Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “large accelerated
filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
State the aggregate market value of the
voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the
last business day of the registrant’s most recently completed second fiscal quarter (for purposes of determining this amount,
only directors, executive officers and, based on Schedule 13(d) filings as of September 30, 2013, 10% or greater stockholders,
and their respective affiliates, have been deemed affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes).
Indicate the number of shares outstanding
of each of the registrant’s classes of common stock, as of the latest practical date
PART I
ITEM 1 BUSINESS
General
Elite Pharmaceuticals, Inc., a Nevada corporation
(the “Company”, “Elite”, “
Elite Pharmaceuticals
”, the “registrant”, “we”,
“us” or “our”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned
subsidiary, Elite Laboratories, Inc. (
“Elite Labs””
), was incorporated on August 23, 1990 under the laws
of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada.
We are a specialty pharmaceutical company
principally engaged in the development and manufacture of oral, controlled-release products, using proprietary know-how and technology,
particularly as it relates to abuse resistant products. 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.
We own, license or contract manufacture
eight products currently being sold commercially, as follows:
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Phentermine 37.5mg tablets (“Phentermine
37.5mg”)
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Lodrane D® Immediate Release capsules
(“Lodrane D”)
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Methadone 10mg tablets (“Methadone
10mg”)
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Hydromorphone Hydrochloride 8mg tablets
(“Hydromorphone 8mg”)
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Phendimetrazine tartrate 35mg tablets
(“Phendimetrazine 35mg”)
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Phentermine 15mg capsules (“Phentermine
15mg”)
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Phentermine 30mg capsules (“Phentermine
30mg”)
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Naltrexone HCl 50mg tablets (“Naltrexone
50mg”)
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We also recently acquired approved Abbreviated
New Drug Applications (“ANDAs”) for 12 products (the “Mikah Approved ANDAs”) and one ANDA that is under
active review with the FDA (the “Mikah ANDA Application Product”) that were acquired pursuant to the asset purchase
agreement with Mikah Pharma dated August 1, 2013 (the “Mikah Asset Purchase Agreement”). On October 2, 2013, we executed
a Manufacturing and License Agreement (the “Epic Agreement”) with Epic Pharma LLC. (“Epic”), to manufacture,
market and sell in the United States and Puerto Rico 12 generic products owned by Elite. Of the 12 products, Epic will have the
exclusive right to market six products as listed in Schedule A of the Epic Agreement, and a non-exclusive right to market six products
as listed in Schedule D of the Epic Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related to
the products and for all costs related to the site transfer for all products. Pursuant to the Epic Agreement, Elite will receive
a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit, as defined in the Epic
Agreement, earned by Epic as a result of sales of the products. The manufacturing cost used for the calculation of the license
fee is a predetermined amount per unit plus the cost of the drug substance (API) and the sales cost for the calculation is predetermined
based on net sales. If Elite manufactures any product for sale by Epic, then Epic shall pay that same predetermined manufacturing
cost per unit plus the cost of the API. The license fee is payable monthly for the term of the Epic Agreement. Epic shall pay to
Elite certain milestone payments as defined by the Epic Agreement. We received the first milestone payment in November 2013. Subsequent
milestone payments are due upon the filing of each product’s supplement with the FDA and the FDA approval of site transfer
for each product as specifically itemized in the Epic Agreement. The term of the Epic Agreement is five years and may be extended
for an additional five years upon mutual agreement of the parties. Twelve months following the launch of a product covered by the
Epic Agreement, Elite may terminate the marketing rights for any product if the license fee paid by Epic falls below a designated
amount for a six month period of that product. Elite may also terminate the exclusive marketing rights if Epic is unable to meet
the annual unit volume forecast for a designated Product group for any year, subject to the ability of Epic, during the succeeding
six month period, to achieve at least one-half of the prior year’s minimum annual unit volume forecast. The Epic Agreement
may be terminated by mutual agreement of Elite and Epic, as a result of a breach by either party that is not cured within 60 days’
notice of the breach or by Elite as a result of Epic becoming a party to a bankruptcy, reorganization or other insolvency proceeding
that continues for a period of 30 days or more.
Elite has executed a license agreement
with Precision Dose, Inc. (the “Precision Dose License Agreement”) and a manufacturing agreement with The PharmaNetwork
LLC (the “TPN Agreement”). The PharmaNetwork LLC was recently purchased by Alkem Laboratories Ltd (“Alkem”).
The PharmaNetwork now goes by the name Ascend Laboratories LLC (“Ascend”) and is a wholly owned subsidiary of Alkem.
The Precision Dose License Agreement provides
for the marketing and distribution, in the United States, Puerto Rico and Canada, of Phentermine 37.5mg, Phentermine Capsules,
Hydromorphone 8mg, Naltrexone Generic, and certain additional products that require approval from the FDA. Phentermine 37.5mg tablets
were launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine 15mg and Phentermine 30mg were launched
in April 2013. Naltrexone 50mg was launched in September 2013.
On May 9, 2014 Precision Dose Inc., the
parent company of TAGI Pharmaceuticals, Inc., commenced an arbitration proceeding alleging that the Company failed to properly
supply, price and satisfy gross profit minimums regarding Phentermine 37.5mg tablets, as required by the parties’ agreements.
Elite denies Precision Dose’s allegations and has counterclaimed that Precision Dose is no longer entitled to exclusivity
rights with respect to Phentermine 37.5mg tablets, and is responsible for certain costs, expenses, price increases and lost profits
relating to Phentermine 37.5mg tablets and the parties’ agreements.
As of the date of filing of this annual
report on Form 10-K, this arbitration proceeding was ongoing.
The TPN Agreement, executed on June 23,
2011, and amended on September 24, 2012, provides for the manufacture and packaging by the Company of Ascend’s methadone
hydrochloride, 10mg tablets (“Methadone 10mg”), with the Methadone 10mg to be marketed by Ascend. The FDA has approved
the manufacturing of Methadone 10mg at the Northvale Facility and the initial shipment of Methadone 10mg occurred during January
2012.
In addition, Elite also has an undisclosed
generic product filed with the FDA that is awaiting review and for which Elite retains all rights.
The Company also has a pipeline of additional
generic drug candidates under active development.
Additionally, the Company is developing
abuse resistant opioid products, and once-daily opioid products.
On May 22, 2012, the United States Patent
and Trademark Office (“USPTO”) issued U.S. Patent No. 8,182,836, entitled “Abuse-Resistant Oral Dosage Forms
and Method of Use Thereof, with such patent providing further protection for the Company’s Abuse Resistant Technology.
On April 23, 2013, the USPTO issued U.S.
Patent No. 8,425,933, entitled “Abuse-Resistant Oral Dosage Forms and Method of User Thereof”, with such patent providing
further protection for the Company’s Abuse Resistant Technology.
On April 22, 2014, the USPTO issued U.S.
Patent No. 8,703,186, entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof”, with such patent providing
further protection for the Company’s Abuse Resistant Technology.
The Northvale Facility operates under Current
Good Manufacturing Practice (“cGMP”) and is a United States Drug Enforcement Agency (“DEA”) registered
facility for research, development and manufacturing.
Strategy
Elite is focusing its efforts on the following
areas: (i) development of Elite’s pain management products; (ii) manufacturing of a line of generic pharmaceutical products
with approved ANDAs; (iii) development of additional generic pharmaceutical products; (iv) development of the other products in
our pipeline including the products with our partners; (v) commercial exploitation of our products either by license and the collection
of royalties, or through the manufacture of our formulations; and (vi) development of new products and the expansion of our 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 (“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.
Elite believes that its business strategy
enables it to reduce its risk by having a diverse product portfolio that includes both branded and generic products in various
therapeutic categories and to build collaborations and establish licensing agreements with companies with greater resources thereby
allowing us to share costs of development and improve cash-flow.
Elite’s Purchase of a Generic
Phentermine Product
On September 10, 2010, Elite, together
with its subsidiary, Elite Laboratories, Inc., executed a Purchase Agreement (the “Phentermine Purchase Agreement”)
with Epic Pharma, LLC (“Epic Pharma”) for the purpose of acquiring from Epic an ANDA for a generic phentermine product
(the “Phentermine ANDA”), with such being filed with the FDA at the time the Phentermine Purchase Agreement was executed.
On February 4, 2011, the FDA approved the Phentermine ANDA. The acquisition of the Phentermine ANDA closed on March 31, 2011 and
Elite paid the full acquisition price of $450,000 from the purchase agreement with Epic Pharma.
This product is being marketed and distributed
by Precision Dose Inc. (“Precision Dose”) and its wholly owned subsidiary, TAGI Pharma Inc. (“TAGI”) pursuant
license and manufacturing agreements dated September 10, 2010. A description of such manufacturing and licensing agreement with
Precision Dose is set forth below.
Elite’s Purchase of a Generic
Hydromorphone HCl Product
On May 18, 2010, Elite executed an asset
purchase agreement with Mikah Pharma LLC (“Mikah”) (the “Hydromorphone Agreement”). Pursuant to the Hydromorphone
Agreement, the Company acquired from Mikah an ANDA for Hydromorphone Hydrochloride Tablets USP, 8 mg (“Hydromorphone 8mg”)
for aggregate consideration of $225,000, comprised of an initial payment of $150,000, which was made on May 18, 2010. A second
payment of $75,000 was due to be paid to Mikah on June 15, 2010, with the Company having the option to make this payment in cash
or by issuing to Mikah 937,500 shares of the Company’s Common Stock. The Company elected and did issue 937,500 shares of
Common Stock during the quarter ended December 31, 2010, in full payment of the $75,000 due to Mikah pursuant to the asset purchase
agreement dated May 18, 2010.
On May 31, 2011, the Company received a
letter from the FDA responding to a Changes Being Effected in 30 Days (“CBE 30”) supplement filed by the Company with
the agency to change the manufacturing and packaging location of the Hydromorphone Hydrochloride Tablets USP, 8 mg ANDA purchased
from Mikah Pharma. The letter from the FDA informed the Company that the agency has reclassified the application as a prior approval
supplemental application which has delayed the commercialization. On January 23, 2012, the Company received a letter from the FDA
approving the application.
As a result of the delay in commercialization
resulting from the reclassification of the Company’s application, the Company recorded an impairment of the ANDA asset acquired
from Mikah Pharma pursuant to the Hydromorphone Agreement in an amount equal to the entire purchase price of the acquisition.
This product is being marketed and distributed
by Precision Dose and its wholly owned subsidiary, TAGI, pursuant license and manufacturing agreements dated September 10, 2010.
A description of such manufacturing and licensing agreement with Precision Dose is set forth below.
Elite’s Purchase of a Generic
Naltrexone Product
On August 27, 2010, Elite executed an asset
purchase with Mikah (the “Naltrexone Agreement”). Pursuant to the Naltrexone Agreement, Elite acquired from Mikah the
ANDA number 75-274 (Naltrexone Hydrochloride Tablets USP, 50 mg), and all amendments thereto, that have to date been filed with
the FDA seeking authorization and approval to manufacture, package, ship and sell the products described in this ANDA within the
United States and its territories (including Puerto Rico) for aggregate consideration of $200,000. In lieu of cash, Mikah agreed
to accept from Elite product development services to be performed by Elite.
On December 14, 2011, the Company received
an e-mail from the FDA responding to a Changes Being Effected in 30 Days (“CBE 30”) supplement filed by the Company
with the agency to change the manufacturing and packaging location of the Naltrexone Hydrochloride Tablets USP, 50 mg ANDA purchased
from Mikah Pharma. The e-mail from the FDA informed the Company that the agency has reclassified the application as a prior approval
supplemental application which will delay the commercialization. The Company received approval from the FDA of its application
for transfer of manufacturing site and made its initial shipment in September 2013.
As a result of the delay in commercialization
resulting from the reclassification of the Company’s application, the Company recorded an impairment of the ANDA asset acquired
from Mikah Pharma pursuant to the Naltrexone Agreement in an amount equal to the entire purchase price of the acquisition.
This product is being marketed and distributed
by Precision Dose Inc. (“Precision Dose”) and its wholly owned subsidiary, TAGI Pharma Inc. (“TAGI”) pursuant
license and manufacturing agreements dated September 10, 2010. A description of such manufacturing and licensing agreement with
Precision Dose is set forth below.
Elite’s Acquisition of 13 Abbreviated
New Drug Applications (“ANDAs”)
As disclosed above, on August 1, 2013,
Elite executed an asset purchase agreement (the “Mikah Purchase Agreement”) with Mikah and acquired from Mikah a total
of 13 ANDAs, consisting of 12 ANDAs approved by the FDA and on ANDA under active review with the FDA, and all amendments thereto
(the “Mikah 13 ANDA Acquisition”) for aggregate consideration of $10,000,000, payable pursuant to a secured convertible
note due in August 2016.
Each of the products referenced in the
12 approved ANDAs require manufacturing site approval with the FDA. Elite will submit filings to the FDA for each of the products
for the manufacturing site transfer. Elite believes that the site transfers qualify for CBE 30 review, with one exception, which
would allow for the product manufacturing transfer on an expedited basis. However, Elite can give no assurances that all will qualify
for CBE 30 review, or on the timing of these transfers of manufacturing site, or on the approval by the FDA of the transfers of
manufacturing site.
As of April 22, 2014 (the latest practicable
date), Elite has been approved to manufacture, Phendimetrazine 35mg tablets at the Northvale Facility. A CBE 30 application has
been filed with the FDA and is pending for the manufacture of Isradipine 2.5mg 5mg capsules at the Northvale Facility.
