woert, Director*
|
120,000 |
(3)
|
* | |||||
Barry
Dash, Director*
|
163,761 |
(4)
|
* | |||||
Jerry
Treppel, Chairman of the Board and Director*
|
1,856,172 |
(5)
|
2.60 | |||||
Ashok
G. Nigalaye*
|
60,000,000 |
(6)
|
46.16 | |||||
Jeenarine
Narine*
|
60,000,000 |
(6)
|
46.16 | |||||
Ram
Potti*
|
60,000,000 |
(6)
|
46.16 | |||||
Mark
I. Gittelman, Chief Financial Officer*
|
76,666 |
(7)
|
* | |||||
Stuart
Apfel, Chief Scientific Officer and Chief Medical Officer*
|
0 |
(8)
|
* | |||||
Epic
Pharma, LLC
227-15
North Conduit Ave.
Laurelton,
NY 11413
|
60,000,000 |
(6)
|
46.16 | |||||
Trellus
Management Company
Adam
Usdan
350
Madison Avenue, 9th Floor
New
York, New York 10017
|
28,672,715 |
(9)
|
30.52 | |||||
Davidson
Kempner Partners
65
East 55th
Street, 19th
Floor
New
York, NY 10022
|
4,948,447 |
(10)
|
6.61 | |||||
Midsummer
Capital LLC
Scott
D. Kaufman
295
Madison Ave., 38th
Floor
New
York, NY 10017
|
24,687,310 |
(11)
|
26.08 | |||||
Bushido
Capital Partners
Ronald
S. Dagar
145
E. 57th
St., 11th
Floor
New
York, NY 10022
|
14,328,847 |
(12)
|
17.02 | |||||
All
Directors and Officers as a group***
|
63,191,886 |
(13)
|
47.62 |
________________________
*
The address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ
07647.
**
Less than 1%
***
As of June 23, 2009
(1)
Includes options to purchase 850,000 shares of Common Stock and warrants held by
Mr. Dick and Hedy Rogers as joint tenants to purchase 10,479 shares of Common
Stock.
(2)
Represents options to purchase shares of Common Stock.
(3)
Represents options to purchase shares of Common Stock.
(4) Based
on information contained in the Form 4 filed with the SEC on January 28, 2008
and the Company’s records as of June 23, 2009. Includes options to
purchase 120,000 shares of Common Stock, warrants to purchase 15,009 shares of
Common Stock, and 28,932 shares of Common Stock.
(5) Based
on information contained in the Form 3 filed with the SEC on November 6, 2008
and the Company’s records as of June 23, 2009. Includes an option to
purchase up to 180,000 shares of Common Stock held by Mr. Treppel; also includes
warrants to purchase up to 1,257,113 shares of Common Stock and 419,059 shares
of Common Stock held by Wheaten HealthCare Partners, LP, of which Mr. Treppel is
a general partner.
(6)
Based on
information in the Schedule 13D filed jointly on June 12, 2009 by Epic Pharma,
LLC (“Epic Pharma”),
Epic Investments, LLC (“Epic
Investments”), Ashok G. Nigalaye, Jeenarine Narine and Ram Potti and the
individual Forms 3 filed on June 12, 2009 by each of Epic Pharma and Messrs.
Nigalaye, Narine and Potti. Represents 1,000 shares of Series E Preferred
Stock convertible into 20,000,000 shares of Common Stock and a warrant to
purchase 40,000,000 shares of Common Stock held by Epic Investments, LLC, a
Delaware limited liability company. Messrs. Nigalaye, Narine and
Potti are executive officers and equity owners of Epic Pharma, LLC, a Delaware
limited liability company, and Epic Investments, LLC, a Delaware limited
liability company. Epic Pharma, LLC is an equity owner of Epic
Investments, LLC. Epic Pharma LLC and Messrs. Nigalaye, Narine and
Potti share voting and investment control over, and are indirect beneficial
owners of, the shares. The interest of Epic Pharma LLC and Messrs.
Nigalaye, Narine and Potti in the shares is limited, and each disclaims
beneficial ownership of such shares except to the extent of its pecuniary
interest in Epic Investments, LLC.
84
(7)
Represents options to purchase shares of Common Stock.
(8) Mr.
Apfel’s options to purchase 400,000 shares of Common Stock expired on January
16, 2009.
(9) Based
on information provided by Trellus Management Company, LLC (“TMC”), Trellus Partners L.P
(“TPLP”), Trellus
Partners II L.P. (“TPLP
II”) and Trellus Offshore Fund Limited (“TOF”), Trellus Small Cap
Opportunity Fund L.P. (“TSC”), Trellus Small Cap
Offshore Opportunity Fund Ltd. (“TSCOOF”) and Adam Usdan
(“Usdan” and, together
with TMC, TPLP, TPLP II, TOF, TSC and TSCOOF, the “Trellus Entities”) in the
Schedule 13D filed jointly by the Trellus Entities with the SEC on March 6,
2009, and on information provided to the Company in connection with the
Company’s Current Report on Form 8-K, dated March 23, 2009, and filed with the
SEC on March 27, 2009. Includes an aggregate of 23,969,652 shares of
Common Stock held collectively by Trellus Partners L.P (“TPLP”), Trellus Partners II
L.P. (“TPLP II”) and
Trellus Offshore Fund Limited (“TOF” and, together with TPLP
and TPLP II, the “Trellus
Entities”) and warrants to purchase up to 4,703,063 shares of Common
Stock held collectively by the Trellus Entities. TMC is the
investment adviser to TPLP, TPLP II, TOF, TSC, and TSCOOF. Mr. Usdan
is the controlling principal and chief investment officer of TMC. Mr.
Usdan and TMC share voting power and dispositive power over the
shares. Pursuant to the terms of the warrants, the number of shares
of Common Stock into which the warrants are exercisable is limited to that
number of shares of Common Stock which would result in the Trellus Entities,
together with their affiliates, having aggregate beneficial ownership of not
more than 4.99% of the total number of shares of Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock
issuable upon any exercise of the warrants, provided, however, that such
beneficial ownership limitation may be increased at the election of the Trellus
Entities to 9.99% upon at least 61 days’ prior notice to the
Company.
(10) Based
on information provided to the Company as of June 26, 2009 and contained in
the Schedule 13G/A filed with the SEC on February 17, 2009 jointly by Davidson
Kempner Healthcare International Ltd. (“DKHI”) and its affiliates,
Davidson Kempner Partners (“DKP”), Davidson Kempner
Institutional Partners, L.P. (“DKIP”), M.H.
Davidson & Co. (“CO”), Davidson Kempner
International, Ltd. (“DKIL”), Davidson Kempner
Healthcare Fund LP (“DKHF” and, together with
DKHI, DKP, DKIP, CO and DKIL, the “DK Entities”), MHD
Management Co. (“MHD”),
Davidson Kempner Advisors Inc. (“DKAI”), Davidson Kempner
International Advisors, L.L.C. (“DKIA”), DK Group LLC (“DKG”), DK Management Partners
LP (“DKMP”), DK
Stillwater GP LLC (“DKS”), Thomas L.
Kempner, Jr., Marvin H. Davidson, Stephen M. Dowicz, Scott E. Davidson,
Michael J. Leffell, Timothy I. Levart, Robert J. Brivio, Jr., Eric P.
Epstein, Anthony A. Yoseloff, Avram Z. Friedman and Conor
Bastable. Includes warrants to purchase an aggregate of
4,948,447 shares of Common Stock held collectively by the DK
Entities. Messrs. Thomas L. Kempner, Jr., Marvin H. Davidson, Stephen
M. Dowicz, Scott E. Davidson, Michael J. Leffell, Timothy I. Levart, Robert J.
Brivio, Jr., Eric P. Epstein, Anthony A. Yoseloff, Avram Z. Friedman and Conor
Bastable (collectively, the "Principals,” and together
with the DK Entities, the “DK
Reporting Persons”), are the general partners of CO and MHD, the sole
managing members of DKIA and DKG and the sole stockholders of
DKAI. Messrs. Thomas L. Kempner, Jr. and Timothy I. Levart are
Executive Managing Member and Deputy Executive Managing Member, respectively, of
DKS. Each of Messrs. Kempner and Levart, together with Messrs. Marvin H.
Davidson, Stephen M. Dowicz, Scott E. Davidson, Michael J. Leffell, Robert J.
Brivio, Jr., Anthony A. Yoseloff, Eric P. Epstein, Avram Z. Friedman and Conor
Bastable are limited partners of DKMP. The partners, members or
stockholders of each of the DK Reporting Persons, including the Principals, have
the right to participate in the receipt of proceeds from the sale of the shares
held for the account of such DK Reporting Person in accordance with their
ownership interests in such DK Reporting Person. The DK Reporting
Persons disclaim all beneficial ownership as affiliates of a registered
investment adviser, and, in any case, disclaim beneficial ownership except as to
the extent of their pecuniary interest in the shares. Each of the
Reporting Persons certified in the aforesaid Schedule 13G/A that, to the best of
its knowledge and belief, the securities referred to were not acquired and are
not held for the purpose of or with the effect of changing or influencing the
control of the Company and were not acquired and are not held in connection with
or as a participant in any transaction having that purpose or
effect. Pursuant to the terms of the warrants, the number of shares
of Common Stock into which the warrants are exercisable is limited to that
number of shares of Common Stock which would result in the DK Entities, together
with their affiliates, having aggregate beneficial ownership of not more than
4.99% of the total number of shares of Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon any
exercise of the warrants, provided, however, that such beneficial ownership
limitation may be increased at the election of the DK Entities to 9.99% upon at
least 61 days’ prior notice to the Company.
85
(11)
Includes 3,986 shares of Series D Preferred Stock convertible into an aggregate
of 19,930,000 shares of Common Stock and warrants to purchase up to 4,757,310
shares of Common Stock held by Midsummer Investment, Ltd. (“Midsummer”). Notwithstanding
the inclusion of the beneficial ownership calculation, pursuant to the terms of
our Certificate of Designation of Preferences, Rights and Limitations of Series
D 8% Convertible Preferred Stock (the “ Series D Certificate”) and
the aforementioned warrants, the number of shares of Common Stock into which the
Series D Preferred Stock are convertible and the warrants are exercisable is
limited to the extent that, after giving effect to such conversion or exercise,
Midsummer (together with its affiliates, and any other person or entity acting
as a group together with Midsummer or any of its affiliates) would beneficially
own in excess of 4.99% of the number of shares of Common Stock outstanding,
provided, however, that such beneficial ownership limitation may be increased at
the election of Midsummer to a percentage not in excess of 9.99% upon at least
61 days’ prior notice to the Company.
(12)
Includes 2,084.4410 shares of Series D Preferred Stock convertible into an
aggregate of 10,422,205 shares of Common Stock and warrants to purchase up to
3,802,236 shares of Common Stock held collectively by Bushido Capital Master
Fund LP and BCMF Trustees LLC (together, “Bushido”). Notwithstanding
the inclusion of the beneficial ownership calculation, pursuant to the terms of
the Series D Certificate and the aforementioned warrants, the number of shares
of Common Stock into which the Series D Preferred Stock are convertible and the
warrants are exercisable is limited to the extent that, after giving effect to
such conversion or exercise, Midsummer (together with its affiliates, and any
other person or entity acting as a group together with Bushido or any of its
affiliates) would beneficially own in excess of 4.99% of the number of shares of
Common Stock outstanding, provided, however, that such beneficial ownership
limitation may be increased at the election of Bushido to a percentage not in
excess of 9.99% upon at least 61 days’ prior notice to the Company.
(13)
Includes options to purchase an aggregate of 1,399,999 shares of Common Stock,
warrants to purchase an aggregate of 41,282,601 shares of Common Stock, 1,000
shares of Series E Preferred Stock convertible into 20,000,000 shares of Common
Stock and 472,799 shares of Common Stock.
Changes
in Control
Set forth
below are any arrangement known to the Company the operation of which may at a
subsequent date result in a change of control of the Company. As of
June 23, 2009, Epic held 1,000 shares of Series E Preferred Stock convertible
into 20,000,000 shares of Common Stock and a warrant to purchase up to
40,000,000 shares of Common Stock, representing its beneficial ownership of
approximately 46% of the Company’s outstanding Common Stock as of such date
(calculated in accordance with Rule 13d-3 of the Exchange Act). Further, the 1,000
shares of Series E Preferred Stock held by Epic as of June 23, 2009 are entitled
to vote, on an as-converted basis, with the Common Stock on any matter presented
to the holders of our Common Stock for their action or consideration at any
meeting of our stockholders (or by written consent of stockholders in lieu of
meeting).
In
addition, in connection with subsequent closings of the transactions
contemplated by the Epic Strategic Alliance Agreement, Epic could acquire an
additional 2,000 shares of Series E Preferred Stock and warrants to purchase up
to 80,000,000 shares of Common Stock. Further, with respect to the
products developed by Epic at the Facility under the Epic Strategic Alliance
Agreement, the Company would also be obligated to issue to Epic (a) warrants to
purchase up to an aggregate of 56,000,000 shares of its Common Stock upon the
receipt by Elite from Epic of written notices of Epic’s receipt of an
acknowledgment from the FDA that the FDA accepted for filing an ANDA for certain
controlled-release and immediate-release products developed by Epic at the
Facility and (b) up to an aggregate of 40,000,000 additional shares of its
Common Stock following the receipt by Elite from Epic of written notices of
Epic’s receipt from the FDA of approval for certain controlled-release and
immediate-release products developed by Epic at the Facility.
If Elite
is required to such additional securities to Epic in accordance with the Epic
Strategic Alliance Agreement, Epic could beneficially own in excess of 50% of
the issued and outstanding Common Stock or other voting securities of the
Company. Further, under the Epic Strategic Alliance Agreement, at such time as
Epic owns more than 50% of the issued and outstanding Common Stock or other
voting securities of Elite, the number of Epic Directors that the Purchaser will
be entitled to designate under the Epic Strategic Alliance Agreement will be
equal to a majority of the Board of Directors.
86
Equity Compensation Plan
Information
For
information regarding securities authorized for issuance under equity
compensation plans as of March 31, 2009, please refer to the disclosure
contained in Item 5 in Part II of this Annual Report on Form 10-K, under the
heading “Equity Compensation Plan Information,” which is incorporated herein by
reference.
ITEM 13.
|
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
|
All
related person transactions are reviewed and, as appropriate, may be approved or
ratified by the Board of Directors. If a Director is involved in the
transaction, he or she may not participate in any review, approval or
ratification of such transaction. Related person transactions are approved by
the Board of Directors only if, based on all of the facts and circumstances,
they are in, or not inconsistent with, our best interests and the best interests
of our stockholders, as the Board of Directors determines in good faith. The
Board of Directors takes into account, among other factors it deems appropriate,
whether the transaction is on terms generally available to an unaffiliated
third-party under the same or similar circumstances and the extent of the
related person’s interest in the transaction. The Board of Directors may also
impose such conditions as it deems necessary and appropriate on us or the
related person in connection with the transaction.