Elite has executed a Manufacturing and
License Agreement with Epic Pharma dated October 2, 2013 (the “Epic Pharma Manufacturing and License Agreement”), relating
to the manufacturing, marketing and sale of these 12 ANDAs. Please see below for further details on the Epic Pharma Manufacturing
and License Agreement.
Licensing Agreement with Precision Dose
Inc.
On September 10, 2010, Elite executed a
License Agreement with Precision Dose (the “Precision Dose License Agreement”) to market and distribute Phentermine
37.5mg, Phentermine 15mg, Phentermine 30mg, Hydromorphone 8mg, Naltrexone 50mg, and certain additional products that require approval
from the FDA, through its wholly-owned subsidiary, TAGI Pharma, Inc. in the United States, Puerto Rico and Canada (the “Precision
Dose License Agreement”). Phentermine 37.5mg was launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine
15mg and Phentermine 30mg were launched in April 2013. Naltrexone 50mg was launched in September. Precision Dose will have the
exclusive right to market these products in the United States and Puerto Rico and a non-exclusive right to market the products
in Canada.
Pursuant to the Precision Dose License
Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross
profit, as defined in the Precision Dose License Agreement, earned by Precision Dose as a result of sales of the products. The
license fee is payable monthly for the term of the Precision Dose License Agreement. The milestone payments will be paid in six
installments. The first installment was paid upon execution of the License Agreement. The remaining installments are to be paid
upon FDA approval and initial shipment of the products to Precision Dose. The term of the License Agreement is 15 years and may
be extended for 3 successive terms, each of 5 years. Please see Item 3. Legal Proceedings below for details of an arbitration proceeding
commenced by Precision Dose related to certain terms and conditions of the Precision Dose License Agreement.
Manufacturing and License Agreement
with Epic Pharma LLC
On October 2, 2013, Elite executed the
Epic Pharma Manufacturing and License Agreement. This agreement granted Epic Pharma certain rights to manufacture, market and sell
in the United States and Puerto Rico the 12 approved ANDAs acquired by Elite pursuant to the Mikah Purchase Agreement. Of the 12
approved ANDAs, Epic Pharma will have the exclusive right to market six products as listed in Schedule A of the Epic Pharma Manufacturing
and License Agreement, and a non-exclusive right to market six products as listed in Schedule D of the Epic Pharma Manufacturing
and License Agreement. Epic Pharma is responsible for all regulatory and pharmacovigilance matters related to the products and
for all costs related to the site transfer for all products. Pursuant to the Epic Pharma Manufacturing and License Agreement, Elite
will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit, as defined
in the Epic Pharma Manufacturing and License Agreement, earned by Epic Pharma a result of sales of the products. The manufacturing
cost used for the calculation of the license fee is a predetermined amount per unit plus the cost of the drug substance (API) and
the sales cost for the calculation is predetermined based on net sales. If Elite manufactures any product for sale by Epic Pharma,
then Epic Pharma shall pay to Elite that same predetermined manufacturing cost per unit plus the cost of the API. The license fee
is payable monthly for the term of the Epic Pharma Manufacturing and License Agreement. Epic Pharma shall pay to Elite certain
milestone payments as defined by the Epic Pharma Manufacturing and License Agreement. The first milestone payment of $600,000 has
been paid. Subsequent milestone payments are due upon the filing of each product’s supplement with the FDA, and the FDA approval
of site transfer for each product as specifically itemized in the Epic Pharma Manufacturing and License Agreement. The filing of
the supplement with the FDA for Isradipine 2.5mg and Isradipine 5mg was made on March 24, 2014 and accordingly a milestone of $200,000
has been earned and is due and owing from Epic Pharma to Elite. The term of the Epic Pharma Manufacturing and License Agreement
is five years and may be extended for an additional five years upon mutual agreement of the parties. Twelve months following the
launch of a product covered by the Epic Pharma Manufacturing and License Agreement, Elite may terminate the marketing rights for
any product if the license fee paid by Epic Pharma falls below a designated amount for a six month period of that product. Elite
may also terminate the exclusive marketing rights if Epic Pharma is unable to meet the annual unit volume forecast for a designated
product group for any year, subject to the ability of Epic Pharma, during the succeeding six month period, to achieve at least
one-half of the prior year’s minimum annual unit forecast. The Epic Pharma Manufacturing and License Agreement may be terminated
by mutual agreement of Elite and Epic Pharma, as a result of a breach by either party that is not cured within 60 days notice of
the breach, or by Elite as a result of Epic Pharma becoming a party to a bankruptcy, reorganization or other insolvency proceeding
that continues for a period of 30 days or more.
Research and Development
Elite is actively involved in research
and development activities, particularly in relation to the development of a line of abuse deterrent opioid products. We incurred
total costs of approximately $4.0 million during the fiscal year ended March 31, 2014 (“Fiscal 2014”) and approximately
$1.0 million during the fiscal year ended March 31, 2013 (“Fiscal 2013”) in relation to research and development activities.
It is, however, our general policy, for competitive reasons, and because disclosure of certain information might suggest the occurrence
of future matters or events that may not occur, not to disclose specific products in our development pipeline or the status of
such product development activities until a product reaches a stage that we determine, in our discretion, to be appropriate for
disclosure.
Commercial Products
Phentermine 37.5mg, Phentermine 15mg
and Phentermine 30mg
The first shipment of Phentermine 37.5
mg to TAGI was made in April 2011, with such initial shipment triggering a milestone payment under the Precision Dose License Agreement.
The first shipments of Phentermine 15mg and Phentermine 30mg were made in April 2013, with such initial shipments triggering a
milestone payment under the Precision Dose License Agreement, with such milestone payments being made. All three products are now
commercial products being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Lodrane D® Immediate Release
capsules
On September 27, 2011, the Company, along
with ECR Pharmaceuticals (“ECR”), a wholly owned subsidiary of Hi-Tech Pharmacal (“Hi-Tech”) launched Lodrane
D®, an immediate release formulation of brompheniramine maleate and pseudoephedrine HCl, an effective, low-sedating antihistamine
combined with a decongestant.
Lodrane D® is promoted and distributed
in the U.S. by ECR, Hi-Tech’s branded division. Lodrane D® is available over-the-counter but also has physician promotion.
Lodrane D® is the one of the only adult brompheniramine containing products available to the consumer at this time.
Lodrane D® is marketed under the Over-the-Counter
Monograph (the “OTC Monograph”) and accordingly, under the Code of Federal Regulations can be lawfully marketed in
the US without prior approval. Under the Federal Food Drug and Cosmetic Act (“FDCA”), FDA regulations and statements
of FDA policy, certain drug products are permitted to be marketed in the U.S. without prior approval. Within the past few years,
the FDA has revised its enforcement policies, significantly limiting the circumstances under which these unapproved products may
be marketed. If the FDA determines that a company is distributing an unapproved product that requires approval, the FDA may take
enforcement action in a variety of ways, including, without limitation, product seizures and seeking a judicial injunction against
distribution.
Elite is manufacturing the product for
ECR and will receive revenues for the manufacturing, packaging and laboratory stability study services for the product, as well
as royalties on sales.
Methadone 10mg tablets
On January 17, 2012, Elite commenced shipping
Methadone 10mg tablets to Ascend Laboratories, LLC. (“Ascend”) pursuant to a commercial manufacturing and supply agreement
dated June 23, 2011 between Elite and Ascend (the “Methadone Manufacturing and Supply Agreement”). Under the terms
of the Methadone Manufacturing and Supply Agreement, Elite performs manufacturing and packaging of Methadone 10mg for Ascend.
Hydromorphone 8mg tablets
The first shipment of Hydromorphone 8mg
to TAGI was made in March 2012, with such initial shipment triggering a milestone payment under the Precision Dose License Agreement.
This product is now a commercial product being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Phendimetrazine Tartrate 35 mg tablets
On November 13, 2012, the Company made
the initial shipment of Phendimetrazine tartrate 35mg tablets, the generic equivalent of Bontril PDM® 35mg tablets under a
previously announced manufacturing and supply agreement with Mikah Pharma (“Mikah”). Subsequently, Elite acquired the
ANDA for Phendimetrazine 35mg as part of the Mikah 13 ANDA Acquisition. This product is now a commercial product being manufactured
by Elite and distributed by Epic on a non-exclusive basis, and by Elite.
Naltrexone 50mg tablets
The first shipment of Hydromorphone 8mg
to TAGI was made in September 2013, with such initial shipment triggering a milestone payment under the Precision Dose License
Agreement. This product is now a commercial product being manufactured by Elite and distributed by TAGI under the Precision Dose
License Agreement.
Approved Products
Elite is the owner of the following approved
Abbreviated New Drug Applications:
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Isradipine
2.5mg tablets and Isradipine 5mg tablets (“Isradipine tablets”)
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10
undisclosed ANDAs acquired as part of the Mikah 13 ANDA Acquisition
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Phentermine HCl 37.5mg tablets
The ANDA for Phentermine 37.5mg was acquired
pursuant to an asset purchase agreement with Epic Pharma LLC (“Epic”) dated September 10, 2010 (the “Phentermine
Purchase Agreement”).
Hydromorphone HCl 8mg tablets
The ANDA for Hydromorphone 8mg was acquired
pursuant to an asset purchase agreement with Mikah Pharma LLC (the “Hydromorphone Purchase Agreement”).
Transfer of the manufacturing process of
Hydromorphone 8mg to the Northvale Facility, a prerequisite of the Company’s commercial launch of the product, was approved
by the FDA on January 23, 2012. However, please note that the completion of such transfer had been significantly delayed as a result
of the FDA’s reclassification of the Company’s CBE-30 supplement filing to a prior approval supplement filing. As a
result of the delays caused by this reclassification, the Company recorded an impairment of the Hydromorphone 8mg ANDA in an amount
equal to the entire purchase price of the acquisition. This impairment was recorded and is included in the Company’s audited
financial statements as of March 31, 2011.
Naltrexone HCl 50mg tablets
The ANDA for Naltrexone 50mg was acquired
pursuant to an asset purchase agreement with Mikah Pharma LLC (the “Naltrexone Purchase Agreement”).
Transfer of the manufacturing process of
Naltrexone 50mg to the Northvale Facility, a prerequisite of the Company’s commercial launch of the product, was approved
and initial shipment of Naltrexone 50mg was made in September 2013. However, please note that the completion of such transfer had
been significantly delayed as a result of the FDA’s reclassification of the Company’s CBE-30 supplement filing to a
prior approval supplement filing. As a result of the delays caused by this reclassification, the Company recorded an impairment
of the Naltrexone 50mg ANDA in an amount equal to the entire purchase price of the acquisition. This impairment was recorded and
is included in the Company’s audited financial statements as of March 31, 2011.
Phentermine 15mg and Phentermine
30mg
Elite received approval as of September
28, 2012 from the FDA for Phentermine 15mg and Phentermine 30mg. These products were developed by Elite. The commercial launch
of Phentermine 15mg and Phentermine 30mg had been delayed due to the sole supplier of the API approved for these products restricting
the amount of such API available to Elite. We resolved this issue and the Phentermine 15mg and Phentermine 30mg products were launched
in April 2013. The resolution of this issue related to the supply of API, however, required us to pay substantially higher prices
than previously paid for the Phentermine API in order to launch the products in April 2013, while seeking approval from the FDA
of an alternate supplier of the API. Approval by the FDA of the alternate supplier was received in January 2014, resulting in lower
prices and a sufficient supply of materials.
Phendimetrazine 35mg
The ANDA for Phendimetrazine 35mg was acquired
by Elite as part of the Mikah 13 ANDA Acquisition. The Northvale Facility was already an approved manufacturing site for this product
as of the date of the Mikah Purchase Agreement. Prior to the acquisition of this ANDA, Elite had been manufacturing this product
on a contract basis pursuant to a manufacturing and supply agreement with Mikah Pharma, dated June 1, 2011 (please see below for
details).
Contract Manufacturing of Isradipine
and Phendimetrazine
On June 1, 2011, Elite executed a Manufacturing
and Supply Agreement (the “Isradipine/ Phendimetrazine Agreement”) with Mikah Pharma, LLC (“Mikah”) to
undertake and perform certain services relating to two generic products: Isradipine Capsules USP, 2.5 mg and 5 mg (“Isradipine”)
and Phendimetrazine Tartrate Tablets USP, 35 mg (“Phendimetrazine”), including (a) developing and preparing the documentation
required for the transfer of the manufacturing process to Elite’s facility and the appropriate regulatory filing for the
ANDA, and (b) manufacturing finished dosage forms appropriate for commercial sale, marketing and distribution in the United States,
its territories, possessions, and commonwealths in accordance with the requirements of the Isradipine/ Phendimetrazine Agreement;
Elite is required to perform, at its sole cost and expense, all Technology Transfer, validation and qualification services (including:
equipment, methods and facility qualification), validation and stability services required by Applicable Laws to commence manufacturing
Isradipine and Phendimetrazine for commercial sale by Mikah or its designees in accordance with the terms of the Isradipine/ Phendimetrazine
Agreement. During the term of the Isradipine/ Phendimetrazine Agreement and subject to the provisions therein, Mikah is required
to purchase from Elite and Elite agrees to manufacture and supply solely and exclusively to Mikah, such Isradipine and Phendimetrazine
as Mikah may order from time to time pursuant to the Isradipine/ Phendimetrazine Agreement. Mikah will compensate Elite at an agreed
upon transfer price for the manufacturing and packaging of Isradipine and Phendimetrazine. For the Isradipine product, Elite will
also receive a 10% royalty on net profits of the finished Product. The payment is to be calculated and paid quarterly. Elite will
also receive a onetime milestone payment for each Product for the work associated with the Technology transfer. The milestone payment
shall be made upon the successful manufacturing and testing of the exhibit batch. The Isradipine/ Phendimetrazine Agreement has
a term of five years and automatically renews for additional periods of one year unless Mikah provides written notice of termination
to Elite at least six months prior to the expiration of the Term or any Renewal Term.
On November 13, 2012, the Company made
the initial shipment of Phendimetrazine tartrate 35mg tablets, the generic equivalent of Bontril PDM® 35mg tablets under a
previously announced manufacturing and supply agreement with Mikah Pharma (“Mikah”).
Bontril PDM® and its generic equivalents
had total U.S. sales of approximately $3.5 million for the twelve months ended September 2012, based on IMS Health Data. The Company
will be compensated at an agreed upon price for the manufacturing and packaging of this product.
On August 1, 2013, Elite executed the Mikah
Purchase Agreement in relation to the Mikah 13 ANDA Acquisition, with such transaction including the transfer of ANDAs for Phendimetrazine
35mg and Isradipine 2.5mg and 5mg. In addition, the principal owner of Mikah, Mr. Nasrat Hakim, assumed the position of Elite’s
Chief Executive Officer and President on August 2, 2013. Accordingly, the Mikah Purchase Agreement has been terminated by mutual
consent of the parties thereto.
Development and License Agreement with
Hong Kong based company
On March 16, 2012, Elite executed a Development
and License Agreement (“D&L Agreement”) with a private Hong Kong-based company (the “Hong Kong-based Customer”)
for Elite to develop for the Hong Kong-based Customer a branded prescription pharmaceutical product in the United States. The Hong
Kong-based Customer has informed us that it has been in business for more than five years and it has multiple FDA approved manufacturing
sites outside of the United States.
Pursuant to the D&L Agreement, the
Hong Kong-based Customer has engaged Elite to develop and manufacture a prescription pharmaceutical product (the “Prescription
Product”). Elite agrees to be the Preferred Manufacturer and supplier of the Prescription Product pursuant to the D&L
Agreement and perform maintenance activities such as stability or annual report filings for the Prescription Product. The Hong
Kong-based Customer, or its designees, shall prepare all applications necessary to obtain any Prescription Product registration
and permits required to file the Prescription Product in the Territories required to market the Prescription Product. All Registrations
shall be solely owned by the Hong Kong-based Customer including any NDA filed with the FDA for the Prescription Product. Elite
shall provide the Hong Kong-based Customer with all pharmaceutical, technical, and clinical data and information in support of
the NDA application by the Hong Kong-based Customer for the approval of the Prescription Product. In consideration of Elite’s
performance in accordance with the terms and conditions of the D&L Agreement, the Hong Kong-based Customer shall pay Elite
milestone for the Development Program and shall pay Elite for the manufacturing of the Prescription Product. Maintenance activities
will be paid separately on a quarterly basis.
The Hong Kong-based Customer shall own
and market the Prescription Product under its own Trademark. The term of this D&L Agreement shall be effective from the date
consummated and shall continue for a five (5) year term after the commercial launch of the Prescription Product. Upon the expiration
of the initial term or any renewal term, this D&L Agreement will automatically renew for an additional one (1) year term, unless
one Party gives at least six (6) months notice in writing in advance of its intent not to renew.
Discontinued Products - Lodrane 24®
and Lodrane 24D®
On March 3, 2011, the FDA announced its
intention to remove approximately 500 cough/cold and allergy related products from the U.S. market. The once daily allergy products
manufactured by Elite, Lodrane 24® and Lodrane 24D® (the “Lodrane® Extended Release Products”), were included
in the FDA list of 500 products. After this announcement by the FDA, the Company’s customer for the Lodrane® Extended
Release Products cancelled all outstanding orders and manufacturing of the Lodrane® Extended Release Products has ceased. The
shipments made during the quarter ended June 30, 2011 consisted solely of quantities that were in production at the time ECR cancelled
all outstanding orders. There were no shipments of the Lodrane Extended Release Products subsequent to those that were made during
the quarter ended June 30, 2011.
ECR (the owner and marketer of the Lodrane®
Extended Release Products) initiated a formal approval process with the FDA in 2010 regarding the Lodrane® Extended Release
Products and issued a press release on March 3, 2011 stating that they will continue to actively pursue approval for the Lodrane®
Extended Release Products. In addition, on April 29, 2011, ECR filed a Petition for Review with the United States Court of Appeals
for the District of Columbia, petitioning such court to review and set aside the final order of the FDA with relation to the Lodrane®
Extended Release Products. The Company has received no further information from ECR with regards to the status of the Petition
filed.
The Lodrane® Extended Release Products
were co-developed with our partner, ECR, and the Company was receiving revenues from the manufacture of the Lodrane® Products
and laboratory stability study services, as well as royalties on in-market sales. Contracts relating to the manufacture and sale
of the Lodrane® Extended Release Products were formally terminated on April 26, 2013.
During the three months ended June 30,
2011, Elite made its final shipments of the Lodrane® Extended Release Products. In addition, the Company sold to ECR, at cost
without markup, all raw materials related to the manufacture of the Lodrane® Extended Release Products which remained in stock
subsequent to the final shipment of the Lodrane® Extended Release Products. As manufacturing of the Lodrane® Extended Release
Products has ceased, there will be no further manufacturing revenues derived from the Lodrane® Extended Release Products unless
and until such products receive the necessary approvals from the FDA.
Please note that there can be no assurances
that such approvals will be granted or that future manufacturing revenues will be earned by the Company from the manufacture of
the Lodrane® Extended Release Products, should such approvals be granted by the FDA. Furthermore, the Company has been advised
that ECR has decided not to proceed with the development of the extended release formulations marketed under the Lodrane® brand.
The Company also has no plans currently to proceed with the development of an extended release brompheniramine/pseudoephedrine
product. Notwithstanding the foregoing, Elite may proceed with the development of these formulations and may seek partners in conjunction
with such activities, but there can be no assurances that the Company will pursue the development of these formulations, or that
such development activities, if pursued, will result in approvals from the FDA. Please also note that the Company does not have
ownership of the Lodrane® brand name, and that if any products containing the formulations associated with the Lodrane®
brand name are approved and marketed, such would be done under a different brand name.
While Elite’s manufacturing of the
Lodrane® Extended Release Products has ceased, the sale of such products in the US market was still permitted by the FDA until
August 30, 2011. The Company earned royalties on any in-market sales that occurred up to that date.
Contract laboratory services for the Lodrane®
Extended Products will continue, on a residual basis, as such services consist of stability studies that must be performed over
certain defined time periods. These revenues are expected to be significantly less than laboratory service revenues earned in periods
prior to the removal of the Extended Release Lodrane products from the market and eventually ending.
Products Under Development
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.
Abuse Resistant and Sustained Release
Opioids
The abuse resistant opioid products utilize
our patented abuse-deterrent technology that is based on a pharmacological approach. These products are combinations of a narcotic
agonist formulation intended for use in patients with moderate to severe pain, and an antagonist, formulated to deter abuse of
the drug. Both, agonist and antagonist, have been on the market for a number of years and sold separately in various dose
strengths. Elite has filed INDs for the first two abuse resistant products under development and has tested products
in various pharmacokinetic studies. Elite expects to continue to develop multiple abuse resistant products. Products utilizing
the pharmacological approach to deter abuse such as Suboxone®, a product marketed in the United States by Reckitt Benckiser
Pharmaceuticals, Inc., and Embeda®, a product marketed in the United States by Pfizer, Inc., have been approved by the FDA
and are being marketed in the United States.
Elite has developed, and retains the rights
to these abuse resistant and sustained release opioid products. Elite may license these products at a later date to
a third party who could provide funding for the remaining clinical studies and who could provide sales and distribution for the
product. The drug delivery technology development underlying the sustained release products was initiated 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 the sustained release opioid products. Upon licensing or commercialization of a once daily oxycodone product,
Elite will pay a royalty to Elan pursuant to the Termination Agreement. If Elite were to sell the product itself, Elite
will 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.
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 owned less than 10% of the outstanding shares of Class A Voting Common
Stock of Novel.
Elite commenced an action against VGS,
Novel and related parties (collectively, the “VGS Parties”) related to the Novel transactions. The action was settled
and, pursuant to that settlement, in June 2014, Elite received $5,000,000 from the VGS Parties in exchange for 9,800 shares of
Novel Class A common stock owned by Elite. This resolved all disputes and claims between the Company and the VGS Parties and ended
the Company’s ownership in Novel.
Patents
Since our incorporation, we have secured
eight United States patents of which two have been assigned for a fee to another pharmaceutical company. Elite’s patents
are:
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PATENT
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EXPIRATION DATE
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U.S. patent 5,837,284 (assigned to Celgene Corporation)
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November 2018
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U.S. patent 6,620,439
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October 2020
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U.S. patent 6,635,284 (assigned to Celgene Corporation)
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March 2018
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U.S. patent 6,926,909
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April 2023
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U.S. patent 8,182,836
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April 2024
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U.S. patent 8,425,933
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April 2024
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U.S. patent 8,703,186
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April 2024
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Canadian patent 2,521,655
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April 2024
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We also have pending applications for two
additional U.S. patents and three foreign patents. 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.
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 other entities engaged in the marketing of pharmaceuticals 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.
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.
Please note that, as discussed in “Discontinued
Products” above, in March 2011, the FDA announced its intention to remove approximately 500 cough/cold and allergy related
products from the U.S. market, with such list of 500 products including the Lodrane Extended Release Products. After this announcement
by the FDA, the Company’s customer for the Lodrane Products cancelled all outstanding orders and manufacturing of the Lodrane
Products has ceased. This cancellation of outstanding orders and the cessation of manufacturing of Lodrane Products has had a material
adverse effect on revenues for periods beginning subsequent to March 31, 2011.
Lodrane D® which is an immediate release
product that is different from the Lodrane Products that were included in the list of products removed from the market by the FDA,
is marketed under the Over-the-Counter Monograph (the “OTC Monograph”) and accordingly, under the Code of Federal Regulations
can be lawfully marketed in the U.S. without prior approval. Under the Federal Food Drug and Cosmetic Act (“FDCA”),
FDA regulations and statements of FDA policy, certain drug products are permitted to be marketed in the U.S. without prior approval.
Within the past few years, the FDA has revised its enforcement policies, significantly limiting the circumstances under which these
unapproved products may be marketed. If the FDA determines that a company is distributing an unapproved product that requires approval,
the FDA may take enforcement action in a variety of ways, including, without limitation, product seizures and seeking a judicial
injunction against distribution.
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.
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.
cGMP
All facilities and manufacturing techniques
used for the manufacture of products for clinical use or for sale must be operated in conformity with cGMP regulations issued by
the FDA. We engage in manufacturing on a commercial basis for distribution of products, and operate our facilities in accordance
with cGMP regulations. If we hire another company to perform contract manufacturing for us, we must ensure that our contractor’s
facilities conform to cGMP 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 legal successor 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.
Competition
We have competition with respect to our
two principal areas of operation. We develop and manufacture generic products and products using controlled-release drug technology
, and we develop and market (either on our own or by license to other companies) generic and proprietary controlled-release pharmaceutical
products. In both areas, our competition consists of those companies which develop controlled-release drugs and alternative drug
delivery systems. We do not represent a significant presence in the pharmaceutical industry.
An increasing number of pharmaceutical
companies have become interested in the development and commercialization of products incorporating advanced or novel drug delivery
systems. 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
Pfizer, Sandoz (a Novartis company), Durect Corporation, Mylan Laboratories, Inc., Par Pharmaceuticals, Inc., Alkermes, Inc., Teva
Pharmaceuticals Industries Ltd., Impax Laboratories, Inc., and Actavis. 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 Pfizer Inc.,
Pain Therapeutics (which has an agreement with Durect Corporation and Pfizer Inc.), 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.
Sources and Availability of Raw Materials;
Manufacturing
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:
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greater possibility for disruption due
to transportation or communication problems;
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the relative instability of some foreign
governments and economies;
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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
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uncertainty regarding recourse to a dependable
legal system for the enforcement of contracts and other rights.
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Please see the Risk Factor in Part I, Item
1A entitled “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”.
While we currently obtain the raw materials
that we need from over 20 suppliers, some materials used in our products are currently available from only one supplier or a limited
number of suppliers. 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 this regard, the commercial launch of
Phentermine 15mg and Phentermine 30mg was delayed due to the sole supplier of the API approved for these products restricting the
amount of such API available to Elite. The API supplier required us to pay substantially higher prices than previously paid for
the Phentermine API while we sought approval from the FDA of an alternate supplier of the API. Such approval was recently received,
resulting in lower prices and a sufficient supply of materials. Please see “Approved Products; Phentermine 15mg and Phentermine
30mg “ above.
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 agreements with Epic, ECR, Precision Dose and TPN for the sales and distribution
of products that we manufacture. We receive revenues to manufacture these products and also receive a profit split or royalties
based on in-market sales of the products.
In April 2011, we ceased production of
the Lodrane Extended Release Products, which are the subject of the agreements with ECR, pursuant to the FDA’s announcement
of its intention to remove approximately 500 cough/cold and allergy related products from the US market, including the Lodrane
Extended Release Products. While the announcement by the FDA had a minimal effect on the Company’s results for Fiscal 2011,
the Lodrane Extended Release Products for which production has ceased were responsible for 97% of the Company’s revenues.