In the case of a transaction
presented to the Board of Directors for ratification, the Board of Directors may
ratify the transaction or determine whether rescission of the transaction is
appropriate.
CERTAIN
RELATED PERSON TRANSACTIONS
Transactions with Parallex
Clinical Research
For a
description of the consulting agreement between Elite and Parallex Clinical
Research, please see Item 11 of this Annual Report on Form 10-K, under the
heading “Compensation Discussion Analysis – Agreements with Named Executive
Officers and Key Employees”, which is incorporated herein by
reference. Stuart Apfel, our Chief Scientific Officer and Chief
Medical Officer, is the founder and current president of
Parallex.
Transactions with Mark
Gittelman and Gittelman & Co. P.C.
For a
description of the agreement between Elite and Gittelman & Co., P.C., please
see Item 11, under the heading “Compensation Discussion Analysis – Agreements
with Named Executive Officers and Key Employees”, which is incorporated herein
by reference. Mark Gittelman, our Chief Financial Officer is the
principal of Gittelman & Co., P.C.
Transactions with Dr.
Subramanian and VGS Pharma LLC
Elite entered into a strategic
alliance agreement, dated December 6, 2006 (the “VGS Alliance Agreement”),
with Dr. Subramanian and VGS Pharma LLC (“VGS”), under which (i) Dr.
Subramanian was appointed to Elite’s Board of Directors, (ii) VGS made a
$2,000,000 equity investment in Elite, (iii) Elite engaged Dr. Subramanian to
serve as its strategic advisor on the research, development and
commercialization of its existing pipeline and (iv) Elite, together with VGS
formed Novel, as a separate specialty pharmaceutical company for the research,
development, manufacturing, licensing and acquisition of specialty generic
pharmaceuticals. VGS is wholly-owned subsidiary of Kali Capital,
L.P., which is controlled by Kali Management, LLC (“Kali”), its general partner,
and Kali is controlled by Anu Subramanian, its managing member and daughter of
Dr. Subramanian.
87
The specialty pharmaceutical product
initiative of the strategic alliance between Elite and Dr. Subramanian is to be
conducted by Novel, of which Elite acquired 49% and VGS acquired 51% of its
Class A Voting Common Stock for $9,800 and $10,200,
respectively. Pursuant to the VGS Alliance Agreement, VGS acquired
for $2,000,000: (i) 957,396 shares of Common Stock at approximately $2.089 per
share and (ii) a five-year warrant to purchase 478,698 shares of Common Stock,
for cash, at an exercise price of $3.00 per share, subject to adjustment upon
the occurrence of certain events.
Elite contributed $5,000,000 to
Novel. During the three months ended December 31, 2007, Elite elected not to
fund its remaining contributions to Novel upon the terms set forth in the VGS
Alliance Agreement because it had reached agreement with the FDA under an SPA on
the Phase III clinical trial of ELI-216, Elite’s abuse-deterrent oxycodone
product and determined that its funds would be better used to support the
clinical trials for ELI-216.
Elite and VGS negotiated alternative
structures that would permit investments by Elite at valuations which differed
from those set forth in the VGS Alliance Agreement, however Elite was unable to
agree upon an alternative acceptable to both parties. Accordingly,
upon Elite’s determination not to fund its remaining contributions to Novel at
the valuation set forth in the VGS Alliance Agreement, VGS exercised its rights
under the Stockholders Agreement to purchase from Elite shares of Class A Voting
Common Stock of Novel proportionate to the amount of remaining contributions
which were not funded by Elite. As a result, Elite’s remaining
ownership interest in Class A Voting Common Stock of Novel is approximately 10%
of the outstanding shares of Class A Voting Common Stock of Novel.
Pursuant to an advisory agreement,
effective as of December 6, 2006 (the “Subramanian Advisory
Agreement”), between Elite and Dr. Subramanian, Dr. Subramanian had
agreed to provide advisory services to Elite, including but not limited to,
assisting in the implementation of current and new drug product development
projects of Elite and assisting in the recruitment of additional R&D staff
members. As an inducement to enter into the Subramanian Advisory
Agreement, Elite granted Dr. Subramanian a non-qualified stock option to
purchase up to 1,750,000 shares of Common Stock, at a price of $2.13 per share,
pursuant to a stock option agreement, dated as of December 6, 2006, between
Elite and Dr. Subramanian. On April 24, 2008, upon Dr. Subramanian’s
resignation as the Chief Scientific Officer of Elite, 1,000,000 shares of Common
Stock underlying Dr. Subramanian’s option were vested, however, such options
expired without exercise on August 24, 2008 in accordance with the terms of the
stock option agreement.
Transactions with Epic
Pharma LLC and Epic Investments LLC
On March
18, 2009, we entered into the Epic Strategic Alliance Agreement with Epic
Pharma, LLC and Epic Investments, LLC, a subsidiary controlled by Epic Pharma
LLC, as disclosed in this Annual Report on Form 10-K under Item 7, under
the heading “Epic Strategic Alliance Agreement,” Item 9B and Item 10, under the
heading "Directors and Executive Officers," and in our Current Reports on Form
8-K, filed with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which
disclosures are incorporated herein by reference. Ashok G.
Nigalaye, Jeenarine Narine and Ram Potti, each were elected as members of our
Board of Directors, effective June 24, 2009, as the three directors that Epic is
entitled to designate for appointment to the Board pursuant to the terms of the
Epic Strategic Alliance Agreement. Messrs. Nigalaye, Narine and Potti
are also officers of Epic Pharma, LLC, in the following capacities:
|
§
|
Mr.
Nigalaye, President and CEO of Epic Pharma,
LLC;
|
|
§
|
Mr.
Narine, Executive Vice President of Manufacturing and Operations of Epic
Pharma, LLC; and
|
|
§
|
Mr.
Potti, Vice President of Business Development of Epic Pharma,
LLC.
|
88
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND
SERVICES.
|
Effective
January 1, 2009, Miller, Ellin & Company, LLP (“Miller Ellin”), the
independent accountant of Elite, and the principal accountant engaged to audit
Elite’s financial statements, consummated a merger of its practice into the
practice of Rosen Seymour, with Rosen Seymour Shapss Martin & Company LLP
(“Rosen Seymour”) succeeding to the
business and operations of Miller Ellin, subject to certain conditions and
exceptions, as agreed upon by the parties under the terms of the Merger. Upon
consummation of the Merger on January 1, 2009, Miller Ellin effectively resigned
as Elite’s independent accountant, and Rosen Seymour, pursuant to the terms of
its agreement with Miller Ellin, became Elite’s new independent accountant and
principal accountant to audit its financial statements, as the successor in
interest of Miller Ellin.
The
following table presents fees, including reimbursements for expenses, for
professional audit services rendered by Rosen Seymour and Miller Ellin for the
audits of our annual financial statements and interim reviews of our quarterly
financial statements for the years ended March 31, 2009 and March 31, 2008 and
fees billed for other services rendered by Rosen Seymour and Miller Ellin during
those periods.
2009
|
2008
|
|||||||
Audit
Fees(1)
|
$ | 90,315 | $ | 52,847 | ||||
Audit-Related
Fees
|
— | — | ||||||
Tax
Fees
|
— | — | ||||||
All
Other Fees
|
— | — |
(1)
|
Audit
Fees relate to the audit of our financial statements and reviews of
financial statements included in our quarterly reports on Form
10-Q.
|
PART IV
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENTS AND SCHEDULES.
|
(a) The
following are filed as part of this Annual Report on Form 10-K:
(1) The
financial statements and schedules required to be filed by Item 8 of this Annual
Report on Form 10-K and listed in the Index to Consolidated Financial
Statements.
(2) The
Exhibits required by Item 601 of Regulation S-K and listed below in the “Index
to Exhibits required by Item 601 of Regulation S-K.”
(b) The
Exhibits are filed with or incorporated by reference in this Annual Report on
Form 10-K.
(c) None.
Index
to Exhibits required by Item 601 of Regulation S-K.
89
Exhibit
No.
|
Description
|
|
3.1(a)
|
Certificate
of Incorporation of the Company, together with all other amendments
thereto, as filed with the Secretary of State of the State of Delaware,
incorporated by reference to (a) Exhibit 4.1 to the Registration Statement
on Form S-4 (Reg. No. 333-101686), filed with the SEC on December 6, 2002
(the “Form S-4”), (b) Exhibit 3.1 to the Company’s Current Report on Form
8-K dated July 28, 2004 and filed with the SEC on July 29, 2004, (c)
Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 26,
2008 and filed with the SEC on July 2, 2008, and (d) Exhibit 3.1 to the
Company’s Current Report on Form 8-K dated December 19, 2008 and filed
with the SEC on December 23, 2008.
|
|
3.1(b)
|
Certificate
of Designations, Preferences and Rights of Series A Preferred Stock, as
filed with the Secretary of the State of Delaware, incorporated by
reference to Exhibit 4.5 to the Current Report on Form 8-K dated October
6, 2004, and filed with the SEC on October 12, 2004.
|
|
3.1(c)
|
Certificate
of Retirement with the Secretary of the State of the Delaware to retire
516,558 shares of the Series A Preferred Stock, as filed with the
Secretary of State of Delaware, incorporated by reference to Exhibit 3.1
to the Current Report on Form 8-K dated March 10, 2006, and filed with the
SEC on March 14, 2006.
|
|
3.1(d)
|
Certificate
of Designations, Preferences and Rights of Series B 8% Convertible
Preferred Stock, as filed with the Secretary of the State of Delaware,
incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K
dated March 15, 2006, and filed with the SEC on March 16,
2006.
|
|
3.1(e)
|
Amended
Certificate of Designations of Preferences, Rights and Limitations of
Series B 8% Convertible Preferred Stock, as filed with the Secretary of
State of the State of Delaware, incorporated by reference to Exhibit 3.1
to the Current Report on Form 8-K dated April 24, 2007, and filed with the
SEC on April 25, 2007.
|
|
3.1(f)
|
Certificate
of Designations, Preferences and Rights of Series C 8% Convertible
Preferred Stock, as filed with the Secretary of the State of Delaware,
incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K
dated April 24, 2007, and filed with the SEC on April 25,
2007.
|
|
3.1(g)
|
Amended
Certificate of Designations, Preferences and Rights of Series C 8%
Convertible Preferred Stock, as filed with the Secretary of the State of
Delaware, incorporated by reference to Exhibit 3.1 to the Current Report
on Form 8-K dated April 24, 2007, and filed with the SEC on April 25,
2007
|
|
3.1(h)
|
Amended
Certificate of Designations of Preferences, Rights and Limitations of
Series B 8% Convertible Preferred Stock, as filed with the Secretary of
State of the State of Delaware, incorporated by reference to Exhibit 3.1
to the Current Report on Form 8-K dated September 15, 2008, and filed with
the SEC on September 16,
2008.
|
90
3.1(i)
|
Amended
Certificate of Designations, Preferences and Rights of Series C 8%
Convertible Preferred Stock, as filed with the Secretary of the State of
Delaware, incorporated by reference to Exhibit 3.2 to the Current Report
on Form 8-K dated September 15, 2008, and filed with the SEC on September
16, 2008.
|
|
3.1(j)
|
Amended
Certificate of Designations of Preferences, Rights and Limitations of
Series D 8% Convertible Preferred Stock, as filed with the Secretary of
State of the State of Delaware, incorporated by reference to Exhibit 3.3
to the Current Report on Form 8-K dated September 15, 2008, and filed with
the SEC on September 16, 2008.
|
|
3.1(k)
|
Certificate
of Designation of Preferences, Rights and Limitations of Series E
Convertible Preferred Stock, as filed with the Secretary of State of the
State of Delaware, incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K dated June 1, 2009, and filed with the SEC on June 5,
2009.
|
|
3.2
|
By-Laws
of the Company, as amended, incorporated by reference to Exhibit 3.2 to
the Company’s Registration Statement on Form SB-2 (Reg. No. 333-90633)
made effective on February 28, 2000 (the “Form SB-2”).
|
|
4.1
|
Form
of specimen certificate for Common Stock of the Company, incorporated by
reference to Exhibit 4.1 to the Form SB-2.
|
|
4.2
|
Form
of specimen certificate for Series A 8% Convertible Preferred Stock of the
Company, incorporated by reference to Exhibit 4.5 to the Current Report on
Form 8-K, dated October 6, 2004, and filed with the SEC on October 12,
2004.
|
|
4.3
|
Form
of specimen certificate for Series B 8% Convertible Preferred Stock of the
Company, incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, dated March 15, 2006 and filed with the SEC on March 16,
2006.
|
|
4.4
|
Form
of specimen certificate for Series C 8% Convertible Preferred Stock of the
Company, incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, dated April 24, 2007 and filed with the SEC on April 25,
2007.
|
|
4.5
|
Warrant
to purchase 100,000 shares of Common Stock issued to DH Blair Investment
Banking Corp., incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the period ended September 30,
2004.
|
|
4.6
|
Warrant
to purchase 50,000 shares of Common Stock issued to Jason Lyons
incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
10-Q for the period ended June 30, 2004.
|
|
4.7
|
Form
of Warrant to purchase shares of Common Stock issued to designees of
lender with respect to financing of an equipment loan incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
period ended June 30, 2004.
|
|
4.8
|
Form
of Short Term Warrant to purchase shares of Common Stock issued to
purchasers in the private placement which initially closed on October 6,
2004 (the “Series A Financing”), incorporated by reference to Exhibit 4.6
to the Current Report on Form 8-K, dated October 6, 2004, and filed with
the SEC on October 12,
2004.
|
91
4.9
|
Form
of Long Term Warrant to purchase shares of Common Stock issued to
purchasers in the Series A Financing, incorporated by reference to Exhibit
4.7 to the Current Report on Form 8-K, dated October 6, 2004, and filed
with the SEC on October 12, 2004.
|
|
4.10
|
Form
of Warrant to purchase shares of Common Stock issued to the Placement
Agent, in connection with the Series A Financing, incorporated by
reference to Exhibit 4.8 to the Current Report on Form 8-K, dated October
6, 2004, and filed with the SEC on October 12, 2004.
|
|
4.11
|
Form
of Replacement Warrant to purchase shares of Common Stock in connection
with the offer to holders of Warrants in the Series A Financing (the
“Warrant Exchange”), incorporated by reference as Exhibit 4.1 to the
Current Report on Form 8-K, dated December 14, 2005, and filed with the
SEC on December 20, 2005.