The announcement by the FDA accordingly has a material adverse effect on the Company’s revenues for periods beginning after
March 31, 2011.
Employees
As of June 30, 2014, we had 38 full time
employees. Full-time employees are engaged in operations, 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
An investment in the Company’s Common
Stock involves a high degree of risk. You should carefully consider the risks described below as well as other information provided
to you in this report, including information in the section of this document entitled “Forward Looking Statements.”
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known
to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually
occur, our business, financial condition or results of operations could be materially adversely affected, the value of our Common
Stock could decline, and you may lose all or part of your investment.
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:
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obtain
regulatory approval of our products;
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manage
our growth, control expenditures and align costs with revenues;
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attract,
retain and motivate qualified personnel; and respond to competitive developments.
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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 from
operations in each year since our incorporation in 1990. During the past two fiscal years, we incurred net losses from operations
of $5,283,624 and $1,563,133, respectively We expect to continue to incur losses until we are able to generate sufficient revenues
to support our operations and offset operating costs.
We may require additional financing
to meet our business objectives and to continue as a going concern.
Although we believe that we have adequate
financial resources on hand as of March 31, 2014 to complete the clinical trials and file a marketing approval application with
the FDA for one abuse resistant opioid product and also ensure operations through March 31, 2015, we cannot assure that we will
not need additional funding to accomplish our plans to conduct the clinical development and commercialization of a range of multiple
abuse resistant opioids on an accelerated pace.
As of March 31, 2014, we had cash reserves
of approximately $6.9 million and a working capital surplus of $3.8 million, and, for the fiscal year ended March 31, 2014, we
had losses from operations totaling $5.3 million, net other expenses totaling $91.6 million and a net loss of $96.6 million.
During the year ended March 31, 2014, we
raised approximately $10 million from the sale of shares to with Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant
to a prior April 19, 2013 purchase agreement. While that agreement terminated in March 2014 with the sale of all shares covered
by that agreement, we entered into a new purchase agreement (the “Purchase Agreement”) with Lincoln Park in April 2014,
pursuant to which we could raise up to $40 million (see “Part II, Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations; Liquidity and Capital Resources; Lincoln Park Capital” below). As of June
20, 2014, we have sold approximately 2.4 million shares pursuant to the Purchase Agreement, with proceeds of such sales totaling
approximately $0.9 million. In addition, both Nasrat Hakim, our CEO, and Jerry Treppel, our Chairman, have each provided Elite
with a revolving bridge credit line of up to $1,000,000.
Pursuant to the Purchase Agreement with
Lincoln Park, we may direct Lincoln Park to purchase up to $40,000,000 worth of shares of our common stock under our agreement
over a 36 month period generally in amounts up to 500,000 shares on any such business day. However, Lincoln Park shall not be required
to purchase more than $760,000 worth of stock on any business day and cannot purchase any shares of our common stock on any business
day that the closing sale price of our common stock is less than $0.10 per share, subject to adjustment as set forth in the Purchase
Agreement. Assuming a purchase price of $0.425 per share (the closing sale price of the common stock on June 20, 2014) and only
101,735,704 shares available for purchase, we would receive $40 million in gross proceeds from purchases under the Purchase Agreement
by Lincoln Park, inclusive of the $0.9 million already received for sales of shares prior to June 20, 2014.
The extent we rely on Lincoln Park as a
source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent
to which we are able to secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove
unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital
needs. Even if we sell all $40,000,000 under the Purchase Agreement to Lincoln Park, we may still need additional capital to fully
implement our business, operating and development plans.
We are anticipating that, with the growth
of the current generic product line consisting of generic phentermine tablets and capsules, hydromorphone, naltrexone, methadone,
phendimetrazine and immediate release Lodrane D®, combined with the successful transfer of manufacturing site and commercial
launch of the 12 approved generic products licensed to Epic Pharma LLC and other opportunities in our pipeline, Elite eventually
could be profitable. However, there can be no assurances that we will be able to timely raise additional funds, if needed, on acceptable
terms through the Purchase Agreement or otherwise, that the sales of the current generic product line will continue, that the 12
approved generic products licensed to Epic Pharma LLC will be successfully commercialization and generate future revenues or that
the other opportunities in our pipeline will be successfully commercialized. There can also be no assurances of Elite becoming
profitable
To sustain operations and meet our business
objectives we must be able to commercialize our products and other products or pipeline opportunities. If we are unable to timely
obtain additional financing, if necessary, and/or we are unable to timely generate greater revenues from our operations, we will
be required to reduce and, possibly, cease operations and liquidate our assets. No assurance can be given that we will be able
to commercialize the new opportunities, or consummate such other financing or strategic alternative in the time necessary to avoid
the cessation of our operations and liquidation of our assets.
We are in default on our obligations
under the NJEDA Bonds. If we are unable to work out an arrangement to delay payment, repay or otherwise cure or settle this default,
our ability to operate in the future will be materially and adversely affected.
We are in default of our obligations on
a loan through tax-exempt bonds from the New Jersey Economic Development Authority (“NJEDA”). Our liability under this
obligation as of March 31, 2014 was approximately $3.4 million. Our real property and the improvements thereon are encumbered by
a mortgage in favor of as security for a loan through the NJEDA Bonds. We have received Notices of Default from the Trustee in
relation to the utilization of the debt service reserve fund for of semi-annual interest payments from March 2009 to the present
and for the non-payment of principal amounts due on September 1, 2010, 2011, 2012 and 2013.
On June 20, 2014, subsequent to the end
of Fiscal 2014 and in accordance with the terms and conditions of the bond indenture, the Company provided to the Trustee of the
NJEDA Bonds written notice of its intent to redeem those bonds which were due and payable as of the same date.
The bond indenture requires that the Company
provide the Trustee with 60 days written notice (or such shorter period agreeable to the Trustee), and that the Trustee would then
notify the Depository Trust Company (“DTC”) of the bonds which are to be redeemed. The DTC is then required to provide
to the applicable bondholders notice of no less than 30 days nor more than 45 notice of the redemption.
Through the written notification, the Company
has advised the Trustee of its ability and intentions to pay all amounts due and owing currently and separately, has advised the
Trustee of its ability and intentions to pay the principal and interest payments which are due and payable on September 1, 2014.
The Company is cooperating with the Trustee
to redeem all bonds currently due and owing, as well as those due on September 1, 2014, with the objective of curing all monetary
defaults and achieving full compliance with the terms and conditions of the bonds as soon as possible.
While the Company has replenished all amounts
withdrawn from the debt service reserve fund in accordance with the terms of the bond agreement, is in the process of paying all
amounts in arrears and is also able to make the annual principal payment and semi-annual interest payment due on September 1, 2014
without utilizing the debt service reserve fund, there can be no assurances of the Company being able to make future semi-annual
interest payments without utilizing the debt service reserve fund, nor can there be assurances of the Company being able to replenish
the debt service reserve fund in the future. In addition, there can be no assurances of the Company being able to pay the principal
payments which are due in the future
We believe that the successful resolution
of the bond defaults will have a significant and positive effect on the Company’s ability to operate as a going concern.
For more information on the NJEDA Bonds, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations; Liquidity and Capital Resources; NJEDA Bonds”.
Elite’s pipeline consists of
products in various stages of development, including products in early development.
Elite’s product pipeline, including
its abuse deterrent opioid products, are in various stages of development. Prior to commercialization, product development must
be completed that could include scale-up, clinical studies, regulatory filing, regulatory review, approval by the FDA, and/or other
development steps. Additionally, Elite has 12 approved generic products for which a site transfer must be completed prior to product
launches. For these generic products, Elite must complete site transfer studies, file a changes being effective in 30 days (CBE
30) and await FDA review and approval. Development is subject to risks. We cannot assure you that development will be successful,
or that during development unexpected delays might occur or additional costs might be incurred.
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.
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:
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ineffectiveness of our product candidate
or perceptions by physicians that the product candidate is not safe or effective for a particular indication;
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inability to manufacture sufficient quantities
of the product candidate for use in clinical trials;
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delay or failure in obtaining approval
of our clinical trial protocols from the FDA or institutional review boards;
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slower than expected rate of patient recruitment
and enrollment; inability to adequately follow and monitor patients after treatment; difficulty in managing multiple clinical sites;
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unforeseen safety issues;
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government or regulatory delays; and
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clinical trial costs that are greater
than we currently anticipate.
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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 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:
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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;
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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;
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expected revenue might not be generated
because milestones may not be achieved and product candidates may not be developed;
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collaborators and licensees could independently
develop, or develop with third parties, products that could compete with our future products;
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the terms of our contracts with current
or future collaborators and licensees may not be favorable to us in the future;
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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;
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disputes may arise delaying or terminating
the research, development or commercialization of our product candidates, or result in significant and costly litigation or arbitration;
and
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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.
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We have been dependent on one or
a few major customers. If we are unable to develop more customers our business most likely will be adversely affected
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 agreements with ECR and Precision Dose for the sales and distribution
of products that we manufacture. We receive revenues to manufacture these products and also receive a profit split or royalties
based on in-market sales of the products.
In April 2011, we ceased production of
the Lodrane Extended Release Products, which are the subject of the agreements with ECR, pursuant to the FDA’s announcement
of its intention to remove approximately 500 cough/cold and allergy related products from the US market, including the Lodrane
Extended Release Products. After this announcement by the FDA, the Company’s customer for the Lodrane Extended Release Products
cancelled all outstanding orders and manufacturing of the Lodrane Extended Release Products has ceased. The Lodrane Extended Release
Products for which production has ceased were responsible for 97% of the Company’s revenues during the fiscal year ended
March 31, 2011. The cessation of production of the Lodrane Extended Release Products has had a material adverse effect on Elite’s
revenues for all periods beginning after March 31, 2011.
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 eight patents and we
have five 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 or obtained by other entities or become known, obtained or 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 the 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 routinely bring litigation against applicants and allege patent infringement
or other violations of intellectual property rights as the basis for filing suit against an applicant. Elite develops, owns and/or
manufactures generic and branded pharmaceutical products and such drug products may be subject to such litigation. 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.
Please note that in May 2014, Precision
Dose Inc, the parent company of TAGI Pharmaceuticals, Inc., commenced an arbitration alleging that we failed to properly supply,
price and satisfy gross profit minimums regarding Phentermine 37.5mg tablets, as required by the parties’ agreements. We
deny Precision Dose’s allegations and have counterclaimed that Precision Dose is no longer entitled to exclusivity rights
with respect to Phentermine 37.5mg tablets, and is responsible for certain costs, expenses, price increases and lost profits relating
to Phentermine 37.5mg tablets and the parties’ agreements. Please see “Item 3. Legal Proceedings” below.
The pharmaceutical industry is highly
competitive and subject to rapid and significant technological change, which could impair our ability to implement our business
model.
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:
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obtaining new patents on drugs whose original
patent protection is about to expire;
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filing patent applications that are more
complex and costly to challenge;
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filing suits for patent infringement that
automatically delay approval from the FDA;
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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;
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changing product claims and product labeling;
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developing and marketing as over-the-counter
products those branded products which are about to face generic competition; and
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making arrangements with managed care
companies and insurers to reduce the economic incentives to purchase generic pharmaceuticals.
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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:
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acceptable
evidence of safety and efficacy;
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relative
convenience and ease of administration;
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the
prevalence and severity of any adverse side effects;
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availability
of alternative treatments;
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pricing
and cost effectiveness;
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effectiveness
of sales and marketing strategies; and
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ability
to obtain sufficient third-party coverage or reimbursement.
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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 and there is a risk of a sole approved
supplier significantly raising prices. Please note that such an occurrence has taken place recently, wherein significant price
increases from a sole supplier greatly reduced profit margins, sales and delayed product launches. These occurrences were ultimately
resolved by the successful FDA approval of an alternate supplier, with such approval process being lengthy and costly.
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, without limitation:
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greater possibility for disruption due
to transportation or communication problems;
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the relative instability of some foreign
governments and economies;
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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
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uncertainty regarding recourse to a dependable
legal system for the enforcement of contracts and other rights.
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In addition, 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 as evidenced by the FDA’s removal from the market
of our Lodrane® extended release product line. In addition, although Lodrane D® is marketed under the Over-the-Counter
Monograph and, accordingly, can be lawfully marketed in the US without prior regulatory approval, the FDA has revised its enforcement
policies during the past few years, significantly limiting the circumstances under which unapproved products may be marketed.
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 at 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.
On March 4, 2011, the FDA issued a directive
removing from the market approximately 500 cough/cold and allergy products, including our Lodrane® extended release product
line. The Lodrane® extended release products constituted approximately 97% of our revenues at the time of FDA’s directive.
Lodrane D® is marketed under the Over-the-Counter
Monograph (the “OTC Monograph”) and accordingly, under the Code of Federal Regulations can be lawfully marketed in
the US without prior approval. Under the Federal Food Drug and Cosmetic Act (“FDCA”), FDA regulations and statements
of FDA policy, certain drug products are permitted to be marketed in the U.S. without prior approval. Within the past few years,
the FDA has revised its enforcement policies, significantly limiting the circumstances under which these unapproved products may
be marketed. If the FDA determines that a company is distributing an unapproved product that requires approval, the FDA may take
enforcement action in a variety of ways, including, without limitation, product seizures and seeking a judicial injunction against
distribution.