|
|
4.12
|
Form
of Warrant to purchase shares of Common Stock to the Placement Agent, in
connection with the Warrant Exchange, incorporated by reference as Exhibit
4.2 to the Current Report on Form 8-K, dated December 14, 2005, and filed
with the SEC on December 20, 2005.
|
|
4.13
|
Form
of Warrant to purchase shares of Common Stock issued to purchasers in the
private placement which closed on March 15, 2006 (the “Series B
Financing”), incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March
16, 2006.
|
|
4.14
|
Form
of Warrant to purchase shares of Common Stock issued to purchasers in the
Series B Financing, incorporated by reference to Exhibit 4.3 to the
Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
March 16, 2006.
|
|
4.15
|
Form
of Warrant to purchase shares of Common Stock issued to the Placement
Agent, in connection with the Series B Financing, incorporated by
reference to Exhibit 4.4 to the Current Report on Form 8-K, dated March
15, 2006 and filed with the SEC on March 16, 2006.
|
|
4.16
|
Form
of Warrant to purchase 600,000 shares of Common Stock issued to Indigo
Ventures, LLC, incorporated by reference to Exhibit 4.1 to the Current
Report on Form 8-K, dated July 12, 2006 and filed with the SEC on July 18,
2006.
|
|
4.17
|
Form
of Warrant to purchase up to 478,698 shares of Common Stock issued to
VGS PHARMA, LLC, incorporated by reference as
Exhibit 3(a) to the Current Report on Form 8-K, dated December 6, 2006 and
filed with the SEC on December 12, 2006.
|
|
4.18
|
Form
of Non-Qualified Stock Option Agreement for 1,750,000 shares of Common
Stock granted to Veerappan Subramanian, incorporated by reference as
Exhibit 3(b) to the Current Report on Form 8-K, dated December 6, 2006 and
filed with the SEC on December 12,
2006.
|
92
4.19
|
Form
of Warrant to purchase shares of Common Stock issued to purchasers in the
private placement which closed on April 24, 2007 (the “Series C
Financing”), incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April
25, 2007.
|
|
4.20
|
Form
of Warrant to purchase shares of Common Stock issued to the placement
agent in the Series C Financing, incorporated by reference to Exhibit 4.3
to the Current Report on Form 8-K, dated April 24, 2007 and filed with the
SEC on April 25, 2007.
|
|
4.21
|
Form
of specimen certificate for Series D 8% Convertible Preferred Stock of the
Company, incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, dated September 15, 2008 and filed with the SEC on September 16,
2008.
|
|
4.22
|
Form
of Warrant to purchase shares of Common Stock issued to purchasers in the
private placement which closed on September 15, 2008 (the “Series D
Financing”), incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K, dated September 15, 2008 and filed with the SEC on
September 16, 2008.
|
|
4.23
|
Form
of Warrant to purchase shares of Common Stock issued to the placement
agent in the Series D Financing, incorporated by reference to Exhibit 4.3
to the Current Report on Form 8-K, dated September 15, 2008 and filed with
the SEC on September 16, 2008.
|
|
4.24
|
Form
of specimen certificate for Series E Convertible Preferred Stock of the
Company, incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, dated June 1, 2009, and filed with the SEC on June 5,
2009.
|
|
4.25
|
Warrant
to purchase shares of Common Stock issued to Epic Investments, LLC in the
initial closing of the Strategic Alliance Agreement, dated as of March 18,
2009, by and among the Company, Epic Pharma, LLC and Epic Investments,
LLC, incorporated by reference to Exhibit 4.2 to the Current Report on
Form 8-K, dated June 1, 2009, and filed with the SEC on June 5,
2009.
|
|
10.1
|
2004
Employee Stock Option Plan approved by stockholders on June 22, 2004,
incorporated by reference to Exhibit A to the Proxy Statement filed on
Schedule 14A with respect to the Annual Meeting of Stockholders held on
June 22, 2004.
|
|
10.2
|
Form
of Confidentiality Agreement (corporate), incorporated by reference to
Exhibit 10.7 to the Form SB-2.
|
|
10.3
|
Form
of Confidentiality Agreement (employee), incorporated by reference to
Exhibit 10.8 to the Form SB-2.
|
|
10.4
|
Amended
and Restated Employment Agreement dated as of September 2, 2005 between
Bernard Berk and the Company, incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K, dated September 2, 2005, and filed with the
SEC on September 9, 2005.
|
|
10.5
|
Option
Agreement between Bernard Berk and the Company dated as of July 23, 2003
incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form
10-Q for three months ended June 30, 2003 (the “June 30, 2003 10Q
Report”).
|
93
10.6
|
Option
Agreement between Bernard Berk and the Company dated as of July 23, 2003,
incorporated by reference to Exhibit 10.8 to the June 30, 2003 10Q
Report.
|
|
10.7
|
Amendment,
dated as of September 2, 2005, by and between, the Company and Bernard
Berk, to the Stock Option Agreement, dated as of July 23, 2003,
incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K,
dated September 2, 2005, and filed with the SEC on September 9,
2005.
|
|
10.8
|
Stock
Option Agreement, dated as of September 2, 2005, by and between the
Company and Bernard Berk, incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K, dated September 2, 2005, and filed with the
SEC on September 9, 2005.
|
|
10.9
|
Stock
Option Agreement, dated as of September 2, 2005, by and between the
Company and Bernard Berk, incorporated by reference to Exhibit 10.4 to
Current Report on Form 8-K, dated September 2, 2005, and filed with the
SEC on September 9, 2005.
|
|
10.10
|
Engagement
letter dated February 26, 1998, between Gittelman & Co. P.C. and the
Company incorporated by reference to Exhibit 10.10 to the Form 10-K for
the period ended March 31, 2004 filed with the SEC on June 29,
2004.
|
|
10.11
|
Product
Development and Commercialization Agreement, dated as of June 21, 2005,
between the Company and IntelliPharmaceutics, Corp., incorporated by
reference as Exhibit 10.1 to the Current Report on Form 8-K, dated June
21, 2005 and originally filed with the SEC on June 27, 2005, as amended on
the Current Report on Form 8-K/A filed September 7, 2005, as further
amended by the Current Report on Form 8-K/A filed December 7, 2005
(Confidential Treatment granted with respect to portions of the
Agreement).
|
|
10.12
|
Agreement,
dated December 12, 2005, by and among the Company, Elite Labs, and
IntelliPharmaCeutics Corp., incorporated by reference as Exhibit 10.1 to
the Current Report on Form 8-K, dated December 12, 2005, and originally
filed with the SEC on December 16, 2005, as amended by the Current Report
on Form 8-K/A filed March 7, 2006 (Confidential Treatment granted with
respect to portions of the Agreement).
|
|
10.13
|
Loan
Agreement, dated as of August 15, 2005, between New Jersey Economic
Development Authority (“NJEDA”) and the Company, incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K, dated August 31, 2005
and filed with the SEC on September 6, 2005.
|
|
10.14
|
Series
A Note in the aggregate principal amount of $3,660,000.00 payable to the
order of the NJEDA, incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC
on September 6, 2005.
|
|
10.15
|
Series
B Note in the aggregate principal amount of $495,000.00 payable to the
order of the NJEDA, incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC
on September 6, 2005.
|
94
10.16
|
Mortgage
from the Company to the NJEDA, incorporated by reference to Exhibit 10.4
to the Current Report on Form 8-K, dated August 31, 2005 and filed with
the SEC on September 6, 2005.
|
|
10.17
|
Indenture
between NJEDA and the Bank of New York as Trustee, dated as of August 15,
2005, incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K, dated August 31, 2005 and filed with the SEC on September 6,
2005.
|
|
10.18
|
Form
of Warrant Exercise Agreement, between the Registrant and the signatories
thereto, incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K, dated December 14, 2005 and filed with the SEC on December
20, 2005.
|
|
10.19
|
Form
of Registration Rights Agreement, between the Registrant and signatories
thereto, incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K, dated December 14, 2005 and filed with the SEC on December
20, 2005.
|
|
10.20
|
Form
of Securities Purchase Agreement, between the Registrant and the
signatories thereto, incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
March 16, 2006.
|
|
10.21
|
Form
of Registration Rights Agreement, between the Registrant and the
signatories thereto, incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
March 16, 2006.
|
|
10.22
|
Form
of Placement Agent Agreement, between the Registrant and Indigo
Securities, LLC, incorporated by reference as Exhibit 10.3 to the Current
Report on Form 8-K, dated March 15, 2006, and filed with the SEC on March
16, 2006.
|
|
10.23
|
Financial
Advisory Agreement between the Registrant
and Indigo Ventures LLC, incorporated by reference as Exhibit 10.1 to the
Current Report on Form 8-K dated July 12, 2006 and filed with the SEC on
July 18, 2006.
|
|
10.24
|
Seconded Amended
and Restated Employment Agreement between
the Registrant and Bernard Berk, incorporated by reference as Exhibit 10.1
to the Quarterly Report on Form 10-Q for the quarter ended September 30,
2006 and filed with the SEC on November 14, 2006.
|
|
10.25
|
Employment
Agreement between the Registrant and Charan Behl, incorporated by
reference as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006 and filed with the SEC on November 14,
2006.
|
|
10.26
|
Employment
Agreement between the Registrant and Chris Dick, incorporated by reference
as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006 and filed with the SEC on November 14,
2006.
|
|
10.27
|
Product
Collaboration Agreement between the Registrant and ThePharmaNetwork LLC,
incorporated by reference as Exhibit 10.1 to the Current Report on Form
8-K, dated November 10, 2006 and filed with the SEC on November 15, 2006.
(Confidential Treatment granted with respect to portions of the
Agreement).
|
95
10.28
|
Strategic
Alliance Agreement among the Registrant, VGS Pharma (“VGS”) and Veerappan
S. Subramanian (“VS”), incorporated by reference as Exhibit
10(a) to the Current Report on Form 8-K, dated December 6, 2006 and filed
with the SEC on December 12, 2006.
|
|
10.29
|
Advisory
Agreement, between the Registrant and VS, incorporated by reference as
Exhibit 10(b) to the Current Report on Form 8-K, dated December 6, 2006
and filed with the SEC on December 12, 2006.
|
|
10.30
|
Registration
Rights Agreement between the Registrant, VGS and VS, incorporated by
reference as Exhibit 10(c) to the Current Report on Form 8-K, dated
December 6, 2006 and filed with the SEC on December 12,
2006.
|
|
10.31
|
Employment
Agreement between Novel Laboratories Inc. (“Novel”) and VS, incorporated
by reference as Exhibit 10(d) to the Current Report on Form 8-K, dated
December 6, 2006 and filed with the SEC on December 12,
2006.
|
|
10.32
|
Stockholders’
Agreement between Registrant, VGS, VS and Novel, incorporated by reference
as Exhibit 10(e) to the Current Report on Form 8-K, dated December 6, 2006
and filed with the SEC on December 12, 2006.
|
|
10.33
|
Amended
and Restated Employment Agreement, between the Registrant and Charan Behl,
incorporated by reference as Exhibit 10.1 to the Current Report on Form
8-K, dated February 9, 2007 and filed with the SEC on February 14,
2007.
|
|
10.34
|
Form
of Securities Purchase Agreement, between the Registrant and the
signatories thereto, incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on
April 25, 2007.
|
|
10.35
|
Form
of Registration Rights Agreement, between the Registrant and the
signatories thereto, incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on
April 25, 2007.
|
|
10.36
|
Form
of Placement Agent Agreement, between the Company and Oppenheimer &
Company, Inc., incorporated by reference as Exhibit 10.3 to the Current
Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April
25, 2007.
|
|
10.37
|
Form
of Securities Purchase Agreement, between the Registrant and the
signatories thereto, incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, dated July 17, 2007 and filed with the SEC on
July 23, 2007.
|
|
10.38
|
||
Form
of Registration Rights Agreement, between the Registrant and the
signatories thereto, incorporated by reference as Exhibit 10.2 to the
Current Report on Form 8-K, dated July 17, 2007 and filed with the SEC on
July 23, 2007.
|
||
10.39
|
Consulting
Agreement, dated as of July 27, 2007, between the Registrant and Wilstar
Consultants, Inc., incorporated by reference as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the period ending September 30, 2007 and
filed with the SEC on November 14,
2007.
|
96
10.40
|
Consulting
Agreement, dated as of September 4, 2007, between the Registrant, Bridge
Ventures, Inc. and Saggi Capital, Inc., incorporated by reference as
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the period ending
September 30, 2007 and filed with the SEC on November 14,
2007.
|
|
10.41
|
Employment
Agreement, dated as of January 3, 2008, by and between the Registrant and
Dr. Stuart Apfel, incorporated by reference as Exhibit 10.1 to the Current
Report on Form 8-K dated January 3, 2008 and filed with the SEC on January
9, 2008.
|
|
10.42
|
Form
of Securities Purchase Agreement, between the Company and the signatories
thereto, incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K, dated September 15, 2008 and filed with the SEC on September
16, 2008.
|
|
10.43
|
Form
of Placement Agent Agreement, between the Company, ROTH Capital Partners,
LLC and Boenning & Scattergood, Inc., incorporated by reference to
Exhibit 10.3 to the Current Report on Form 8-K, dated September 15, 2008
and filed with the SEC on September 16, 2008.
|
|
10.44
|
Separation
Agreement and General Release of Claims, dated as of October 20, 2008, by
and between the Company and Stuart Apfel, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, dated October 15, 2008 and
filed with the SEC on October 21, 2008.
|
|
10.45
|
Consulting
Agreement, dated as of October 20, 2008, by and between the Company and
Parallex Clinical Research, incorporated by reference to Exhibit 10.2 to
the Current Report on Form 8-K, dated October 15, 2008 and filed with the
SEC on October 21, 2008.
|
|
10.46
|
Separation
Agreement and General Release of Claims, dated as of November 3, 2008, by
and between the Company and Charan Behl, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, dated October 28, 2008 and
filed with the SEC on November 3, 2008.
|
|
10.47
|
Consulting
Agreement, dated as of November 3, 2008, by and between the Company and
Charan Behl, incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K, dated October 28, 2008 and filed with the SEC on
November 3, 2008.
|
|
10.48
|
Separation
Agreement and General Release of Claims, dated as of November 5, 2008, by
and between the Company and Bernard J. Berk, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, dated November 6, 2008 and
filed with the SEC on November 6, 2008.
|
|
10.49
|
Amendment
to Employment Agreement, dated as of November 10, 2008, by and between the
Company and Chris Dick, incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the period ended September 30, 2008 and
filed with the SEC on November 14,
2008.
|
97
10.50
|
Compensation
Agreement, dated as of December 1, 2008, by and between the Company and
Jerry I. Treppel, incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K, dated December 1, 2008 and filed with the SEC on
December 4, 2008.
|
|
10.51
|
Strategic
Alliance Agreement, dated as of March 18, 2009, by and among the Company,
Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, dated March 18, 2009 and
filed with the SEC on March 23, 2009.
|
|
10.52
|
Amendment
to Strategic Alliance Agreement, dated as of April 30, 2009, by and among
the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April
30, 2009 and filed with the SEC on May 6, 2009.
|
|
10.53
|
Second
Amendment to Strategic Alliance Agreement, dated as of June 1, 2009, by
and among the Company, Epic Pharma, LLC and Epic Investments, LLC,
incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K, dated June 1, 2009, and filed with the SEC on June 5,
2009.
|
|
21
|
Subsidiaries
of the Company.*
|
|
31.1*
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
|
31.2*
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
|
32.1**
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
|
32.2**
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
** As
contemplated by SEC Release No. 33-8212, these exhibits are furnished with this
Annual Report on Form 10-K and are not deemed filed with the Securities and
Exchange Commission and are not incorporated by reference in any filing of Elite
Pharmaceuticals, Inc. under the Securities Act or the Securities Exchange Act,
whether made before or after the date hereof and irrespective of any general
incorporation language in any such filings.
98
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ELITE
PHARMACEUTICALS, INC.
|
|
By:
|
/s/ Chris Dick
|
Chris
Dick
|
|
Chief
Executive Officer
|
|
Dated:
June 29, 2009
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/ Chris Dick
|
Acting
Chief Executive Officer
|
June
29, 2009
|
||
Chris
Dick
|
(Principal
Executive
|
|||
Officer)
|
||||
/s/ Mark
Gittelman
|
Chief
Financial Officer
|
June
29, 2009
|
||
Mark
I. Gittelman
|
and
Treasurer (Principal
|
|||
Financial
and Accounting
|
||||
Officer)
|
||||
/s/ Jerry
Treppel
|
Director
|
June
29, 2009
|
||
Jerry
Treppel
|
and
Chairman of the Board
|
|||
/s/ Barry Dash
|
Director
|
June
29, 2009
|
||
Barry
Dash
|
||||
/s/ Melvin Van Woert
|
Director
|
June
29, 2009
|
||
Melvin
Van Woert
|
||||
/s/ Robert J.
Levenson
|
Director
|
June
29, 2009
|
||
Robert
J. Levenson
|
|
|
99
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009, 2008 AND 2007
CONTENTS
PAGE
|
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F
- 1
|
CONSOLIDATED
BALANCE SHEETS
|
F
- 2
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F
- 4
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
F
- 5
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F
- 8
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F
– 9 to F -
29
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of Elite Pharmaceuticals, Inc. and
Subsidiaries:
We have
audited the accompanying consolidated balance sheet of Elite Pharmaceuticals,
Inc. and subsidiaries (the “Company”) as of March 31, 2009, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated 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
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Elite Pharmaceuticals, Inc.
and subsidiaries as of March 31, 2009, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
The
accompanying financial statements have been prepared assuming that
The Company will continue as a going concern. As shown in the financial
statements, the Company has experiences significant losses and negative
cash flows, resulting in decreased capital and accumulated deficits. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are described in Note
2.
/S/ ROSEN
SEYMOUR SHAPSS MARTIN & COMPANY LLP
New York,
New York
June 29,
2009
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of Elite Pharmaceuticals, Inc. and
Subsidiaries:
We have
audited the accompanying consolidated balance sheet of Elite Pharmaceuticals,
Inc. and subsidiaries (the “Company”) as of March 31, 2008, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended March 31, 2008 and 2007. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Elite Pharmaceuticals, Inc. and
subsidiaries as of March 31, 2008, and the consolidated results of their
operations and their cash flows for the years ended March 31, 2008 and 2007 in
conformity with accounting principles generally accepted in the United
States.
The
accompanying financial statements have been prepared assuming that
The Company will continue as a going concern. As shown in the financial
statements, the Company has experiences significant losses and negative
cash flows, resulting in decreased capital and accumulated deficits. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are described in Note
2.
/S/
MILLER, ELLIN & COMPANY LLP
CERTIFIED
PUBLIC ACCOUNTANTS
New York,
New York
June 27,
2008
F-1
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
MARCH 31,
2009 AND 2008
ASSETS
2009
|
2008
|
|||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 282,578 | $ | 3,702,615 | ||||
Accounts
receivable
|
1,177 | 148,484 | ||||||
Inventories
|
1,703,766 | 2,124,420 | ||||||
Prepaid
expenses and other current assets
|
331,622 | 177,972 | ||||||
Total
current assets
|
2,319,143 | 6,153,491 | ||||||
PROPERTY
AND EQUIPMENT- net of accumulated depreciation and
amortization
|
4,575,487 | 5,008,701 | ||||||
INTANGIBLE
ASSETS - net of accumulated amortization
|
27,743 | 35,276 | ||||||
OTHER
ASSETS:
|
||||||||
Accrued
interest receivable
|
8,539 | 4,744 | ||||||
Deposit
on equipment
|
14,073 | 14,073 | ||||||
Investment
in Novel Laboratories Inc.
|
3,329,322 | 3,329,322 | ||||||
Security
deposit
|
13,488 | 13,488 | ||||||
Restricted
cash - debt service
|
327,435 | 432,079 | ||||||
EDA
bond offering costs, net of accumulated amortization of $49,534 and
$35,356, respectively
|
304,918 | 319,096 | ||||||
Total
other assets
|
3,997,775 | 4,112,802 | ||||||
TOTAL
ASSETS
|
$ | 10,920,148 | $ | 15,310,270 |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-2
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
MARCH 31,
2009 AND 2008
(CONTINUED)
LIABILITIES
AND STOCKHOLDERS’ EQUITY
2009
|
2008
|
|||||||
CURRENT
LIABILITIES:
|
||||||||
Current
portion of EDA bonds
|
$ | 210,000 | $ | 200,000 | ||||
Current
portion of long-term debt
|
10,788 | 9,864 | ||||||
Accounts
payable and accrued expenses
|
981,058 | 850,442 | ||||||
Dividends
payable
|
358,621 | 63,255 | ||||||
Total
current liabilities
|
1,560,467 | 1,123,561 | ||||||
LONG
TERM DEBT:
|
||||||||
EDA
bonds - net of current portion
|
3,385,000 | 3,595,000 | ||||||
Long-term
debt, less current portion
|
31,600 | 42,388 | ||||||
Total
long-term liabilities
|
3,416,600 | 3,637,388 | ||||||
Total
liabilities
|
4,977,067 | 4,760,949 | ||||||
COMMITMENTS
AND CONTINGENCIES:
|
||||||||
STOCKHOLDERS’
EQUITY:
|
||||||||
Preferred
stock - $.01 par value;
|
||||||||
Authorized
- 4,483,442 (originally 5,000,000 shares of which 516,558 shares of Series
A Convertible Preferred Stock were retired) and 0
shares outstanding as of March 31, 2009 and 2008,
respectively
|
— | — | ||||||
Authorized
- 10,000 Convertible Series B Preferred Stock - issued and outstanding –
1,046 shares and 8,410 shares, respectively
|
11 | 84 | ||||||
Authorized
20,000 Series C Convertible Preferred Stock - issued
and outstanding – 13,705 and 19,155 shares,
respectively
|
137 | 192 | ||||||
Authorized
30,000 Series D Convertible Preferred Stock - issued and outstanding –
9,154 shares at March 31, 2009
|
91 | — | ||||||
Common
Stock - $.01 par value;
|
||||||||
Authorized
– 210,000,000 as of March 31, 2009 and 150,000,000 shares at March 31,
2008 Issued and outstanding – 60,839,374 and 23,131,035 shares in 2009 and
2008, respectively
|
608,394 | 231,310 | ||||||
Additional
paid-in capital
|
95,718,082 | 91,889,978 | ||||||
Accumulated
deficit
|
(90,001,793 | ) | (81,190,402 | ) | ||||
6,324,922 | 10,931,162 | |||||||
Treasury
stock, at cost (100,000 shares)
|
(306,841 | ) | (306,841 | ) | ||||
6,018,081 | 10,624,321 | |||||||
Subscription
receivable
|
(75,000 | ) | (75,000 | ) | ||||
Total
stockholders’ equity
|
5,943,081 | 10,549,321 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 10,920,148 | $ | 15,310,270 |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-3
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS ENDED
MARCH 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
REVENUES:
|
||||||||||||
Manufacturing
fees
|
$ | 1,927,062 | $ | 1,173,890 | $ | 1,038,916 | ||||||
Royalties
|
347,763 | 239,229 | 104,925 | |||||||||
Total
revenues
|
2,274,825 | 1,413,119 | 1,143,841 | |||||||||
Cost
of Revenues
|
1,464,568 | 1,024,511 | 831,250 | |||||||||
Gross
Profit
|
810,257 | 388,608 | 312,591 | |||||||||
OPERATING
EXPENSES:
|
||||||||||||
Research
and development
|
3,631,425 | 5,795,779 | 5,777,865 | |||||||||
General
and administrative
|
2,146,895 | 2,434,803 | 2,196,154 | |||||||||
Non-cash
compensation satisfied by issuance of stock options and
warrants
|
921,442 | 2,607,470 | 3,479,070 | |||||||||
Depreciation
and amortization
|
500,817 | 524,893 | 408,814 | |||||||||
7,200,579 | 11,362,945 | 11,861,903 | ||||||||||
LOSS
FROM OPERATIONS
|
(6,390,322 | ) | (10,974,337 | ) | (11,549,312 | ) | ||||||
OTHER
INCOME (EXPENSES):
|
||||||||||||
Interest
income
|
40,917 | 356,274 | 286,603 | |||||||||
Sale
of New Jersey tax losses
|
— | — | 377,259 | |||||||||
Interest
expense
|
(252,183 | ) | (292,277 | ) | (275,030 | ) | ||||||
(211,266 | ) | 63,997 | 388,832 | |||||||||
LOSS
BEFORE PROVISION FOR INCOME TAXES
|
(6,601,588 | ) | (10,910,340 | ) | (11,160,480 | ) | ||||||
Provision
for Income Taxes
|
(3,120 | ) | (3,120 | ) | (1,000 | ) | ||||||
Loss
from continuing operations
|
(6,604,708 | ) | (10,913,460 | ) | (11,161,480 | ) | ||||||
Loss
from discontinued operations
|
— | (2,979,600 | ) | (642,032 | ) | |||||||
NET
LOSS
|
(6,604,708 | ) | (13,893,060 | ) | (11,803,512 | ) | ||||||
Preferred
Stock Dividends
|
(2,206,683 | ) | (2,104,797 | ) | (791,181 | ) | ||||||
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$ | (8,811,391 | ) | $ | (15,997,857 | ) | $ | (12,594,693 | ) | |||
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
$ | (.27 | ) | $ | (.73 | ) | $ | (.64 | ) | |||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
32,047,421 | 21,801,042 | 19,815,780 |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
ADDITIONAL
|
||||||||||||||||||||||||||||||||||||||||
PREFERRED
STOCK
|
COMMON
STOCK
|
SUBSCRIPTION
|
PAID-IN
|
TREASURY
STOCK
|
ACCUMULATED
|
STOCKHOLDERS’
|
||||||||||||||||||||||||||||||||||
SHARES
|
AMOUNT
|
SHARES
|
AMOUNT
|
RECEIVABLE
|
CAPITAL
|
SHARES
|
AMOUNT
|
DEFICIT
|
EQUITY
|
|||||||||||||||||||||||||||||||
BALANCES
AT APRIL 1, 2006
|
10,000 | $ | 100 | 19,190,159 | $ | 191,902 | $ | — | $ | 60,105,107 | (100,000 | ) | $ | (306,841 | ) | $ | (50,216,623 | ) | $ | 9,773,645 | ||||||||||||||||||||
Equity
Investment in Company
|
— | — | 957,396 | 9,574 | — | 1,990,426 | — | — | — | 2,000,000 | ||||||||||||||||||||||||||||||
Conversion
of Preferred to Common
|
(305 | ) | (3 | ) | 135,555 | 1,356 | — | (1,353 | ) | — | — | — | — | |||||||||||||||||||||||||||
Conversion
of Warrants to Common
|
— | — | 84,430 | 844 | — | (844 | ) | — | — | — | — | |||||||||||||||||||||||||||||
Exercise
of Stock Options
|
— | — | 59,000 | 590 | — | 87,910 | — | — | — | 88,500 | ||||||||||||||||||||||||||||||
Non-cash
compensation through issuance of stock options and
warrants
|
— | — | — | — | — | 3,479,070 | — | — | — | 3,479,070 | ||||||||||||||||||||||||||||||
Sale
of Warrants
|
— | — | — | — | (75,000 | ) | 75,000 | — | — | — | — | |||||||||||||||||||||||||||||
Costs
associated with Raising Capital
|
— | — | — | — | — | (26,347 | ) | — | — | — | (26,347 | ) | ||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | — | (11,803,512 | ) | (11,803,512 | ) | ||||||||||||||||||||||||||||
Dividends
|
— | — | 372,562 | 3,725 | — | 786,649 | — | — | (791,182 | ) | (808 | ) | ||||||||||||||||||||||||||||
BALANCES
AT MARCH 31, 2007
|
9,695 | $ | 97 | 20,799,102 | $ | 207,991 | $ | (75,000 | ) | $ | 66,495,618 | (100,000 | ) | $ | (306,841 | ) | $ | (62,811,317 | ) | $ | (3,510,548 | ) |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Series
B
|
Series
C
|
Additional
|
||||||||||||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Preferred
Stock
|
Common
Stock
|
Subscription
|
Paid-In
|
Treasury
Stock
|
Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Receivable
|
Capital
|
Shares
|
Amount
|
Deficit
|
Equity
|
|||||||||||||||||||||||||||||||||||||
BALANCE
AT APRIL 1, 2007
|
9,695 | $ | 97 | — | $ | — | 20,799,102 | $ | 207,991 | $ | (75,000 | ) | $ | 66,495,618 | (100,000 | ) | $ | (306,841 | ) | $ | (62,811,317 | ) | $ | 3,510,548 | ||||||||||||||||||||||||
Sale
of Series C Preferred Stock and Warrants
|
— | — | 20,000 | 200 | — | — | — | 19,999,800 | — | — | — | 20,000,000 | ||||||||||||||||||||||||||||||||||||
Conversion
of Preferred to Common
|
(1,285 | ) | (13 | ) | (845 | ) | (8 | ) | 937,992 | 9,380 | — | (9,359 | ) | — | — | — | — | |||||||||||||||||||||||||||||||
Exercise
of Stock Options and Warrants
|
— | — | — | — | 280,424 | 2,804 | — | 371,701 | — | — | — | 374,505 | ||||||||||||||||||||||||||||||||||||
Non-cash
compensation through Issuance of stock options
and warrants
|
— | — | — | — | — | — | — | 2,607,470 | — | — | — | 2,607,470 | ||||||||||||||||||||||||||||||||||||
Beneficial
Conversion
|
— | — | — | — | — | — | — | 2,384,609 | — | — | (2,384,609 | ) | — | |||||||||||||||||||||||||||||||||||
Costs
associated with Raising Capital
|
— | — | — | — | — | — | — | (1,576,055 | ) | — | — | — | (1,576,055 | ) | ||||||||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | — | — | — | (13,893,060 | ) | (13,893,060 | ) | ||||||||||||||||||||||||||||||||||
Dividends
|
— | — | — | — | 1,113,517 | 11,135 | — | 1,616,194 | — | — | (2,101,416 | ) | (474,087 | ) | ||||||||||||||||||||||||||||||||||
BALANCE
AT MARCH 31, 2008
|
8,410 | $ | 84 | 19,155 | $ | 192 | 23,131,035 | $ | 231,310 | $ | (75,000 | ) | $ | 91,889,978 | (100,000 | ) | $ | (306,841 | ) | $ | (81,190,402 | ) | $ | (10,549,321 | ) |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-6
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Series
B
|
Series
C
|
Series
D
|
Additional
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Common
Stock
|
Subscription
|
Paid
in
|
Treasuru
Stock
|
Accumulated
|
Stockholders’
|
||||||||||||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Receivable
|
Capital
|
Shares
|
Amount
|
Deficit
|
Equity
|
|||||||||||||||||||||||||||||||||||||||||||
BALANCE
AT APRIL 1, 2008
|
8,410 | 84 | 19,155 | 192 | 23,131,035 | 231,310 | (75,000 | ) | 91,889,978 | (100,000 | ) | (306,841 | ) | (81,190,402 | ) | 10,549,321 | ||||||||||||||||||||||||||||||||||||||||
Sale
of Series D Preferred Shares
|
1,777 | 18 | 1,776,982 | 1,777,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion
of Series B Preferred and Series C Preferred into Series D