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
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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 the date hereof.
RISKS RELATED TO 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, 2014, the closing sale price on the OTC Bulletin Board (“OTC-BB”)
of our Common Stock fluctuated from a high of $0.94 per share to a low of $0.07 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, without limitation:
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Results
of our clinical trials;
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Approval
or disapproval of our ANDAs or NDAs;
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Announcements
of innovations, new products or new patents by us or by our competitors;
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Governmental
regulation;
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Patent
or proprietary rights developments;
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Proxy
contests or litigation;
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News
regarding the efficacy of, safety of or demand for drugs or drug technologies;
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Economic
and market conditions, generally and related to the pharmaceutical industry;
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Healthcare
legislation;
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Changes
in third-party reimbursement policies for drugs; and
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Fluctuations
in our operating results.
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The sale or issuance of our common
stock to Lincoln Park or upon conversion of outstanding preferred stock or exercise of outstanding warrants may cause dilution
and the sale of the shares of common stock acquired by Lincoln Park or the issuance of shares upon conversion or exercise of outstanding
preferred stock and warrants, or the perception that such sales and issuances may occur, could cause the price of our common stock
to fall.
On April 10, 2014, we entered into the
Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $40,000,000 of our common
stock. Concurrently with the execution of the Purchase Agreement, we issued 1,928,641 shares of our common stock to Lincoln Park
as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement. The purchase shares that may be
sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period
that commenced on May 1, 2014. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement
will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause
the trading price of our common stock to fall.
We generally have the right to control
the timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements with Lincoln
Park, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $0.10 per
share, subject to adjustment as set forth in the Purchase Agreement, and in no event would Lincoln Park purchase more than $760,000
worth of our common stock on any single business day, plus an additional “accelerated amount” under certain circumstances.
Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined
by us. Lincoln Park may ultimately purchase all, some or none of the shares of our common stock that may be sold pursuant to the
Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares.
In addition, as of June 20, 2014, there
were outstanding shares of preferred stock convertible into approximately 148.9 million shares of Common Stock and warrants to
purchase an aggregate of approximately 99.1 million shares of Common Stock at exercise prices that range from $0.625 per share
to $0.25 per share. Additional shares of Common Stock may be issuable as a result of anti-dilution provisions in the outstanding
preferred stock and warrants
As a result of the above discussed potential
issuance of securities, such issuances by us could result in substantial dilution to the interests of other holders of our common
stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park or pursuant to the conversion
or exercise of outstanding shares of preferred stock and warrants, or the anticipation of such issuances, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect
sales.
Raising of additional funding through
sales of our securities could cause existing holders of our Common Stock to experience substantial dilution.
Any additional 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 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 in opposing a takeover bid that the Board of Directors determines not to be in the best interests of our shareholders.
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.
Provisions of our Articles of Incorporation
and By-Laws could defer a change of our Management which could discourage or delay offers to acquire us.
Provisions of our Articles of Incorporation
and By-Laws law may make it more difficult for someone to acquire control of us or for our shareholders to remove existing management,
and might discourage a third party from offering to acquire us, even if a change in control or in Management would be beneficial
to our shareholders. For example, as discussed above, our Articles of Incorporation allows us to issue shares of preferred stock
without any vote or further action by our shareholders. Our Board of Directors has the authority to fix and determine the relative
rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further
shareholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would
grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are
distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the
redemption of our common stock. In this regard, on November 15, 2013, we entered into a Shareholder Rights Plan and, under the
Rights Plan, our Board of Directors declared a dividend distribution of one Right for each outstanding share of our common stock
and one right for each share of Common Stock into which any of our outstanding Preferred Stock is convertible, to shareholders
of record at the close of business on that date. Each Right entitles the registered holder to purchase from us one “Unit”
consisting of one one-millionth (1/1,000,000) of a share of Series H Junior Participating preferred stock, at a purchase price
of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November 15, 2023, the expiration date, at $0.000001 per
Right, unless earlier redeemed by the Company. The Rights generally are not transferable apart from the common stock and will not
be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership
of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer, the Rights Plan’s the 15% threshold
excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable to him pursuant to his employment agreement
and the Mikah Note. Our By-Laws provide for the classification of our Board of Directors into three classes.
Our Common Stock is considered a
“penny stock”. The application of the “penny stock” rules to our Common Stock could limit the trading and
liquidity of our Common Stock, adversely affect the market price of our Common Stock and increase the transaction costs to sell
shares of our Common Stock.
Our common stock is a “low-priced”
security or “penny stock” under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document
which describes the risks associated with such stocks, the broker-dealers duties in selling the stock, the customer’s rights
and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low- priced stock transactions based on the customer’s financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer,
and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of
broker-dealers to make a market in our Common Stock, will decrease liquidity of our Common Stock and will increase transaction
costs for sales and purchases of our Common Stock as compared to other securities.
Our Common Stock is quoted on the
Over-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board is a quotation system, not an issuer listing service, market
or exchange, therefore, buying and selling stock on the Over-the-Counter Bulletin Board is not as efficient as buying and selling
stock through an exchange. As a result, it may be difficult to sell our Common Stock for an optimum trading price or at all.
The Over-the-Counter Bulletin Board (the
“OTCBB”) is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in
over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such
securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution
process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or
the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of
legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our Common Stock at
the optimum trading prices.
When fewer shares of a security are being
traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information.
Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current
prices may differ significantly from the price one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities
may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received
and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting
may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares
of Common Stock at the optimum trading prices.
The dealer’s spread (the difference
between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the
Common Stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper”
loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities bought and sold through
the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES
.
We own a facility located at 165 Ludlow
Avenue, Northvale, New Jersey (“165 Ludlow”) which contains approximately 15,000 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. The NJEDA has declared the payment of this bond to
be in default (For more information on the NJEDA Bonds, see Part II, Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations; Liquidity and Capital Resources; NJEDA Bonds”) We are currently using the
Facility as a laboratory, manufacturing, storage and office space.
We entered into a lease for a portion of
a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (“135 Ludlow”), consisting of approximately
15,000 square feet of floor space. The lease term began on July 1, 2010. The lease includes an initial term of 5 years and 6 months
and we have the option to renew the lease for two additional terms, each of 5 years. The property related to this lease will be
used for the storage of pharmaceutical finished goods, raw materials, equipment and documents as well as engaging in manufacturing,
packaging and distribution activities. This property requires significant construction and qualification as a prerequisite to achieving
suitability for such intended future use. Approximately 3,500 square feet of this property was constructed and qualified as suitable
for use for storage of pharmaceutical finished goods, raw materials, equipment and documents and was placed into service on or
before the expiration of the lease for the warehouse at 80 Oak Street, as noted below. Construction and qualification as suitable
for manufacturing, packaging and distribution operations are expected to be achieved within two years from the beginning of the
lease term. These are estimates based on current project plans, which are subject to change. There can be no assurance that the
construction and qualification will be accomplished during the estimated time frames, or that the property located at 135 Ludlow
Avenue, Northvale, New Jersey will ever achieve qualification for intended future utilization.
165 Ludlow and 135 Ludlow are hereinafter
referred to as the “Facilities”.
Properties used in our operation are considered
suitable for the purposes for which they are used, at the time they are placed into service, and are believed adequate to meet
our needs for the reasonably foreseeable future.
ITEM 3 LEGAL PROCEEDINGS
In the ordinary course of business we may
be subject to litigation from time to time. Except as discussed below, there is no current, 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.
Please see the risk factor in Item
1A titled “We have been dependent on one or a few major customers. If we are unable to develop more customers our
business most likely will be adversely affected.”
Arbitration with Precision Dose, Inc.
On May 9, 2014, Precision Dose Inc, the
parent company of TAGI Pharmaceuticals, Inc., commenced an arbitration against the Company alleging that the Company failed to
properly supply, price and satisfy gross profit minimums regarding Phentermine 37.5mg tablets, as required by the parties’
agreements. Elite denies Precision Dose’s allegations and has counterclaimed that Precision Dose is no longer entitled to
exclusivity rights with respect to Phentermine 37.5mg tablets, and is responsible for certain costs, expenses, price increases
and lost profits relating to Phentermine 37.5mg tablets and the parties’ agreements. As of the date of filing of this annual
report on Form 10-K this arbitration proceeding was ongoing.
ITEM 4 MINE SAFETY DISCLOSURES.
Not Applicable.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following sets forth biographical information
about each of our directors and executive officers as of the date of this report:
|
Name
|
|
Age
|
|
Position
|
|
Director / Officer
Since
|
|
Director Tier
3
|
|
Nasrat Hakim
|
|
53
|
|
President, Chief Executive Officer and Director
|
|
August 1, 2013
|
|
III
|
|
Jerry Treppel
1
|
|
60
|
|
Chairman
|
|
November 2008
|
|
I
|
|
Barry Dash, Ph. D.
|
|
83
|
|
Director
|
|
April 2005
|
|
II
|
|
Ashok G. Nigalaye, Ph.D.
|
|
62
|
|
Chief Scientific Officer and Director
|
|
June 2009
2
|
|
II
|
|
Jeenarine Narine
|
|
64
|
|
Director
|
|
June 2009
|
|
I
|
|
Jeffrey Whitnell
|
|
58
|
|
Director
|
|
October 2009
|
|
III
|
|
Carter J. Ward
|
|
50
|
|
Chief Financial Officer, Secretary and Treasurer
|
|
July 2009
|
|
|
(1) Mr. Treppel served as
CEO from September 15, 2009 to July 31, 2013.
(2) Dr. Nigalaye has served
as a Director since June 2009 and as Chief Scientific Officer since September 2009.
(3) We have three tiers of
directors: (A) two Tier I directors whose term expires at the 2015 annual meeting and until their respective successors are elected
and qualified, (B) two Tier II directors whose term expires at the 2016 annual meeting and until their respective successors are
elected and qualified and (C) two Tier III directors whose term expires at the 2017 annual meeting and until their respective successors
are elected and qualified.
Chris Dick served as the Company’s
President, Chief Operating Officer and a Director until he stepped down from these positions in May 2013.
The principal occupations and employment
of each Director during the past five years is set forth below. In each instance in which dates are not provided in connection
with a director’s business experience, such nominee has held the position indicated for at least the past five years.
Nasrat Hakim
Nasrat Hakim
has served as a Director,
President and Chief Executive officer since August 1, 2013. Mr. Hakim has more than 30 years of pharmaceutical and medical industry
experience in Quality Assurance, Analytical Research and Development, Technical Services and Regulatory Compliance. He brings with
him proven management experience, in-depth knowledge of manufacturing systems, development knowledge in immediate and extended
release formulations and extensive regulatory experience of GMP and FDA regulations. From 2004 - 2013, Mr. Hakim was employed by
Actavis, Watson and Alpharma in various senior management positions. Most recently, Mr. Hakim served as International Vice President
of Quality Assurance at Actavis, overseeing 25 sites with more than 3,000 employees under his leadership. Mr. Hakim also served
as Corporate Vice President of Technical Services, Quality and Regulatory Compliance for Actavis U.S., Global Vice President, Quality
and Regulatory Compliance for Alpharma, as well as Executive Director of Quality Unit at TheraTech, overseeing manufacturing and
research and development. In 2009, Mr. Hakim founded Mikah Pharma, LLC, a virtual, fully functional pharmaceutical company. Mr.
Hakim holds a Bachelor in Chemistry/Bio-Chemistry and Masters of Science in Chemistry from California State University at Sacramento,
Sacramento, CA; a Masters in Law with Graduate Certification in U.S. and International Taxation from St. Thomas University, School
of Law, Miami, FL.; and a Graduate Certification in Regulatory Affairs (RAC) from California State University at San Diego, San
Diego, CA. Mr. Hakim’s leadership experience (consisting of extensive experience in senior management positions, responsible
for 25 global manufacturing/regulatory sites with more than 3,000 employees under his leadership), industry experience (comprising
more than 30 years of pharmaceutical and medical industry experience served in various quality assurance, analytical research and
development/technical services and compliance positions) and academic experience (including Bachelor degrees in Chemistry and Bio-Chemistry,
Masters degrees in Chemistry and Law, with Graduate Certification in U.S. and International Taxation, and a Graduate Certification
in Regulatory Affairs) led to the conclusion that he is qualified to serve as a director.
Jerry Treppel
Jerry Treppel
has served as a Director
since October 28, 2008, Chairman of the Board since November 6, 2008 and Chief Executive Officer from September 15, 2009 to July
31, 2013. Mr. Treppel is currently a Managing Director of ArcLight Advisors, an investment bank specializing in the health care
sector. From October 2008 through March 2013, Mr. Treppel was Managing Director of Ledgemont Capital Group LLC, a boutique merchant
bank that provided access to capital and corporate advisory services to public and private companies. Additionally, he served as
the managing member of Wheaten Capital Management LLC, a capital management company focusing on investments in the health care
sector from 2003 to 2008.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. From 2003 to 2009, Mr.
Treppel 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 served 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. Mr. Treppel’s knowledge of the pharmaceutical industry as well as his education credentials
and his experience as a member of the board of directors of Akorn, Incorporated led to the conclusion that he is qualified to serve
as a director.
Barry Dash, Ph.D.
Dr. Barry Dash
has served as a 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
Whitehall-Robins Healthcare, a division of American Home Products Corporation (now known as Wyeth), initially as Vice President
of Scientific Affairs, then as Senior Vice President of Scientific Affairs and then as 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 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. Dr. Dash’s extensive education in pharmaceutical
sciences and his experience in the development of scientific products, including his experience in regulatory affairs, led to the
conclusion that he is qualified to serve as a director.
Ashok G. Nigalaye, Ph.D.
Dr. Ashok G. Nigalaye
has served
as a Director since June 24, 2009, member of the Compensation Committee since October 23, 2009 and Chief Scientific Officer since
September 15, 2009. Dr. 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 December 2010, Dr. Nigalaye has been the Chairman
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 July 2008 to December 2010, Dr. Nigalaye served as Epic Pharma’s
President and Chief Executive Officer. From August 1993 to February 2008, Dr. 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. Dr. Nigalaye
currently serves as a director of GTI Inc., a privately held company. Dr. 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. Dr. Nigalaye is also a licensed pharmacist in the State of New York. Dr. Nigalaye’s extensive education in pharmaceutical
sciences and experience as a director and officer of pharmaceutical companies led to the conclusion that he is qualified to serve
as a director.
Jeenarine Narine
Jeenarine Narine
has served as a
Director since June 24, 2009 and member of the Nominating Committee since October 23, 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 December 2010, Mr. Narine has been the President and Chief Operating Officer 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. From July 2008 to December 2010, Mr. Narine served as Epic Pharma’s Executive Vice
President of Manufacturing and 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. Mr. Narine’s experience as President and Chief Operating Officer and, previously, as Executive Vice
President of Manufacturing and Operations of Epic Pharma LLC and his knowledge of pharmaceutical manufacturing equipment led to
the conclusion that he is qualified to serve as a director.
Jeffrey Whitnell
Jeffrey Whitnell
has served as a
Director since October 23, 2009, Chairman of the Audit Committee since October 23, 2009, member of the Nominating Committee since
October 23, 2009, member of the Compensation Committee since October 23, 2009 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 (the “Exchange
Act”), since October 23, 2009. Since June 2010, Mr. Whitnell has been the Chief Financial Officer for Neurowave Medical
Technologies, a medical device company. From June 2009 to June 2010, Mr. Whitnell provided financial consulting services to various
healthcare companies, including Neurowave Medical Technologies. From June 2004 to June 2009, Mr. Whitnell was Chief Financial Officer
and Senior Vice President of Finance at Akorn, Inc. From June 2002 to June 2004, Mr. Whitnell was Vice President of Finance
and Treasurer for Ovation Pharmaceuticals. From 1997 to 2001, Mr. Whitnell was Vice President of Finance and Treasurer for
MediChem Research. Prior to 1997, Mr. Whitnell held various finance positions at Akzo Nobel and Motorola. Mr. Whitnell
began his career as an auditor with Arthur Andersen & Co. He is a certified public accountant and holds an M.B.A. in Finance
from the University of Chicago and a B.S. in Accounting from the University of Illinois. Mr. Whitnell’s qualifications
as an accounting and audit expert provide specific experience to serve as a director for the Company.
Carter J. Ward
Carter J. Ward has served as Chief Financial
Officer, Secretary and Treasurer of the Company since July 1, 2009. Prior to joining the Company, from July 2005 to April 2009,
Mr. Ward filled multiple finance and supply chain leadership roles with the Actavis Group and its U.S. subsidiary, Amide Pharmaceuticals.
From September 2004 to June 2005, Mr. Ward was a consultant, mainly engaged in improving internal controls and supporting Sarbanes
Oxley compliance of Centennial Communications Inc., a NASDAQ listed wireless communications provider. From 1999 to September
2004, Mr. Ward was the Chief Financial Officer for Positive Healthcare/Ceejay Healthcare, a U.S.-Indian joint venture engaged in
the manufacture and distribution of generic pharmaceuticals and nutraceuticals in India. Mr. Ward began his career as a certified
public accountant in the audit department of KPMG and is a Certified Supply Chain Professional (“CSCP”). Mr. Ward holds
a B.S. in Accounting from Long Island University, Brooklyn, NY, from where he graduated summa cum laude Mr. Ward’s
experience and expertise in the area of finance and more specifically, as a Certified Supply Chain Professional, provides the qualifications,
attributes and skills to serve as an officer for the Company.
Each director currently holds office until
the expiration of his Tier (each for three years) or until such director’s death, resignation or removal. Pursuant to our
recently amended and restated bylaws, our Board of Directors is now classified into three separate tiers of directors, with each
respective tier to serve a three-year term and until their successors are duly elected and qualified.
There are no family relationships between
any of our directors and executive officers.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires
our Officers, Directors, and persons who own more than ten percent of a registered class of equity securities, to file reports
with the Securities and Exchange Commission reflecting their initial position of ownership on Form 3 and changes in ownership on
Form 4 or Form 5. Based solely on a review of the copies of such Forms received by us, we found that, during the fiscal year ended
March 31, 2014,
two of our Officers and Directors and two entities that had beneficial ownership of more than ten percent
of a registered class of equity securities had not complied with all applicable Section 16(a) filing requirements on a timely basis
with regard to transactions occurring in Fiscal 2014. Specifically, as follows:
|
Name
|
|
Late Filings
|
|
No. of Transactions
|
|
Ashok Nigalaye
|
|
6
|
|
9
|
|
Jeenarine Narine
|
|
6
|
|
9
|
|
Epic Investments LLC
|
|
6
|
|
9
|
|
Epic Pharma LLC
|
|
6
|
|
9
|
|
Nasrat Hakim
|
|
1
|
|
1
|
|
Jerry Treppel
|
|
1
|
|
3
|
|
Barry Dash
|
|
1
|
|
1
|
|
Carter Ward
|
|
1
|
|
1
|
Committees of the Board
The Board of Directors has an Audit Committee,
a Compensation Committee and a Nominating Committee.
Audit Committee
During Fiscal 2014, the members of the
Audit Committee were Jeffrey Whitnell (Chairman of the Audit Committee), and Dr. Barry Dash. We deem Messrs. Whitnell and Dash
to be independent and Mr. Whitnell to be qualified as an audit committee financial expert. The Board of Directors has determined
that Messrs. Whitnell and Dash are independent directors as (i) defined in Rule 10A-3(b)(1)(ii) under the Exchange Act and (ii)
under Sections 803A(2) and 803B(2)(a) of the NYSE MKT LLC Company Guide (although our securities are not listed on the NYSE MKT
LLCE or any other national exchange).
Nominating Committee
During Fiscal 2014, the members of the
Nominating Committee were Dr. Barry Dash and Jeenarine Narine. There were no material changes to the procedures by which security
holders may recommend nominees to our Board of Directors since the filing of our last Annual Report on Form 10-K.
Compensation Committee
During Fiscal 2013, the members of the
Compensation Committee were Dr. Barry Dash (Chairman of the Nominating Committee), Dr. Ashok Nigalaye and Jeffrey Whitnell.
Code of Conduct and Ethics
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 that is applicable to the Company’s directors, officers and employees. A copy of the Code of Business Conduct
and Ethics is available on our website at
www.elitepharma.com
, under Investor Relations.
|
|
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. 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
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 of a two independent non-employee directors, and one director who is also the
Company’s Chief Scientific Officer. 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, 2014, the members of the Compensation Committee were Barry Dash, Ashok Nigalaye and Jeffrey Whitnell. The Committee
operates pursuant to a charter. 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. The Compensation Committee
did not engage any advisors.
Named Executive Officers and Key Employees
The named executive officers and key employees
for the fiscal year ended March 31, 2014 were:
• Jerry
Treppel, Chief Executive Officer through August 2, 2013
• Nasrat
Hakim, Chief Executive Officer and President from August 2, 3013
• Chris
C. Dick, President and Chief Operating Officer through May 24, 2013
• Carter
J. Ward, Chief Financial Officer, Secretary and Treasurer for the full year.
These individuals are referred to collectively
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 or payment of a portion of annual salary as stock. 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 annual bonus opportunity and equity
compensation components of the executive compensation program reflect our belief that a 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.
Elements of our executive compensation
program
Base Salary
We pay a base salary to certain of the
Named Executive Officers, with such payments being made in either cash, Common Stock or a combination of cash and Common Stock.
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 of the two.
The grant of stock options at Elite is
designed to motivate our Named Executive Officers to achieve our short-term and long-term corporate goals.
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.
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.
Post-Termination/Change of Control Compensation
Pursuant to his employment agreement, Nasrat
Hakim, our Chief Executive Officer, is entitled to a payment in an amount equal to two years base annual salary in effect upon
the date of termination, less applicable deductions and withholdings, payable in Common Stock upon a Change of Control (as defined
in the Hakim Employment Agreement). For more detailed information, please see “Agreements with Named Executive Officers”
below.
We do not presently provide the
Named Executive Officers with any plan or arrangement other than those that may be contained in employment contracts, in
connection with any termination including, without limitation, through retirement, resignation, severance or constructive
termination (including a change in responsibilities) of such Named Executive Officer’s employment with the Company.
As
part of the Company’s efforts to ensure the retention and continuity of key employees, officers and directors in
the event of a change of control of the ownership of the Company, unless otherwise stated in applicable employment contracts,
key executives would receive an amount equal to twelve months of such executive’s salary, and certain Directors
and managers would receive an amount equal to six months of such Director’s or managers fees or salaries as applicable.
In addition, any outstanding and unvested options would immediately vest, in the event of a change of control.
Perquisites
As described in more detail below, the
perquisites provided to certain of the Named Executive Officers consist of car 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 and “Agreements with Named Executive Officers,” below.
Agreements with Named Executive Officers
Nasrat Hakim
Pursuant to his August 2013 employment
agreement (the “Hakim Employment Agreement”), Mr. Hakim receives an annual salary of $350,000 per year. The Salary
is paid in shares of the Company’s Common Stock pursuant to the Company’s current procedures for paying Company executives
in Stock. He also is entitled to an annual bonus equal to up to 100% of his annual salary (also payable in stock) based upon his
ability to meet certain Company milestones to be determined by the Company’s Board of Directors. The Board may also award
discretionary bonuses in its sole discretion. Mr. Hakim is entitled to employee benefits (e.g., health, vacation, employee benefit
plans and programs) consistent with other Company employees of his seniority and a car allowance. The Hakim Employment Agreement
contains confidentially, non-competition and other standard restrictive covenants.
Mr. Hakim’s employment is terminable
by the Company for cause (as defined in the Hakim Employment Agreement). The Hakim Employment Agreement also may be terminated
by the Company upon at least 30 days written notice due to disability (as defined in the Hakim Employment Agreement) or without
cause. Mr. Hakim can terminate the Hakim Employment Agreement by resigning, provided he gives notice at least 60 days prior to
the effective resignation date. If Mr. Hakim is terminated for cause or he resigns, he only is entitled to accrued and unpaid annual
salary, accrued vacation time and any reasonable and necessary business expenses, all through the date of termination and payable
in stock (“Basic Termination Benefits”). If Mr. Hakim is terminated because of disability or death, in addition to
Basic Termination Benefits, He is entitled his pro rata annual bonus through the date of termination (payable in Stock). If the
Company terminates Mr. Hakim without cause, In addition to Basic Termination Benefits, Mr. Hakim is entitled to his pro rata annual
bonus through the date of termination and an amount equal to two years’ annual salary (all payable in Stock).
Upon a Change of Control (as defined in
the Hakim Employment Agreement), Mr. Hakim is entitled to a payment in an amount equal to two years base annual salary in effect
upon the Date of Termination, less applicable deductions and withholdings, payable in Stock computed in the same manner as set
forth as the Salary.
Jerry Treppel
On December 1, 2008, Elite entered into
a compensation agreement with Mr. Treppel (the “
First Treppel Agreement
”) providing for the terms under which
Mr. Treppel will serve as the non-executive Chairman of the Board. Pursuant to the First Treppel 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 First Treppel 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.
During the term of the First Treppel 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 First
Treppel Agreement upon presentation of proper written evidence of such expenditures.
In addition, pursuant to the terms of the
First Treppel 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 $0.001 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 First Treppel 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 First Treppel
Agreement, effective immediately upon the giving of written notice to the other party. If no such written notice is given, then
the term of the First Treppel Agreement shall end immediately prior to the next annual meeting of the Company’s stockholders
(the “Treppel Term”), provided however, that following such annual meeting, and each subsequent meeting of the Company’s
stockholders, if the Board elects Mr. Treppel to continue to serve as the non-executive Chairman of the Board, the Treppel Term
shall 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 shall no longer serve as the non-executive Chairman of the Board.
On
September 15, 2009, Mr. Treppel was appointed Chief Executive Officer of the Company
and
he served in that capacity until his resignation in August 2013. He continues to also serve as Chairman of the Board and he has
agreed to forego any additional compensation related to his activities and Chief Executive Officer. Accordingly, Mr. Treppel’s
compensation as Chief Executive Officer and Chairman of the Board remains unchanged from the First Treppel Agreement.
On October 23, 2009, at the meeting of
the Board held immediately after the annual stockholders meeting, Mr. Treppel’s compensation as Chairman of the Board was
revised to an annual amount of $30,000, payable in common shares of the Company. The amount of common shares to be issued to Mr.
Treppel in payment of compensation due to him as Chairman of the Board is calculated on a quarterly basis, and is equal to the
quotient of the quarterly amount due of $7,500, divided by the average daily closing price of the Company’s Common Stock
for the quarter just ended.
Mr. Treppel agreed to forego any additional
compensation for his services as Chief Executive Officer of the Company.