Preferred
|
(7,139 | ) | (71 | ) | (4,898 | ) | (49 | ) | 12,037 | 120 | — | |||||||||||||||||||||||||||||||||||||||||||||
Conversion
of Series B, Series C and Series D Preferred Shares to
Common
|
(225 | ) | (2 | ) | (552 | ) | (6 | ) | (4,660 | ) | (47 | ) | 23,682,161 | 236,822 | (236,767 | ) | — | |||||||||||||||||||||||||||||||||||||||
Issuance
of stock for consulting Services
|
125,000 | 1.250 | 100,000 | 101,250 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Costs
associated with Raising Capital
|
(342,454 | ) | (342,454 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-cash
compensation through Issurance of stock options and
warrants
|
921,442 | 921,442 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net
loss for the year ended March 31, 2009
|
(6,604,708 | ) | (6,604,708 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends
|
13,901,178 | 139,012 | 1,608,901 | (2,206,683 | ) | (458,770 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE
AT MARCH 31, 2009
|
1,046 | 11 | 13,705 | 137 | 9,154 | 91 | 60,839,374 | 608,394 | (75,000 | ) | 95,718,082 | (100,000 | ) | (306,841 | ) | (90,001,793 | ) | 5,943,081 |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-7
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Loss
from Continuing Operations
|
$ | (6,604,708 | ) | $ | (10,913,460 | ) | $ | (11,161,480 | ) | |||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||||||
Depreciation
and amortization
|
500,817 | 413,701 | 408,814 | |||||||||
Non-cash
compensation satisfied by issuance of stock, options and
warrants
|
921,442 | 2,607,470 | 3,479,070 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Accounts
receivable
|
147,307 | 67,353 | (215,837 | ) | ||||||||
Accrued
interest receivable
|
(3,795 | ) | (3,795 | ) | (949 | ) | ||||||
Inventories
|
420,654 | (1,311,451 | ) | (485,964 | ) | |||||||
Prepaid
expenses and other current assets
|
(52,400 | ) | 128,423 | (162,767 | ) | |||||||
Security
Deposit
|
— | (6,508 | ) | — | ||||||||
Accounts
payable, accrued expenses and other current liabilities
|
130,615 | (867,016 | ) | (22,805 | ) | |||||||
NET
CASH USED IN CONTINUING OPERATING ACTIVITIES
|
(4,540,068 | ) | (9,885,283 | ) | (8,161,918 | ) | ||||||
Discontinued
Operations
|
||||||||||||
Loss
from Discontinued Operations
|
— | (2,979,600 | ) | (642,032 | ) | |||||||
Equity
in loss of discontinued operations
|
— | 2,979,600 | 642,032 | |||||||||
NET
CASH PROVIDED BY DISCONTINUED OPERATIONS
|
— | — | — | |||||||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(4,540,068 | ) | (9,834,277 | ) | (8,161,918 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Increase
in intangible assets due to patent costs
|
— | — | (5,470 | ) | ||||||||
Deposits
to restricted cash
|
— | (17,080 | ) | — | ||||||||
Release
of restricted cash
|
104,644 | — | 1,174,397 | |||||||||
Payment
of deposit for manufacturing equipment
|
— | (14,703 | ) | (32,880 | ) | |||||||
Purchases
of property and equipment
|
(45,892 | ) | (505,580 | ) | (925,150 | ) | ||||||
Investment
in Novel Laboratories, Inc.
|
— | (4,992,160 | ) | (2,009,800 | ) | |||||||
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
58,752 | (5,529,523 | ) | (1,798,903 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Repayments
of bank loans
|
(9,864 | ) | (5,752 | ) | — | |||||||
Dividends
paid
|
(163,403 | ) | (410,832 | ) | (34,141 | ) | ||||||
Proceeds
from issuance of Common Stock and warrants
|
— | — | 2,000,000 | |||||||||
Principal
repayments of NJEDA bonds
|
(200,000 | ) | (185,000 | ) | (175,000 | ) | ||||||
Proceeds
from issuance of Series C 8% Convertible Preferred Stock and
Warrants
|
— | 20,000,000 | — | |||||||||
Costs
associated with raising capital
|
(342,454 | ) | (1,576,055 | ) | (26,347 | ) | ||||||
Proceeds
from bank loan
|
— | 58,004 | — | |||||||||
Proceeds
from issuance of Series D 8% Convertible Preferred Stock and
Warrants
|
1,777,000 | — | — | |||||||||
Proceeds
from exercise of stock options
|
— | 61,500 | 88,500 | |||||||||
Proceeds
from exercise of stock warrants
|
— | 313,005 | — | |||||||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
1,061,279 | 18,254,870 | 1,853,012 | |||||||||
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(3,420,037 | ) | 2,891,070 | (8,107,809 | ) | |||||||
CASH
AND CASH EQUIVALENTS - beginning of period
|
3,702,615 | 811,545 | 8,919,354 | |||||||||
CASH
AND CASH EQUIVALENTS - end of period
|
$ | 282,578 | $ | 3,702,615 | $ | 811,545 | ||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||||||
Cash
paid for interest
|
$ | 253,402 | $ | 293,404 | $ | 275,554 | ||||||
Cash
paid (received) for income taxes
|
3.,120 | 3,120 | (376,259 | ) | ||||||||
SCHEDULES
OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||||||
Preferred
Stock dividends
of $2,106,535 , $1,627,328, and
$791,182 paid by issuance of 13,901,178, 1,113,517
and 372,562 shares of Common Stock
|
$ | $ | — | $ | — | |||||||
Utilization
of equipment deposit towards purchase of equipment
|
32,880 | — | ||||||||||
Dividends
accrued on preferred stock
|
— | — | ||||||||||
Beneficial
Conversion Dividend
|
2,384,609 | — | ||||||||||
Consulting
Services Paid by Issurance of 125,000 shares of common
stock
|
101,250 | — | — |
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-8
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of Elite Pharmaceuticals,
Inc. and its consolidated subsidiaries, (collectively the “Company”) including
its wholly-owned subsidiaries, Elite Laboratories, Inc. (“Elite Labs”) and Elite
Research, Inc. (“ERI”) for the years ended March 31, 2009, 2008 and 2007 and its
variable interest entity, Novel Laboratories, Inc. (“Novel”). During
the quarter ended December 31, 2007, Novel ceased to be a variable interest
entity of Elite. Accordingly, the information in this 10K has been
prepared as if Elite divested of Novel as a wholly owned subsidiary on October
1, 2007 and the operations are being reflected as a discontinued
operation. Our Company consolidates all entities that we control by
ownership of a majority voting interest. As of March 31, 2009, the
financial statements of all wholly-owned entities are consolidated and all
significant intercompany accounts are eliminated upon
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. Elite
Labs engages primarily in researching, developing and licensing proprietary
controlled-release drug delivery systems and products. The Company is also
equipped to manufacture controlled-release products on a contract basis for
third parties and itself if and when the products are approved; however the
Company has concentrated on developing orally administered controlled-release
products. These products include drugs that cover therapeutic areas for pain,
allergy and infection. The Company also engages 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.
CASH AND
CASH EQUIVALENTS
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents consist
of cash on deposit with banks and money market instruments. The Company places
its cash and cash equivalents with high-quality, U.S. financial institutions
and, to date, has not experienced losses on any of its balances.
INVENTORIES
Inventories
are stated at the lower of cost (first-in, first-out basis) or market (net
realizable value).
LONG-LIVED
ASSETS
The
Company periodically evaluates the fair value of long-lived assets, which
include property and equipment and intangibles, whenever events or changes in
circumstances indicate that its carrying amounts may not be recoverable. Such
conditions may include an economic downturn or a change in the assessment of
future operations. A charge for impairment is recognized whenever the carrying
amount of a long-lived asset exceeds its fair value. Management has determined
that no impairment of long-lived assets has occurred.
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 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 recognized in income.
F-9
Costs
incurred to acquire intangible assets such as for the application of patents and
trademarks are capitalized and amortized on the straight-line method, based on
their estimated useful lives ranging from five to fifteen years, commencing upon
approval of the patent and trademarks. Such costs are charged to expense if the
patent or trademark is unsuccessful.
F-10
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH
AND DEVELOPMENT
Research
and development expenditures are charged to expense as incurred.
CONCENTRATION
OF CREDIT RISK
The
Company maintains cash balances, which, at times, may exceed the amounts insured
by the Federal Deposit Insurance Corp. ($250,000). Uninsured balances
at March 31, 2009 are $77,435. Management does not believe that there
is any significant risk of losses.
The
Company in the normal course of business extends credit to its customers based
on contract terms and performs ongoing credit evaluations. An allowance for
doubtful accounts due to uncertainty of collectability is established based on
historical collection experience. Amounts are written off when payment is not
received after exhaustive collection efforts. Currently the Company generates
all its revenues from one company. The termination of the contract with that
Company will result in the loss of all revenues currently earned.
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. Significant estimates made by
management include, but are not limited to, the recognition of revenue, the
amount of the allowance for doubtful accounts receivable and the fair value of
intangible assets and stock-based awards.
INCOME
TAXES
The
Company uses the liability method for reporting income taxes, under which
current and deferred tax liabilities and assets are recorded in accordance with
enacted tax laws and rates. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Under
the liability method, the amounts of deferred tax liabilities and assets at the
end of each period are determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Further tax benefits are recognized
when it is more likely than not that such benefits will be realized. Valuation
allowances are provided to reduce deferred tax assets to the amount considered
likely to be realized.
Effective
April 1, 2007, the Company adopted the provisions of FASB’s Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation
of FASB No. 109.” Fin 48 prescribes a recognition threshold and
measurement attribute for how a company should recognize, measure, present, and
disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. FIN 48 requires that the financial
statements reflect expected future tax consequences of such positions presuming
the taxing authorities’ full knowledge of the position and all relevant facts,
but without considering time values. No such amounts were accrued for
April 1, 2007. Additionally, no adjustments related to uncertain tax positions
were recognized during the year ended March 31, 2009.
The
Company recognizes interest and penalties related to uncertain tax positions as
a reduction of the income tax benefit. No interest and penalties
related to uncertain tax positions were accrued as of March 31,
2009.
The
Company operates in multiple tax jurisdictions within the United States of
America. Although we do not believe that we are currently under
examination in any of our major tax jurisdictions, we remain subject to
examination in all of our tax jurisdiction until the applicable statues of
limitation expire. As of March 31, 2009, a summary of the tax years that remain
subject to examination in our major tax jurisdictions are: United States –
Federal and State – 2004 and forward. The Company does not expect to
have a material change to unrecognized tax positions within the next twelve
months.
F-11
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 3 –
FAIR VALUE DISCLOSURES
On April
1, 2008, the Company adopted SFAS No. 157, which defines fair value, establishes
a frame work for measuring fair value in accordance with GAAP and expands
disclosures about fair value measurements. SFAS No. 157 defines fair value as
the exchange price that would be received to sell an asset or paid to transfer a
liability, based upon an exit price in an orderly transaction between market
participants at the measurement date.
FAS No.
157 establishes a three-level valuation hierarchy of valuation techniques that
is based on observable and unobservable inputs:
Level 1 –
observable inputs such as unadjusted quoted prices in active markets for
identifical instruments.
Level 2 –
quoted prices for similar instruments in active markets or inputs that are
observable for the asset or liability, either directly or
indirectly.
Level 3 –
Unobservable inputs based on the Company’s own assumptions.
In
accordance with SFAS 157, the following table presents the Company’s valuation
hierarchy for its financial asset in Novel Laboratories, Inc. measured at fair
value on a recurring basis as of March 31, 2009:
“FAIR
VALUE MEASUREMENT AT MARCH 31, 2009”
Balance
at
March 31, 2009
|
Quoted
Price in
Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Assets:
|
||||||||||||||||
Investment in Novel Laboratories, Inc.
|
$ | 3,329,322 | $ | — | $ | — | $ | 3,329,322 |
Significant
unobservable inputs have been based on projected discounted cash flows for
2009-2012 on sales of currently filed ANDA products and future filings with a
60% risk adjustment and using a 12.50% discount rate. Each product assumes a net
income of $75,000 per year.