Mr. Treppel stepped down from his position
as Chief Executive Officer and was replaced by Mr. Nasrat Hakim in this position in August 2013. Mr. Treppel is currently the Chairman
of the Board of Directors.
Chris C. Dick
In November 13, 2009, we entered into an
employment agreement with Mr. Dick as our President and Chief Operating Officer (the “Dick Employment Agreement”).
The Dick Employment Agreement is terminable at the will of either the Company or Mr. Dick, with or without notice and for any reason
or no reason.
The Dick Employment Agreement provided
for a base salary of $200,000, with $175,000 of this amount being paid in cash and $25,000 of this amount being paid in restricted
shares of the Company’s Common Stock. The Common Stock component of Mr. Dick’s compensation was computed on a quarterly
basis, with the number of shares issued equal to the quotient of the quarterly amount due of $6,250 divided by the average daily
closing price of the Company’s Common Stock for the quarter just ended.
In addition, the Dick Employment Agreement
provided for 25 days of paid vacation, the right to participate in all health insurance plans maintained by the Company for its
employees, a monthly auto allowance of $700 and term life insurance in the amount of $500,000 payable to Mr. Dick’s estate.
The Dick Employment Agreement also required
Mr. Dick’s execution of a Proprietary Rights Agreement.
The Board of Directors of the Company increased
Mr. Dick’s base salary to $205,000 retroactive to January 1, 2013. This $5,000 increase to be paid in restricted shares of
the Company’s Common Stock. The Common Stock component of Mr. Dick’s compensation is to be computed on a quarterly
and pro-rata basis, with the number of shares issued equal to the quotient of the quarterly amount due of $7,500 divided by the
average daily closing price of the Company’s Common Stock for the quarter just ended.
Mr. Dick stepped down from his employment
with the Company on May 24, 2013 and accordingly, the Dick Employment Agreement was terminated. Mr. Dick continues to consult for
the Company.
Carter J. Ward
On November 12, 2009, the Company entered
into an employment agreement with Mr. Carter J. Ward (the “Ward Employment
Agreement
”). Pursuant to the terms
of the Ward Employment Agreement, Mr. Ward continues as an at-will employee of the Company as its Chief Financial Officer. Mr.
Ward receives a base salary of $150,000, with $125,000 of such amount being paid in accordance with the Company’s payroll
practices and $25,000 of such amount being paid by the issuance of restricted shares of Common Stock, in lieu of cash. The Common
Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares issued equal
to the quotient of the quarterly amount due of $6,250 divided by the average daily closing price of the Company’s Common
Stock for the quarter just ended.
The Board of Directors increased Mr. Ward’s
base salary to $155,000 retroactive to January 1, 2013. This $5,000 increase to be paid by the issuance of restricted shares of
Common Stock. The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number
of shares issued equal to the quotient of the quarterly amount due of $7,500 divided by the average daily closing price of the
Company’s Common Stock for the quarter just ended.
Mr. Ward’s compensation was adjusted,
effective January 1, 2014, to include a total compensation of $180,000, consisting of $150,000 being paid in accordance with the
Company’s payroll practices and $30,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares issued
being equal to the quotient of the quarterly amount due of $7,500, divided by the average daily closing price of the Company’s
Common Stock for the quarter just ended.
Hedging Policy
We do not permit the Named Executive Officers
to “hedge” ownership by engaging in short sales or trading in any options contracts involving securities.
Options Exercises and Stock Vested
No options have been exercised by our Named
Executive Officers during the 2013 Fiscal Year.
Pension Benefits
We do not provide pension benefits to the
Named Executive Officers
Nonqualified Deferred Compensation
We do not have any defined contribution
or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Compensation of named executive officers
Summary Compensation Table
Name
And
Principal
Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Nasrat Hakim
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer and
|
|
|
2014
|
(1)
|
|
|
232,361
|
(2)
|
|
|
145,753
|
(3)
|
|
|
|
|
|
|
12,000
|
(4)
|
|
|
390,114
|
|
|
President
|
|
|
2013
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry
Treppel
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Board and
|
|
|
2014
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
(5)
|
|
|
30,000
|
|
|
Chief Executive Officer
|
|
|
2013
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
(5)
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Dick
(9)
President and
|
|
|
2014
|
(1)
|
|
|
32,368
|
(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,400
|
(4)
|
|
|
33,768
|
|
|
Chief Operating Officer
|
|
|
2013
|
(1)
|
|
|
201,250
|
(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,400
|
(4)
|
|
|
209,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter
J. Ward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
2014
|
(1)
|
|
|
161,250
|
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
161,250
|
|
|
Secretary and Treasurer
|
|
|
2013
|
(1)
|
|
|
151,250
|
(7)
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
151,250
|
|
|
(1)
|
Represents the fiscal years ended March 31, 2014 (unaudited) and 2013, respectively.
|
|
|
|
|
(2)
|
Represents total salaries due to Mr. Hakim
pursuant to the Hakim Employment Agreement, with all such amounts to be paid via the issuance of Common Shares in lieu of cash.
A total of 1,308,290 shares of Common Stock
were issued to, and 377,930 shares of Common Stock are due and owing to Mr. Hakim for salaries earned by Mr. Hakim during the period
August 2, 2013 and through March 31, 2014.
|
|
|
|
|
(3)
|
Represents bonuses paid to Mr. Hakim pursuant
to the Hakim Employment Agreement, with all such bonuses being paid via the issuance of Common Shares in lieu of cash.
A total of 1,308,290 shares of Common Stock
were issued to Mr. Hakim for bonuses granted to Mr. Hakim during Fiscal 2014.
|
|
|
|
|
(4)
|
Represents amounts paid for auto allowance.
|
|
|
|
|
(5)
|
Represents compensation due to Mr. Treppel
for his service as Chairman of the Board of Directors. Mr. Treppel received no salary or additional compensation for his service
as Chief Executive Officer. Compensation due to Mr. Treppel is paid via the issuance of Common Stock, pursuant to the Company’s
Director compensation policy.
A total of 282,376 shares of Common Stock
were issued to Mr. Treppel in payment of compensation due to him for Fiscal 2013. A total of 161,856 shares of Common Stock were
issued to, and 19,003 shares of Common Stock are due and owing to, Mr. Treppel in payment of compensation due to him for Fiscal
2014.
|
|
(6)
|
Represents total salaries due to Mr. Dick
pursuant to the Dick Employment Agreement, consisting of an annual salary of $175,000 being paid in cash as salary in accordance
with the Company’s payroll practices and $25,000 annually being paid via the issuance of Common Shares in lieu of cash up
to December 31, 2012, and $30,000 annually being paid via the issuance of Common Shares in lieu of cash subsequent to December
31, 2012. The cash and stock components of Mr. Dick’s compensation were both earned on an equal, incremental basis throughout
the year. Mr. Dick resigned from his position with the Company and terminated the Dick Employment Agreement, effective May 24,
2013. Accordingly, the cash and stock compensation earned by Mr. Dick during Fiscal 2014, consists solely of earnings during the
period commencing on April 1, 2014 and ending with Mr. Dick’s resignation on May 24, 2013.
A total of 247,079 shares of Common Stock
were issued to Mr. Dick in payment of the stock payment component of compensation earned during Fiscal 2013. A total of 32,452
shares of Common Stock were issued to Mr. Dick in payment of the stock payment component of compensation earned during Fiscal 2014.
|
|
|
|
|
(7)
|
Represents total salaries due to Mr. Ward
pursuant to the Ward Employment Agreement. Of the total salary amount earned during Fiscal 2013, $125,000 was paid in cash as salary
in accordance with the Company’s payroll practices, and $25,000 is to be paid annually via the issuance of Common Shares
in lieu of cash up to December 31, 2012 and $30,000 is to be paid annually via the issuance of Common Shares subsequent to December
31, 2012. The cash component of Mr. Ward’s salary was raised to $150,000 annually, effective as of January 1, 2014.
A total of 247,079 shares of Common Stock
were issued to Mr. Ward in payment of the stock payment component of compensation earned during Fiscal 2013. A total of 161,856
shares of Common Stock were issued to, and 19,003 shares of Common Stock are due and owing to, Mr. Ward in payment of compensation
due to him for Fiscal 2014.
|
|
|
|
|
(8)
|
Mr. Treppel stepped down from his position as Chief Executive Officer in August 2013 and is currently the Chairman of the Board of Directors.
|
|
|
|
|
(9)
|
Mr. Dick stepped down from his position as President and Chief Operating Officer in May 2013.
|
|
|
|
|
(10)
|
Mr. Hakim was appointed as the Company’s Chief Executive Officer on August 2, 2013.
|
Outstanding Equity Awards at March 31,
2014 (unaudited)
|
Name
|
|
Number of
securities
underlying
unexercised
options
Exercisable
(#)
|
|
|
Number of
securities
underlying
unexercised
options
Unexercisable
(#)
|
|
|
Equity Incentive
Plan Awards:
Number of
securities
underlying
unexercised
unearned options
(#)
|
|
|
Options
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter Ward
|
|
|
200,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.10
|
|
|
1/17/2020
|
|
Carter Ward
|
|
|
50,000
|
|
|
|
—
|
|
|
|
100,000
|
(2)
|
|
|
0.12
|
|
|
6/19/2022
|
|
|
(1)
|
Total of 200,000 options granted with such options vesting in annual increments on January 18, 2011, 2012 and 2013, with each increment equal to one-third of the total options granted.
|
|
|
|
|
|
|
(2)
|
Total of 150,000 options granted with such options vesting in annual increments on June 19, 2013, 2014 and 2015, with each increment equal to one-third of the total options granted.
|
|
|
|
|
DIRECTOR COMPENSATION
The following table sets forth information
concerning director compensation for the year ended March 31, 2014 (unaudited):
|
Name
|
|
Fees
Earned
or Paid
In Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
|
|
Non-
qualified
Deferred
Compen-
sation
($)
|
|
|
All
Other
Compen-
sation
($)
|
|
|
Total
($)
|
|
|
Barry Dash
|
|
|
—
|
|
|
|
20,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashok Nigalaye
|
|
|
—
|
|
|
|
20,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeenarine Narine
|
|
|
—
|
|
|
|
20,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Whitnell
|
|
|
—
|
|
|
|
20,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Treppel
|
|
|
—
|
|
|
|
30,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents directors fees earned during
the fiscal year ended March 31, 2014, with such fees being paid via the issuance of shares of Common Stock, pursuant to the Company’s
policy regarding payment of Director’s fees.
A total of 107,904 shares of Common Stock
were issued to, and 12,669 shares of Common Stock are due and owing to each Director in payment of Director’s fees earned
during the fiscal year ended March 31, 2014.
|
|
|
|
|
(2)
|
Represents the Chairman’s fee due
to Mr. Treppel for his service as Chairman of the Board of Directors. A total of 161,856 shares of Common Stock were issued to,
and 19,003 shares of Common Stock are due and owing to, Mr. Treppel in payment of Chairman’s fees earned during the fiscal
year ended March 31, 2014.
Please note that Mr. Treppel also served
as Chief Executive Officer up to August 2, 2013, and is accordingly also included in the above schedule disclosing the compensation
of named executive officers. Mr. Treppel, however, received no additional salary or additional compensation above the Chairman’s
fee, for his service as Chief Executive Officer. Accordingly, the amounts listed in this table represent the same payments listed
in the above table related to the compensation of named executive officers.
|
Director Fee Compensation
The Company’s policy regarding director
fees is as follows: ((i) Directors who are employees or consultants of the Company (and/or any of its subsidiaries), except for
Mr. Jerry Treppel, Chief Executive Officer and Dr. Ashok Nigalaye, Chief Scientific Officer, 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 $20,000 annual retainer fee, payable on a quarterly basis,
in arrears for their service on the Board and all committees; (iv) The Chairman of the Board receives a $30,000 annual retainer
fee, payable on a quarterly basis, in arrears, for his/her service as Chairman of the Board of Directors; (v) Directors and the
Chairman do not receive any additional compensation for attendance at or chairing of any meetings. (vi) Mr. Jerry Treppel receives
no additional compensation, above the annual retainer fee due to the Chairman of the Board, for his services as Chief Executive
Officer (vii) Dr. Ashok Nigalaye receives no additional compensation, above the annual retainer fee due to Directors, for his services
as Chief Scientific Officer. (viii) All Director and Chairman fees are paid via the issuance of Common Stock of the Company, in
lieu of cash, as described below.
Director Equity Compensation
Members of the Board of Directors and the
Chairman are paid their annual retainer fees via the issuance of restricted shares of Common Stock of the Company, in lieu of cash.
The number of shares to be issued to each Director and the Chairman is equal to the quotient of the quarterly amount due to each
Director and the Chairman, respectively, divided by the average daily closing price of the Company’s stock for the quarter
just ended.
Members of the Board of Directors during
the fiscal years ended March 31, 2014 and March 31, 2013 did not receive any options or equity compensation for serving as directors
other than shares of Common Stock earned in lieu of cash in relation to Director and Chairman fees due.
Other
The Company’s Articles of Incorporation
provide for the indemnification of each of the Company’s directors to the fullest extent permitted under Nevada General Corporation
Law.
ITEM 12 SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain
information, as of June 20, 2014 (except as otherwise indicated), regarding beneficial ownership of our Common Stock and our Series
I Preferred Stock by (i) each person who is known by us to own beneficially more than 5% of each such class, (ii) each of our directors,
(iii) each of our executive officers and (iv) all our directors and executive officers as a group. As of June 20, 2014, we had
568,042,063 shares of Common Stock outstanding (exclusive of 100,000 treasury shares) and 104.242 shares of Series I Preferred
Stock outstanding. On any matter presented to the holders of our Common Stock for their action or consideration at any meeting
of our Shareholders, each share of Common Stock entitles the holder to one vote and each share of Series I Preferred Stock entitles
the holder to the number of votes equal to the number of shares of Common Stock into which such share of Series I Preferred Stock
is convertible (1,428,571.4 per whole share).