F-12
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 4 -
PROPERTY AND EQUIPMENT
Property
and equipment at March 31, 2009 and 2008 consists of the following:
2009
|
2008
|
|||||||
Laboratory
manufacturing, and warehouse equipment
|
$ | 5,089,540 | $ | 5,075,215 | ||||
Office
equipment
|
56,961 | 53,607 | ||||||
Furniture
and fixtures
|
62,406 | 62,406 | ||||||
Transportation
equipment
|
66,855 | 66,855 | ||||||
Land,
building and improvements
|
2,492,152 | 2,463,939 | ||||||
Equipment
under capital lease
|
168,179 | 168,179 | ||||||
|
7,936,093 | 7,890,201 | ||||||
Less:
Accumulated depreciation and amortization
|
(3,360,606 | ) | (2,881,500) | |||||
$ | 4,575,487 | $ | 5,008,701 |
Depreciation
and amortization expense amounted to $479,106, $413,701 and $403,698 for the
years ended March 31, 2009, 2008 and 2007, respectively.
NOTE 5 -
INTANGIBLE ASSETS
Intangible
assets at March 31, 2009 and 2008, consist of the following:
2009
|
2008
|
|||||||
Patents
|
$ | 151,300 | $ | 151,300 | ||||
Trademarks
|
8,120 | 8,120 | ||||||
159,420 | 159,420 | |||||||
Less:
Accumulated amortization
|
(131,677 | ) | (124,144) | |||||
$ | 27,743 | $ | 35,276 |
Amortization
of intangible assets amounted to $21,711, $21,711 and $22,118 for the years
ended March 31, 2009, 2008 and 2007, respectively.
F-13
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 6 -
LONG TERM DEBT
On
September 2, 1999, the Company completed the issuance of tax exempt bonds by the
New Jersey Economic Development Authority (“NJEDA” or the “Authority”). The
aggregate proceeds from the issuance of the fifteen year term bonds was
$3,000,000. Interest on the bonds accrues at 7.75% per annum. A portion of the
proceeds were used by the Company to refinance its land and building, and the
remaining proceeds were intended to be used for the purchase of manufacturing
equipment and building improvements.
On August
31, 2005, the Company successfully completed a refinancing of the 1999 bond
issue through the issuance of new tax-exempt bonds (the “Bonds”). The
refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in
the principal amount of $3,660,000 maturing on September 1, 2030 and a 9% Series
B Note in the principal amount of $495,000 maturing on September 1, 2012. The
net proceeds, after payment of issuance costs, were used (i) to redeem the
outstanding tax-exempt Bonds originally issued by the Authority on September 2,
1999, (ii) refinance other equipment financing and (iii) for the purchase of
certain equipment to be used in the manufacture of pharmaceutical
products.
Interest
is payable semiannually on March 1 and September 1 of each year. The Bonds are
collateralized by a first lien on the Company’s facility and equipment acquired
with the proceeds of the original and refinanced Bonds. The related Indenture
requires the maintenance of a $415,500 Debt Service Reserve Fund consisting of
$366,000 from the Series A Notes proceeds and $49,500 from the Series B Notes
proceeds. The Debt Service Reserve is maintained in restricted cash accounts
that are classified in Other Assets. $1,274,311 of the proceeds had been
deposited in a short-term restricted cash account to fund the purchase of
manufacturing equipment and development of the Company’s facility. As of March
31, 2009, all of these proceeds were utilized to upgrade the Company’s
manufacturing facilities and for the purchase of manufacturing and laboratory
equipment.
Bond
issue costs of $354,000 were paid from the bond proceeds and are being amortized
over the life of the bonds. Amortization of bond financing costs amounted to
$14,178, $14,178 and $14,178 for the years ended March 31, 2009, 2008 and 2007,
respectively.
F-14
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 6 -
LONG TERM DEBT (CONTINUED)
Bond
financings consisted of the following at March 31:
2009
|
2008
|
|||||||
Refinanced
NJEDA Bonds
|
$ | 3,595,000 | $ | 3,795,000 | ||||
3,595,000 | 3,795,000 | |||||||
Current
portion
|
(210,000 | ) | (200,000 | ) | ||||
Long
term portion, net of current maturities
|
$ | 3,385,000 | $ | 3,595,000 | ||||
Maturities of Bonds for the next five years follow: |
YEAR ENDING MARCH 31,
|
AMOUNT
|
|||
2010
|
$ | 210,000 | ||
2011
|
225,000 | |||
2012
|
245,000 | |||
2013
|
260,000 | |||
2014
|
185,000 | |||
Thereafter
|
2,470,000 | |||
$ | 3,595,000 |
F-15
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 6 -
LONG TERM DEBT (CONTINUED)
Long-term
debt consists of the following at March 31:
2009
|
2008
|
|||||||
Note
payable to First Niagara Bank in 60 monthly installments of $1,180
including interest at 9.00%; final payment September, 2012; secured by
vehicle purchased.
|
$ | 42,388 | $ | 52,252 | ||||
42,388 | 52,252 | |||||||
Less
Current Portion
|
(10,788 | ) | (9,864 | ) | ||||
Long-term
debt, less current portion
|
$ | 31,600 | $ | 42,388 |
Maturities
of long-term debt in each of the next five years are as follows:
Year Ended March 31,
|
Amount
|
|||
2010
|
$ | 10,788 | ||
2011
|
11,798 | |||
2012
|
12,904 | |||
2013
|
6,898 | |||
$ | 42,388 |
NOTE 7 -
INCOME TAXES
The
components of the provision for income taxes are as follows:
YEAR
ENDED MARCH 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Federal:
|
||||||||||||
Current
|
$ | — | $ | — | $ | — | ||||||
Deferred
|
— | — | — | |||||||||
— | — | — | ||||||||||
State:
|
||||||||||||
Current
|
3,120 | 3,120 | 1,770 | |||||||||
Deferred
|
— | — | — | |||||||||
3,120 | 3,120 | 1,770 | ||||||||||
$ | 3,120 | $ | 3,120 | $ | 1,770 |
F-16
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 7 -
INCOME TAXES (CONTINUED)
During
the year ended March 31, 2007 the Company received approval for the sale of an
additional $4,818,122 of New Jersey net-operating losses under the Technology
Tax Certificate Transfer Program sponsored by the New Jersey Economic
Development Authority (NJEDA). The total tax benefits received during the year
ended March 31, 2007 was $377,259 and is recorded as other income in the
statement of operations.
The major
components of deferred tax assets at March 31, 2009 and 2008 are as
follows:
2009
|
2008
|
|||||||
Net
operating loss carry forwards
|
$ | 17,048,800 | $ | 15,128,722 | ||||
Valuation
allowance
|
(17,048,800 | ) | (15,128,722 | ) | ||||
$ | — | $ | — |
At March
31, 2009 and 2008, a 100% valuation allowance is provided, as it is uncertain if
the deferred tax assets will provide any future benefits because of the
uncertainty about the Company’s ability to generate the future taxable income
necessary to use the net operating loss carryforwards. The valuation allowance
increased during 2009, 2008 and 2007 by $1,920,078, $3,394,838 and $948,084,
respectively.
At March
31, 2009, for federal income tax purposes, the Company has unused net operating
loss carryforwards of approximately $50,143,530 expiring in fiscal years ending
in 2010 through 2024. For state tax purposes, the Company has $28,838,064 of
unused net operating losses, which are net of the $19,784,360 of the New Jersey
net-operating losses sold, as discussed above.
F-17
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 8 -
COMMITMENTS AND CONTINGENCIES
EMPLOYMENT
AGREEMENTS
As a
result of the Company continuing efforts to reorganize its workforce and
decrease its operating expenses the Company requested that Dr. Stuart Apfel, the
Company Chief Scientific Officer and Chief Medical Officer, change the status of
his relationship with the Company from employee to consultant. Dr. Apfel agreed
to such change in status and will continue to provide his services as the
Company Chief Scientific Officer and Chief Medical Officer on an hourly basis,
thereby reducing the Company expenses as they relate to Dr. Apfel. In
his continuing service as the Company Chief Scientific Officer and Chief Medical
Officer, Dr. Apfel will be compensated pursuant to a consulting agreement, dated
as of October 20, 2008, between the Company and Parallex Clinical Research
(“Parallex”). Dr. Apfel is the founder and current president of Parallex.
Pursuant to the consulting agreement, Parallex is to provide the Company
consulting services for its opioid abuse-resistant product, controlled-release
opioid product and other such products that the Company may request assistance
with. Dr. Apfel will be the primary person providing such consulting services
for which he will be paid on an hourly basis. The Company may terminate the
consulting agreement at any time upon written notice to Parallex. Parallex and
Dr. Apfel are subject to covenants not to disclose confidential information and
assignment of intellectual property and a one year from termination
non-competition covenant and non-solicitation covenant.
The Company also requested that Dr. Charan Behl, the
Company Head of Technical Affairs, change the status of his relationship with
the Company from employee to consultant. Dr. Behl agreed to such change in
status and will continue to provide his services as a consultant to the Company
on an hourly basis, thereby reducing the Company expenses as they relate to Dr.
Behl. In his continuing service to the Company as a consultant, Dr. Behl will be
compensated pursuant to a consulting agreement, dated as of November 3, 2008,
between the Company and Dr. Behl. Pursuant to the consulting
agreement, Dr. Behl is to provide the Company consulting services for its opioid
abuse-resistant product, controlled-release opioid product and other such
products that the Company may request assistance with. Dr. Behl will
be paid for such consulting services on an hourly basis. The Company
may terminate the consulting agreement at any time upon written notice to Dr.
Behl. Dr. Behl is subject to covenants not to disclose confidential information
and assignment of intellectual property and a one year from termination
non-competition covenant and non-solicitation covenant.
CHIEF
SCIENTIFIC OFFICER
On April
24, 2008, Dr. Subramanian resigned as the Acting Chief Scientific Officer of the
Company and Dr. Apfel was appointed the Chief Scientific Officer of the Company.
The appointment of Dr. Apfel did not modify his employment agreement in any
way.
F-18
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 8 -
COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONSULTING
AGREEMENTS
On April
14, 2008, the Company entered into a consulting agreement with New Castle
Consulting, LLC ("New Castle") whereby New Castle was to provide consulting
services to the Company for a six month term. Services included, but
were not necessarily limited to analyzing, the Company's needs with respect to
investor relations, consulting, assisting and advising the Company with respect
to its needs for investor relations, oversee and facilitate investor relations,
assist the Company in developing and implementing appropriate means for
presenting the Company and its business plans, strategy and personnel to
financial community and advising the Company with respect to its relations with
brokers, dealers, analysts and other investment professionals. For
its services New Castle received $8,000 per month in addition to 125,000 shares
of the Company's restricted Common Stock.
COLLABORATIVE
AGREEMENTS
The
Company is a party to two separate and distinct development and license
agreements with ECR Pharmaceuticals (“ECR”). Pursuant to the agreements, the
Company agreed to commercially develop two products, Lodrane 24® and Lodrane
24D® in exchange for development fees, certain payments, royalties and
manufacturing rights. The products are currently being marketed by ECR which
also has the responsibility for regulatory matters. In addition to receiving
revenues for manufacture of these products, the Company also receives a royalty
on in-market sales.
F-19
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 9 -
STOCKHOLDERS’ EQUITY
During
2005, the Certificate of Incorporation was amended to increase the number of
authorized shares of capital stock from 25,000,000 shares of Common Stock to
65,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, each
with a par value of $.01 per share.
On June
26, 2008, at the annual meeting of the stockholders of the Company, the
stockholders approved (i) an amendment to the Company’s Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
65,000,000 shares to 150,000,000 shares and (ii).an amendment to the Company’s
Stock Option Plan to increase the number of shares of Common Stock reserved for
issuance under the Stock Option Plan from 7,000,000 shares to 10,000,000
shares.
On
December 19, 2008, at a special meeting of the stockholders of the Company, the
stockholders approved an amendment to the Company’s Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 150,000,000 to
210,000,000 shares.
As of
March 23, 2009, holders of a majority of, in number, of shares of the Company’s
outstanding Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock approved by written consent the creation and issuance of the
Company’s Series E Convertible Preferred Stock, par value $0.01 per share,
including the filing of the Certificate of Designation of Preferences, Rights
and Limitations of the Series E Convertible Preferred Stock with the Secretary
of State of the State of Delaware, in connection with the transactions
contemplated by the Epic Strategic Alliance Agreement.
LOSS PER
COMMON SHARE
Basic net
loss per common share has been calculated by dividing the net loss by the
weighted average number of shares outstanding during the periods presented.
Diluted earnings per share is not presented because the effect of the Company’s
common stock equivalents is antidilutive. For the three years ended March 31,
the following potentially dilutive securities were not included in the
computation of diluted loss per share:
2009
|
2008
|
2007
|
||||||||||||||||||||||
WEIGHTED
|
WEIGHTED
|
WEIGHTED
|
||||||||||||||||||||||
AVERAGE
|
AVERAGE
|
AVERAGE
|
||||||||||||||||||||||
EXERCISE
|
EXERCISE
|
EXERCISE
|
||||||||||||||||||||||
SHARES
|
PRICE
|
SHARES
|
PRICE
|
SHARES
|
PRICE
|
|||||||||||||||||||
Stock
options
|
2,554,900 | $ | 1.87 | 5,543,300 | $ | 2.16 | 6,622,500 | 2.28 | ||||||||||||||||
Convertible
|
||||||||||||||||||||||||
Preferred
Stock
|
54,971,921 | $ | 0.43 | 11,994,243 | $ | 2.25 | 4,308,885 | $ | 2.25 | |||||||||||||||
Warrants
|
39,667,853 | $ | 0.63 | 9,216,736 | $ | 2.59 | 6,640,446 | $ | 2.31 | |||||||||||||||
97,194,674 | 26,754,279 | 17,571,831 |
F-20
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 9 -
STOCKHOLDERS’ EQUITY (CONTINUED)
SERIES C
8% CONVERTIBLE PREFERRED STOCK
On April
24, 2007, the Company sold 15,000 shares of its Series C 8% Convertible
Preferred Stock, par value $0.01 (the “Series C Preferred Stock”), and 1,939,655
warrants for gross proceeds of $15,000,000. The 15,000 shares of Series C
Preferred Stock are convertible into 6,465,517 shares of Common Stock. The
warrants are exercisable at $3.00 per share and are exercisable through April
24, 2012. The Company paid $1,050,000 in commissions to the placement agent and
others in connection with the sale of the Series C Preferred Stock. In addition,
the Company granted the placement agent 193,965 warrants exercisable at $3.00
per share which were valued at $129,627. The gross proceeds of the private
placement were $15,000,000 before payment of $1,050,000 in commissions to the
placement agent and selected dealers. In addition, the Company agreed to
reimburse the placement agent for all documented out-of-pocket expenses incurred
by the placement agent in connection with the private placement, including
reasonable fees and expenses of its counsel, which the Company and placement
agent agreed to be limited to $25,000. Based on the relative fair values, the
Company has attributed $1,182,101 of the total proceeds to the warrants and has
recorded the warrants as additional paid-in capital. The remaining portion of
the proceeds of $13,817,899 was used to determine the value of the 6,465,517
shares of the Company Common Stock underlying the Series C Preferred Stock, or
$2.1372 per share. Since the value was $0.1628 lower than the fair market value
of the Company’s Common Stock on April 24, 2007, the $1,052,790 fair value of
the conversion option resulted in the recognition of a preferred stock dividend
and an increase to additional paid-in capital.
On July
17, 2007, the Company sold the remaining 5,000 authorized shares of its Series C
Preferred Stock. Each share of Series C Preferred Stock was sold at a price of
$1,000 per share and is initially convertible at $2.32 into 431.0345 shares of
the Company’s Common Stock, or an aggregate of 2,155,172 shares of Common
Stock. Each purchaser of Series C Preferred Stock also received a
warrant to purchase shares of the Company’s Common Stock in an amount equal to
30% of the aggregate number of shares of Common Stock into which the shares of
Series C Preferred Stock purchased by such purchaser may be converted. The
warrants are exercisable on or before July 17, 2012 and represent the right to
purchase an aggregate of 646,554 shares of Common Stock, at an exercise price of
$3.00 per share. The lead placement agent for the offering was
Oppenheimer & Company, Inc. The gross proceeds of the private placement were
$5,000,000 before payment of $350,000 in commissions to the placement agent and
its selected dealers and $18,000 in expenses incurred by the placement agent and
its selected dealers. Pursuant to the placement agent agreement, the Company
issued to the placement agent and its designees warrants (the "Placement
Warrants") to purchase 64,655 shares of Common Stock. Such Placement
Warrants are at an exercise price of $3.00 per share, exercisable on or prior to
July 17, 2012. The Company received net proceeds from the sale of the
Series C 8% Preferred Stock of $4,631,500. Based on the
relative fair values, the Company has attributed $534,407 of the total proceeds
to the warrants and has recorded the warrants as additional paid-in capital. The
remaining portion of the proceeds of $4,465,593 was used to determine the value
of the 2,155,172 shares of the Company Common Stock underlying the Series C
Preferred Stock, or $2.0720 per share. Since the value was $0.6180 lower than
the fair market value of the Company’s Common Stock on July 17, 2007, the
$1,331,819 fair value of the conversion option resulted in the recognition of a
preferred stock dividend and an increase to additional paid-in
capital.
F-21
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 9 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
The
Company sought and obtained the consent of 70% of the holders of its Series B
Preferred Stock (the “Series B
Consent”), as a condition to the sale of the Series C Preferred Stock, to
modify to the Series B Certificate and to the creation of the Series C Preferred
Stock.
The
holders of the Series B Preferred Stock consented to (i) the filing of the
Amended Certificate of Designations of Preferences, Rights and Limitations of
the Series B Preferred Stock (the “Amended Series B Preferred
Certificate”) with the Secretary of State of the State of Delaware, which, inter alia, (a) provides
for group voting by and among the holders of the Series B Preferred Stock and
the holders of the Series C Preferred Stock, and (b) extends the date on which
the cumulative dividend rate increases from 8% to 15% from March 16, 2008 to
April 24, 2009; and (ii) the authorization, creation, offering and issuance of
the Series C Preferred Stock. On April 24, 2007, pursuant to the authority of
its Board of Directors, Company filed with the Secretary of State of Delaware
the Amended Series B Preferred Certificate.
On April
24, 2007, pursuant to the authority of its Board of Directors, the Company filed
with the Secretary of State of the State of Delaware the Certificate of
Designations of Preferences, Rights and Limitations of the Series C 8%
Convertible Preferred Stock.
In
consideration for the Series B Consent, (i) the Company agreed to extend the
expiration date of certain warrants issued to each holder of Series B Preferred
Stock at the time of the original issuance of the Series B Preferred Stock from
March 16, 2011 to March 16, 2012; and (ii) each of Midsummer Investment, Ltd.
and Bushido Capital Master Fund, LP (each, a “Principal Holder”), as the holders
of the largest number of the currently outstanding shares of Series B Preferred
Stock, were granted a covenant by the Company pursuant to which, so long as each
Principal Holder continues to hold at least 20% of the then outstanding Series B
Preferred Stock, the Company will not take any action which requires the consent
of at least 70% of the holders of the Preferred Stock, unless each Principal
Holder consents to such action.
SERIES D
8% CONVERTIBLE PREFERRED STOCK
On
September 15, 2008, the Company completed a private placement of 1,777 shares of
its Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred
Stock”), for gross proceeds of $1,777,000. The shares were issued at
a price of $1,000 per share with each share initially convertible at $0.20 into
5,000 shares of the Company’s Common Stock, par value $0.01 per share (the
“Common Stock”), or an aggregate of 8,885,000 shares of Common Stock. Each
purchaser of Series D Preferred Stock also received a warrant to purchase shares
of the Company’s Common Stock. The warrants are exercisable on or before
September 15, 2013 and represent the right to purchase an aggregate of
17,770,000 shares of Common Stock at an exercise price of $0.25 per share. The
newly-created Series D Preferred Stock is senior as to dividends, liquidation
and redemption to the Company’s Series B Preferred Stock and Series C Preferred
Stock (collectively, the “Existing Preferred Stock”). The Company has
authorized, in total, 30,000 shares of Series D Preferred Stock.
The gross
proceeds of the private placement for shares of the Company’s Series D Preferred
Stock were $1,777,000 before payment of $263,743 in expenses. Pursuant to the
placement agent agreement, the Company issued to the placement agent warrants to
purchase 355,400 shares of Common Stock exercisable at $0.25 per share. The
Company will account for these warrants as a cost of raising capital and will
include the instrument as equity in our financial statements. Accordingly, there
will be no net impact on the Company’s financial position or results of
operations.
As part
of the private placement for shares of the Company’s Series D Preferred Stock,
holders of existing preferred stock who met a pre-defined level of participation
in this placement (“Qualifying Holders”) received the right to exchange (the
“Exchange”): (i) shares of their existing preferred stock for shares of Series D
Preferred Stock at a rate equal to one share of Series D Preferred Stock for
each share of existing preferred stock held by the Qualifying Holder and (ii)
warrants to purchase Common Stock which were originally issued to each Qualified
Holder in connection with the purchase of such exchanged existing preferred
stock (such originally issued warrants, the “Original Warrants”) for warrants
exercisable for the same number of shares of Common Stock with terms identical to
the warrants issued to the purchasers of Series D Preferred Stock (such
warrants, the “Exchange Warrants”). The Exchange Warrants have an
exercise price of $0.25 per share. To be a Qualifying Holder, a holder of
existing preferred stock was required to purchase shares of Series D Preferred
Stock with a stated value of at least the lesser of (x) $400,000 and (y) 20% of
the aggregate stated value of the shares of Existing Preferred Stock then held
by such holder. In connection with the private placement for shares of the
Company’s Series D Preferred Stock,
Qualifying Holders exchanged (a) shares of their existing preferred stock for an
aggregate of approximately 12,037 additional shares of Series D Preferred Stock,
which such shares of Series D Preferred Stock are convertible into an aggregate
of approximately 60,185,000 shares of Common Stock, and (b) their Original
Warrants for Exchange Warrants to purchase an aggregate of approximately
2,336,000 shares of Common Stock.
F-22
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 9 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
On April
14, 2008, a holder of 872 shares of Series C 8% Preferred Stock converted 87
shares into 37,745 shares of common stock. The same holder converted
an additional 87 shares into 38,427 shares of Common Stock on May 4,
2008. All accrued dividends were paid through dates of
conversion.
COMMON
STOCK TRANSATIONS
The
following grants were made under the Company’s 2004 Stock Option Plan in the
year ended March 31, 2009:
On
December 1, 2008, the Company granted options to 3 employees to purchase an
aggregate of 28,000 shares of common stock with an exercise price of $.06 to
vest over a period of three years from grant date.
On
December 1, 2008, the Board granted 180,000 options to an independent board
member, who serves as Chairman of the Board, under the Company’s
option plan. The options vest in equal thirds on December 1, 2009,
2010 and 2011, assuming the board member continues to serve on the Company’s
board. The options are exercisable at $.06 per option and are subject to the
Company’s customary stock option agreements and the Company’s Stock Option
Plan.
During
the year ended March 31, 2009, 225 shares of Series B 8% Preferred Stock were
converted into 191,168 shares of common stock. In connection with such
conversions, the Company issued 46,968 shares of common stock in satisfaction of
dividend obligations of the Company on such shares of Series B Preferred Stock,
which such dividend obligations accrued through the date of such
conversion.
During
the year ended March 31, 2009, 552 shares of Series C 8% Preferred Stock were
converted into 241,775 shares of common stock. In connection with such
conversions, the Company issued 3,844 shares of common stock and $93 in cash in
satisfactory dividend obligations of the Company on such shares of Series C
Preferred Stock, which such dividend obligations accrued through the date of
such conversions.
During
the year March 31, 2009, 4,660 shares of Series D 8% Preferred Stock were
converted into 23,300,000 shares of common stock. In connection with such
conversions, the Company has accrued dividends of $27,312 through the date of
such conversions.
The
following grants were made under the Company's 2004 Stock Option Plan in the
year ended March 31, 2008:
On July
27, 2007, the Company entered into a consulting agreement with Willstar
Consultants, Inc. ("Willstar") whereby Willstar is to provide advice pertaining
to overall strategic planning, business opportunities, acquisition policy,
investment and banking relationships and stockholders matters in consideration
of the grant of options to purchase 90,000 shares of Common Stock, at a price of
$2.50 per share. One third of options vest on each of July 27, 2008,
July 27, 2009 and July 27, 2010.
On
January 24, 2008, the Company granted options to 29 employees to purchase an
aggregate of 148,800 shares of Common Stock with an exercise price of $1.08 to
vest over a period of three years from grant date.
Additionally
under an employment agreement dated January 3, 2008 with Dr. Stuart Apfel, the
Company granted options to purchase 400,000 shares of Company Stock with an
exercise price of $1.75 per share. 120,000 options vested immediately
and 280,000 will vest upon successful completion of Company sponsored Phase III
clinical trials of Company's developmental drug products and strategic events or
milestones.
F-23
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 9 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
On
January 24, 2008, the Board granted 90,000 options to each of its three
non-executive independent Board members under the Company's option
plan. The options vest in equal thirds on June 26, 2008, 2009 and
2010, assuming each Director continues to serve on the Company's Board;
provided, however that, the options shall fully vest upon such Director’s death,
disability, retirement as a director on the Board or such Director’s removal as
a director, without cause, at the request of the Board. The
options are exercisable at $1.08 per option. The options are subject to the
Company’s customary stock option agreements and the Company’s Stock Option
Plan.
On March
7, 2008, the Company granted The Investor Relations Group, Inc. an option to
purchase up to 75,000 shares of the Company's Common Stock at $1.12 pursuant to
Stipulation of Settlement dated March 7, 2008. The option vested
immediately.
During
the year ended March 31, 2008, there were cashless exercises of 100,633 warrants
issued in our October, 2004 Private Placement, which resulted in the issuance of
36,174 shares of Common Stock.
During
the year ended March 31, 2008, $313,005 was received and 203,250 shares of
Common Stock were issued upon the exercise of 203,250 Long-Term Warrants granted
at an exercise price of $1.54, as part of the Company's private placement in
October, 2004.
During
the year ended March 31, 2008, 1,285 shares of Series B 8% preferred Stock were
converted into 571,112 shares of Common Stock.
Dividends
accrued on Series B Stock through conversion date and March 31, 2008 were
satisfied by the issuance of 1,631 and 454,923 shares of Common Stock,
respectively.
On April
20, 2007 $61,500 was received from the exercise of stock options previously
granted to purchase 41,000 shares of Common Stock at $1.50 per
share. During the year ended March 31, 2008, 470,000 options expired
and 1,552,000 were forfeited.
F-24
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 9 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
During
the year ended March 31, 2008, 845 shares of Series C Preferred Stock were
converted into 364,224 shares of Common Stock.
Dividends
accrued on Series C Stock through conversion date and March 31, 2008 were
satisfied by the issuance of 1,025 and 658,594 shares of Common Stock,
respectively.
On July
12, 2006, the Company sold to Indigo Ventures, LLC (“Indigo”) for $150,000 a
warrant to purchase up to 600,000 shares of Common Stock at $3.00 per share
pursuant to the Financial Advisory Agreement with Indigo (the “Advisory
Agreement”), of which 100,000 shares of Common Stock have vested. The Advisory
Agreement has been amended and the warrant reduced from 600,000 to 300,000
shares of common stock.
WARRANTS
To date,
the Company has 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 $2.00 to $3.74 per warrant. The warrants
expire at various times through March 15, 2013.
A summary
of warrant activity for the fiscal years indicated below were as
follows:
2009
|
Average
Weighted
Exercise
Price
|
2008
|
Average
Weighted
Exercise
Price
|
2007
|
Average
Weighted
Exercise
Price
|
|||||||||||||||||||
Balance
at beginning of year:
|
9,281,391 | $ | 2.64 | 6,640,445 | $ | 2.53 | 6,079,199 | $ | 2.50 | |||||||||||||||
Warrants
issued
|
— | 150,000 | 3.00 | 778,698 | 3.00 | |||||||||||||||||||
Warrants
issued pursuant to Placement Agent Agreements
|
355,400 | 0.25 | 258,620 | 3.00 | — | |||||||||||||||||||
Warrants
issued pursuant to Private Placement
|
17,770,000 | 0.25 | 2,586,209 | 3.00 | — | |||||||||||||||||||
Exchange
Warrants issued
|
12,261,062 | (0.33 | ) | — | — | |||||||||||||||||||
Warrants
exercised, forfeited or expired
|
— | (353,883 | ) | 3.50 | (217,452 | ) | 3.50 | |||||||||||||||||
Ending
balance
|
39,667,853 | $ | 0.63 | 9,281,391 | $ | 2.64 | 6,640,445 | $ | 2.53 |
CLASS B
WARRANTS
The
Company’s Class B Warrants originally issued in a private placement in September
1998 expired on November 30, 2005, their amended expiration date.
F-25
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 10 -
STOCK OPTION PLANS
STOCK-BASED
COMPENSATION
During
the years ended March 31, 2007, 2008 and 2009 the Company
issued 3,779,500, 983,800 and 208,000, respectively options to
purchase Common Stock to employees, consultants, financial advisors and to
members of the board of directors. The options have an exercise price ranging
from $.06 to $3.00 per share and all vest over three years except 750,000 issued
for year ending March 31, 2007 which vested upon grant date, and 250,000 which
vested in 6 months and 1,025,000 which vest based upon strategic events or
accomplishments of certain milestones. For the year ending March 31,
2008, 195,000 options vested upon grant date and 280,000 vest based upon
strategic events or accomplishments of certain milestones. The options expire
between five and ten years from the date of grant. The Company has recorded
compensation expense of $3,479,070, $2,607,470 and $921,422 for the years ended
March 31, 2007, 2008 and 2009, respectively, which represents the fair value of
the options vested computed using the Black-Scholes options pricing model on
each grant date.
Under its
2004 Stock Option Plan and prior option plans, the Company may grant stock
options to officers, selected employees, as well as members of the board of
directors and advisory board members. All options have generally been granted at
a price equal to or greater than the fair market value of the Company’s Common
Stock at the date of grant. Generally, options are granted with a vesting period
of up to three years and expire ten years from the date of grant. Transactions
under the plans for the years indicated were as follows:
2009
|
2008
|
2007
|
||||||||||||||||||||||
AVERAGE
|
AVERAGE
|
AVERAGE
|
||||||||||||||||||||||
WEIGHTED
|
WEIGHTED
|
WEIGHTED
|
||||||||||||||||||||||
EXERCISE
|
EXERCISE
|
EXERCISE
|
||||||||||||||||||||||
OPTIONS
|
PRICE
|
OPTIONS
|
PRICE
|
OPTIONS
|
PRICE
|
|||||||||||||||||||
Outstanding
at beginning of year
|
5,543,300 | $ | 2.16 | 6,622,500 | 2.28 | 2,971,250 | $ | 2.36 | ||||||||||||||||
Granted
|
258,000 | .07 | 983,800 | 1.49 | 3,779,500 | 2.20 | ||||||||||||||||||
Exercised
|
— | — | (41,000 | ) | 1.50 | (59,000 | ) | 1.50 | ||||||||||||||||
Expired
|
(3,246,400 | ) | (2.40 | ) | (2,022,000 | ) | (2.23 | ) | (69,250 | ) | 2.31 | |||||||||||||
Outstanding
at end of year
|
2,554,900 | $ | 1.87 | 5,543,300 | 2.16 | 6,622,500 | $ | 2.28 |
The
following table summarizes information about stock options outstanding at March
31, 2009:
WEIGHTED
AVERAGE
|
WEIGHTED-
|
WEIGHTED
|
|||||||||||||||||||
RANGE
OF
|
REMAINING
|
AVERAGE
|
AVERAGE
|
||||||||||||||||||
EXERCISE
|
OPTIONS
|
CONTRACTUAL
|
EXERCISE
|
OPTIONS
|
EXERCISABLE
|
||||||||||||||||
PRICE
|
OUTSTANDING
|
LIFE (YEARS)
|
PRICE
|
EXERCISABLE
|
PRICE
|
||||||||||||||||
$
|
.01 – 1.00 | 258,000 | 9.75 | $ | 0.06 | — | $ | — | |||||||||||||
1.01
- 2.00
|
402,900 | 8.50 | 1.29 | 195,000 | 1.51 | ||||||||||||||||
2.01 - 3.00
|
1,894,000 | 6.50 | 2.33 | 2,858,928 | 2.24 | ||||||||||||||||
$
|
.01 - 3.00 | 2,554,900 | 6.82 | $ | 2.16 | 3,053,928 | $ | 2.19 |
F-26
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 10 -
STOCK OPTION PLANS (CONTINUED)
STOCK-BASED
COMPENSATION (CONTINUED)
During
the fiscal year ended March 31, 2009, options granted were of an insignificant
value. The per shares weighted-average fair value of each option granted during
such fiscal year was $0.0156 on the date of the grant using the Black-Scholes
options pricing model with the following weighted-average assumptions: no
dividend yield; expected volatility of 128%; risk -free interest rate of 3.00%;
and expected life of 10 years. The per share weighted-average fair value of each
option granted during fiscal years ended March 31, 2008 and March 31, 2007
ranged from $.56 to $1.20 during fiscal 2008 and $1.36 to $1.39 during fiscal
2007 on the date of grant using the Black-Scholes options pricing model with the
following weighted-average assumptions: no dividend yield; expected volatility
of 33.0% for fiscal 2008 and ranging from 46.12% to 57.95% for fiscal 2007;
risk-free interest rates of 4.00% in 2008 and 5.00% in 2007. Expected lives
range from 5 to 10 years.
There are
7,520,100 options available for future grant under our Stock Option
Plan.
NOTE 11 -
MAJOR CUSTOMERS
For the
years ended March 31, revenues from its major customers are as
follows:
2009
|
2008
|
2007
|
||||||||||
Customer
A -
|
100 | % | 100 | % | 100 | % |
NOTE 12 -
SUBSEQUENT EVENTS
EPIC
TRANSACTION DISCUSSION
On March
18, 2009, the Company entered into a Strategic Alliance Agreement (as amended on
April 30, 2009 (the “First Amendment”) and June 1, 2009 (the “Second Amendment),
the “Epic Strategic Alliance Agreement”) with Epic Pharma, LLC (the “Parent”)
and Epic Investments, LLC, a subsidiary controlled by the Parent (the
“Purchaser”, and collectively with the Parent, "Epic”), pursuant to which the
Company commenced a strategic relationship with Epic, a pharmaceutical company
that operates a business synergistic to that of the Company in the research and
development, manufacturing, sales and marketing of oral immediate and
controlled-release drug products.
Pursuant
to the Epic Strategic Alliance Agreement, on June 3, 2009 (the “Initial Closing
Date”), the Company and Epic conducted the initial closing (the “Initial
Closing”), and Epic and its employees and consultants commenced use
of a portion of the Company’s facility located at 165 Ludlow Avenue, Northvale,
New Jersey (the “Facility”), for the purpose of developing new generic drug
products, all at Epic’s sole cost and expense (other than Facility-related
expenses), for a period of at least three years (the “Initial
Term”). In addition to the use of the Facility, Epic will use the
Company’s machinery, equipment, systems, instruments and tools residing at the
Facility (collectively, the “Personal Property”) in connection with its joint
drug development project at the Facility.
At the
Initial Closing, on June 3, 2009, the Company issued and sold to Epic, in a
private placement, 1,000 shares of its Series E Convertible Preferred Stock, par
value $0.01 per share (the “Series E Preferred Stock”), at a price of $1,000 per
share, each share convertible, at $0.05 per share (the “Conversion Price”), into
20,000,000 shares of Common Stock, par value $0.01 per share (the “Common
Stock”). The Conversion Price is subject to adjustment for certain events,
including, without limitation, dividends, stock splits, combinations and the
like. The Conversion Price is also subject to adjustment for (a) the sale of
Common Stock or securities convertible into or exercisable for Common Stock, for
which the Purchaser’s consent was not required under the Certificate of
Designation of Preferences, Rights and Limitations of the Series E Convertible
Preferred Stock, at a price less than the then applicable Conversion Price, (b)
the issuance of Common Stock in lieu of cash in satisfaction of the Company’s
dividend obligations on outstanding shares of its Series B Preferred Stock,
Series C Preferred Stock, and/or
F-27
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 12 -
SUBSEQUENT EVENTS (CONTINUED)
Series D
Preferred Stock, and (c) the issuance of Common Stock as a result of any holder
of Series D Preferred Stock exercising its right to require the Company to
redeem all of such holder’s shares of Series D Preferred Stock pursuant to the
terms thereof. The Purchaser also acquired a warrant to purchase
40,000,000 shares of Common Stock (the "Initial Warrant"), exercisable on or
prior to June 3, 2016, at a per share exercise price of $0.0625 (the “Exercise
Price”), subject to adjustments for certain events, including, but not limited
to, dividends, stock splits, combinations and the like. The Exercise Price of
the Initial Warrant will also be subject to adjustment for the sale of Common
Stock or securities convertible into Common Stock, for which the Purchaser’s
consent was not required under the Epic Strategic Alliance Agreement, at a price
less than the then applicable Exercise Price of the Initial Warrant. The
Purchaser paid an aggregate purchase price of $1,000,000 for the shares of
Series E Preferred Stock and the Initial Warrant issued and sold by the Company
to the Purchaser at the Initial Closing, of which $250,000 was received by the
Company, in the form of a cash deposit, on April 30, 2009, pursuant to the First
Amendment. The remaining $750,000 of such aggregate purchase price was paid to
the Company by the Purchaser at the Initial Closing.
A Second
Closing must occur within 180 days of the Initial Closing Date, upon which, Epic
will pay to the Company a sum of $1,000,000 in exchange for an additional 1,000
shares of Series E Preferred Stock, which such shares of Series E Preferred
Stock will be convertible, at the Conversion Price, subject to adjustment, into
20,000,000 shares of Common Stock, and a warrant (the “Second Warrant”) to
purchase an additional 40,000,000 shares of Common Stock. The Second Warrant
will be exercisable until the date that is the seventh anniversary of the Second
Closing Date and will have a per share exercise price equal to $0.0625, subject
to adjustments for certain events.
On the
first trading day following the first anniversary of the Initial Closing Date,
the Company and Epic will conduct a third closing (the “Third Closing”),
provided that all conditions precedent to such Third Closing contained in the
Epic Strategic Alliance Agreement have been satisfied or waived by the
appropriate party on or before such Third Closing. The Third Closing must occur
within thirty days following the first anniversary of the Initial Closing Date.
At the Third Closing, Epic will pay to the Company a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, which such
shares of Series E Preferred Stock will be convertible, at the Conversion Price,
subject to adjustment, into 20,000,000 shares of Common Stock, and a warrant
(the “Third Warrant” and collectively with the Initial Warrant and the Second
Warrant, the “Warrants”) to purchase an additional 40,000,000 shares of Common
Stock. The Third Warrant will be exercisable until the date that is the seventh
anniversary of the Third Closing Date and will have a per share exercise price
equal to $0.0625, subject to adjustments for certain events.
In
addition, within ten business days following the last day of each calendar
quarter, beginning with the first calendar quarter following the Initial Closing
Date and continuing for each of the eleven calendar quarters thereafter, Epic
will pay to the Company a sum of $62,500, for an aggregate purchase price over
such period of $750,000, in exchange for an additional 62.5 shares of Series E
Preferred Stock per quarter and 750 shares of Series E Preferred Stock, in the
aggregate, over such period, which such shares will be convertible into
1,250,000 shares of Common Stock per quarter and 15,000,000 shares of Common
Stock, in the aggregate, over such period, subject to adjustment.
As
additional consideration for Epic’s use and occupancy of a portion of the
Facility and its use of the Personal Property during the Term and the issuance
and delivery by the Company to Epic of the Milestone Shares (as defined below)
and Milestone Warrants (as defined below), for the period beginning on the First
Commercial Sale (as defined in the Epic Strategic Alliance Agreement) of each
Product and continuing for a period of ten years thereafter (measured
independently for each Product), Epic will pay the Company a cash fee (the
“Product Fee”) equal to fifteen percent of the Profit (as defined in the Epic
Strategic Alliance Agreement), if any, on each of the Products.
The
Company will issue and deliver to Epic a seven-year warrant to purchase up to
10,000,000 shares of Common Stock, at an exercise price of $0.0625, following
the receipt by the Company from Epic of each written notice of Epic’s receipt of
an acknowledgment from the FDA that the FDA accepted for filing an ANDA for a
Identified Controlled Release Products (as defined in the Epic Strategic
Alliance Assignment) and/or Additional Controlled Release Products (as defined
in the Epic Strategic Alliance Assignment), up to a maximum of four such
warrants for the right to purchase up to an aggregate of 40,000,000 shares of
Common Stock (such warrants, the “CR Related Warrants”), and the Company will
issue and deliver to Epic 7,000,000 shares of Common Stock following the receipt
by the Company from Epic of each written notice of Epic’s receipt from the FDA
of approval for such Identified Controlled Release Products and/or Additional
Controlled Release Products, up to a maximum of an aggregate of 28,000,000
shares of Common Stock (such shares, the “CR Related Shares”).
F-28
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2009, 2008 AND 2007
NOTE 12 -
SUBSEQUENT EVENTS (CONTINUED)
The
Company will issue and deliver to Epic a seven year warrant to purchase up to
4,000,000 shares of Common Stock, at an exercise price of $0.0625, following the
receipt by the Company from Epic of each written notice of Epic’s receipt of an
acknowledgment from the FDA that the FDA accepted for filing an ANDA for a
Identified Immediate Release Products (as defined in the Epic Strategic Alliance
Assignment) and/or Additional Identified Immediate Release Products (as defined
in the Epic Strategic Alliance Assignment), up to a maximum of four such
warrants for the right to purchase up to an aggregate of 16,000,000 shares of
Common Stock (such warrants, together with the Controlled Release Related
Warrants, the “Milestone Warrants”), and (ii) the Company will issue and deliver
to Epic 3,000,000 shares of Common Stock following the receipt by the Company
from Epic of each written notice of Epic’s receipt from the FDA of approval for
such Identified Immediate Release Products and/or Additional Identified
Immediate Release Products, up to a maximum of an aggregate of 12,000,000 shares
of Common Stock. The Milestone Warrants may only be exercised by
payment of the applicable cash exercise price.
COMMON
STOCK TRANSATIONS
During
the first quarter of the fiscal year ending March 31, 2010, 150 shares of Series
B Preferred Stock were converted into 96,154 shares of Common Stock. In
connection with such conversion, the Registrant issued 22,857 shares of Common
Stock in satisfaction of dividend obligations on such shares of Series B
Preferred Stock accrued through the date of conversion
During
the first quarter of the fiscal year ending March 31, 2010, 8,287 shares of
Series C Preferred Stock were converted into 5,147,206 shares of Common
Stock. In connection with such conversion, the Registrant issued
131,281shares of Common Stock in satisfaction of dividend obligations on such
shares of Series C Preferred Stock accrued through the date of
conversion.
During
the first quarter of the fiscal year ending March 31, 2010, 95 shares of Series
D Preferred Stock were converted into 475,000 shares of Common
Stock. In connection with such conversion, the Registrant issued
15,835 shares of Common Stock in satisfaction of dividend obligations on such
shares of Series D Preferred Stock accrued through the date of
conversion.
On June
3, 2009, upon the consummation of the initial closing of the Epic Strategic
Alliance Agreement, the Company issued warrants to certain investors, pursuant
to individual conversion agreements between the Company and each such investor,
to purchase an aggregate of 6,518,360 shares of Common Stock, at an exercise
price per share of $0.25, in consideration of such investors’ conversion of the
shares of the Company’s preferred stock held by the respective investors in
accordance with the terms of the Epic Strategic Alliance Agreement.
F-29