As used in the table below and elsewhere
in this report, 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 20, 2014. Except as otherwise indicated, the Shareholders listed
in the table have sole voting and investment powers with respect to the shares indicated.
|
|
|
Amount
and
Nature of
Beneficial Ownership
|
|
|
Percent
(%)
of Voting
|
|
Name and Address
Of
Beneficial Owner of Common Stock
|
|
Common
Stock
|
|
|
Series
I
Preferred
Stock
|
|
|
Securities
Beneficially
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nasrat Hakim, President
Chief Executive Officer and Director*
|
|
|
14,107,249
|
(1)
|
|
|
100.000
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry Dash, Director*
|
|
|
1,168,217
|
(2)
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Treppel, Chairman of the Board
*
|
|
|
3,240,253
|
(3)
|
|
|
4.242
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashok G. Nigalaye, Chief Scientific
Officer and Director*
|
|
|
160,906,315
|
(4)(5)
|
|
|
0
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeenarine Narine, Director *
|
|
|
151,141,481
|
(4)(6)
|
|
|
0
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Whitnell, Director *
|
|
|
999,862
|
(7)
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter J. Ward, Chief Financial Officer
*
|
|
|
3,180,958
|
(8)
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Epic Investments LLC
227-15 North
Conduit Ave.
Laurelton, NY 11413
|
|
|
140,850,897
|
(4)
|
|
|
0
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Officers as a group
|
|
|
193,893,440
|
(9)
|
|
|
104.242
|
|
|
|
36
|
%
|
* The address is c/o
Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ 07647.
** Less than 1%
|
(1)
|
Includes 13,714,141 shares of Common Stock, and 786,216 shares of Common Stock accrued (but not issued) and owed to Mr. Hakim as of June 30, 2014, pursuant to his employment agreement with the Company.
|
|
|
|
|
(2)
|
Includes 1,025,754 shares of Common Stock, options to purchase 120,000 shares of Common Stock and 22,463 shares of Common Stock for Board of Directors fees accrued (but not issued) and owed to Dr. Dash as of June 30, 2014.
|
|
|
|
|
(3)
|
Includes 3,206,558 shares of Common Stock and 33,695 shares of Common Stock for Chairman of the Board Directors fees accrued (but not issued) and owed to Mr. Treppel as of June 30, 2014.
|
|
|
|
|
(4)
|
Includes 67,669,232 shares of Common Stock and warrants to purchase 73,181,665 shares of Common Stock held by Epic Investments, LLC. Messrs. Nigalaye and Narine are executive officers and equity owners of Epic Pharma, LLC and Epic Investments, LLC. Epic Pharma, LLC is an equity owner of Epic Investments, LLC. Epic Pharma LLC and Messrs. Nigalaye and Narine 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 his pecuniary interest in Epic Investments, LLC.
|
|
|
|
|
(5)
|
Includes 14,275,289 shares of Common Stock, warrants to purchase 5,757,666 shares of Common Stock, and 22,463 shares of Common Stock for Board of Directors fees accrued (but not issued) and owed to Dr. Nigalaye as of June 30, 2014.
|
|
|
|
|
(6)
|
Includes 5,510,455 shares of Common Stock,
warrants to purchase 4,757,666 shares of Common Stock, and 22,463 shares of Common Stock for Board of Directors fees accrued (but
not issued) and owed to Mr. Narine as of June 30, 2014.
|
|
(7)
|
Includes 977,399 shares of common stock and 22,463 shares of Common Stock for Board of Directors fees accrued (but not issued) and owed to Mr. Whitnell as of June 30, 2014.
|
|
(8)
|
Includes 2,230,596 shares of Common Stock, options to purchase 250,000 shares of Common Stock, warrants to purchase 666,667 shares of Common Stock and 33,695 shares of Common Stock accrued (but not issued) and owed to Mr. Ward as of June 30, 2014 pursuant to his employment agreement with the Company.
|
|
|
|
|
(9)
|
Includes 108,609,424 shares of Common Stock, warrants to purchase 84,363,664 shares of Common Stock, options to purchase 370,000 shares of Common Stock and 550,352 shares of Common Stock accrued (but not issued) and owing as of June 30, 2014 for payment of Chairman’s Fees, Directors Fees in accordance with the Company’s policy regarding compensation of the Chairman and Director, and for payment of salaries pursuant to applicable employment agreements for the Company’s Chief Executive Officer and Chief Financial Officer.
|
|
|
ITEM 13
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
|
Certain Related Person Transactions
Transactions with Nasrat Hakim
On August 1, 2013, Elite Laboratories Inc.
(“Elite Labs”), our wholly owned subsidiary, executed an asset purchase agreement (the “Mikah Purchase Agreement”)
with Mikah Pharma LLC (“Mikah”), an entity that is wholly owned by Mr. Nasrat Hakim, who, in conjunction with this
transaction, was appointed as our Chief Executive Officer, President and a Director on August 2, 2012, and acquired from Mikah
a total of 13 Abbreviated New Drug Applications (“ANDAs”) consisting of 12 ANDAs approved by the FDA and one ANDA under
active review with the FDA, and all amendments thereto (the “Acquisition”) for aggregate consideration of $10,000,000,
inclusive of imputed interest payable pursuant to a non-interest bearing, secured convertible note due in August 2016 (the “Mikah
Note”). The Mikah Note was amended on February 7, 2014 to make it convertible into shares of the Company’s Series I
Convertible Preferred Stock.
The Mikah Note, as amended, was interest
free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount of the
Mikah Note was convertible at the option of Mikah into shares of Common Stock at a rate of $0.07 (approximately 14,286 shares per
$1,000 in principal amount), the closing market price of the Company’s Common Stock on the date that the asset purchase agreement
and Note were executed and/or into shares of the Company’s Series I Convertible Preferred Stock at the rate of 1 share of
Series I Preferred Stock for each $100,000 of principal owed on the Mikah Note. The conversion rate was adjustable for customary
corporate actions such as stock splits and, subject to certain exclusions, includes weighted average anti-dilution for common stock
transactions at prices below the then applicable conversion rate. Pursuant to a security agreement (the “Security Agreement”),
repayment of the Mikah Note was secured by the ANDAs acquired in the Acquisition.
On February 7, 2014, Mikah converted the
principal amount of $10,000,000, representing the entire principal balance due under the Mikah Note, into 100 shares of the Company’s
Series I Preferred Stock.
On October 15, 2013, Elite entered into
a bridge loan agreement (the “Hakim Credit Line Agreement”) with Mr. Hakim. Under the terms of the Hakim Credit Line
Agreement, Elite has the right, in its sole discretion to a line of credit (the “Hakim Credit Line”) in the maximum
principal amount of up to $1,000,000 at any one time. Mr. Hakim provided the Hakim Credit Line for the purpose of supporting the
acceleration of Elite’s product development activities. The outstanding amount is evidenced by a promissory note which shall
mature on June 30, 2015, at which time the entire unpaid principal balance, plus accrued interest thereon shall be due and payable
in full. Elite may prepay any amounts owed without penalty. Any such prepayments shall first be applied to interest due and owing
and then to principal. Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior
to maturity or the occurrence of an Event of Default as defined in the Hakim Credit Line Agreement, the Company may borrow, repay
and reborrow under the Hakim Credit Line through maturity. Amounts borrowed under the Hakim Credit Line bear interest at the rate
of ten percent (10%) per annum.
On August 27, 2010, Elite executed an asset
purchase with Mikah (the “Naltrexone Agreement”). Pursuant to the Naltrexone Agreement, Elite acquired from Mikah the
Abbreviated New Drug Application number 75-274 (Naltrexone Hydrochloride Tablets USP, 50 mg), and all amendments thereto (the “ANDA”),
that have to date been filed with the FDA seeking authorization and approval to manufacture, package, ship and sell the products
described in the ANDA within the United States and its territories (including Puerto Rico) for aggregate consideration of $200,000.
In lieu of cash, Mikah agreed to accept from Elite product development services to be performed by Elite. A current report on form
8-K was filed on August 27, 2010 in relation to this announcement, such filing being incorporated herein by this reference. Please
also refer to exhibit 10.5 of the Quarterly Report on Form 10-Q filed with SEC on November 15, 2010, such filing being incorporated
herein by this reference.
The manufacturing of Naltrexone 50mg was
successfully transferred to the Company’s Northvale facility, and the first commercial shipment of this product was made
in September 2013.
As of March 31, 2014, the product development
services referenced in the Naltrexone Agreement have not been completed and the $200,000 owed to Mikah was accrued as a liability
as of March 31, 2014.
During Fiscal 2014, the Company purchased
from Mikah Pharma, active pharmaceutical ingredients used by the Company in its current commercial manufacturing operations, at
Mikah’s cost, without markup. Such purchases totaled $75,600, with the funds being provided by Nasrat Hakim and included
as draws against the Hakim Credit Line.
During Fiscal 2014, the Company purchased
from Mikah Pharma, manufacturing equipment used by the Company in its current commercial manufacturing operations and product development
activities at Mikah’s cost, without markup. Such equipment purchases totaled $110,000, with the funds being provided by Nasrat
Hakim and included as draws against the Hakim Credit Line.
For information about our employment agreement
with Mr. Hakim, please see “Executive Compensation-Agreements with Named Executive Officers” above.
Transactions with Jerry Treppel
On June 12, 2012 (the “Effective
Date”), we entered into a bridge loan agreement (the “Loan Agreement”) with Jerry Treppel, our Chairman and CEO.
Under the terms of the Loan Agreement, we have the right, in our sole discretion, to a line of credit (the “Credit Line”)
in the maximum principal amount of up to $500,000 at any one time. By amendment, the maximum principal amount was increased to
$1,000,000 in December 2012. Mr. Treppel provided the Credit Line for the purpose of supporting the acceleration of our product
development activities. The outstanding amount will be evidenced by a promissory note which shall mature on the earlier of (i)
such date as we raise at least $2,000,000 in gross proceeds from the sale of any of our equity securities or (ii) July 31, 2013,
at which time the entire unpaid principal balance plus accrued interest thereon shall be due and payable in full. We may prepay
any amounts owed without penalty. Any such prepayments shall first be attributable to interest due and owing and then to principal.
Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to maturity or the occurrence
of an Event of Default as defined in the Loan Agreement, we may borrow, repay, and reborrow under the Credit Line through maturity.
Amounts borrowed under the Credit Line will bear interest at the rate of ten percent (10%) per annum. As of March 31, 2013, the
principal balance owed under the Credit Line was $600,000 with an additional $13,151 in accrued interest also owed, in accordance
with the terms and conditions of the Credit Line.
On November 21, 2013, Mr. Treppel converted
the $600,000 unpaid balance into an unsecured convertible note (the “Treppel Note”). The Treppel Note was amended on
February 7, 2014 to make it convertible into shares of the Company’s Series I Preferred Stock. The Treppel Note, as amended,
was interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount
of the Note was convertible at the option of Treppel on and after the first anniversary of the date of the Note into shares of
the Company’s Common Stock at a rate of $0.099 (approximately 10,101 shares per $1,000 in principal amount), the closing
market price of the Company’s Common Stock on the date that the Note was executed, and/or into shares of the Company’s
Series I Preferred Stock at a rate of 1 share of Series I Preferred Stock for each $141,442.7157 of principal owed on the Treppel
Note. The conversion rate was adjustable for customary corporate actions such as stock splits and, subject to certain exclusions,
includes weighted average anti-dilution for common stock transactions at prices below the then applicable conversion rate.
On February 7, 2014, Treppel converted
the principal amount of $600,000, representing the entire principal balance due under the Treppel Note into 4.242 shares of the
Company’s Series I Preferred Stock.
For information about our employment agreement
with Mr. Treppel, please see “Executive Compensation-Agreements with Named Executive Officers” above.
Transactions with Epic Pharma LLC and
Epic Investments LLC
On March 18, 2009, the Company entered
into the Epic Strategic Alliance Agreement with Epic Pharma, LLC and Epic Investments, LLC, a subsidiary controlled by Epic Pharma
LLC. 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, Chairman and Chief
Executive Officer of Epic Pharma, LLC;
• Mr. Narine, President and Chief
Operating Officer of Epic Pharma, LLC;
• Mr. Potti, Vice President of
Epic Pharma, LLC.
The Strategic Alliance Agreement expired
on June 4, 2012.
On December 31, 2012, Mr. Potti resigned
as a Director of the Company. His seat on the Board of Directors was not filled.
As part of the operation of the strategic
alliance, the Company and Epic identified areas of synergy, including, without limitation, raw materials used by both entities,
equipment purchases, contract manufacturing/packaging and various regulatory and operational resources existing at Epic that could
be utilized by the Company.
With regards to synergies related to raw
materials usage, the strategic alliance allowed the Company to purchase such raw materials from Epic, at the Epic acquisition cost,
without markup. In all cases, the acquisition cost of Epic was lower than those costs available to the Company, mainly as a result
of efficiencies of scale generated by significantly larger volumes purchased by Epic during the course of their normal operations.
During the fiscal years ended March 31, 2013 and March 31, 2012, an aggregate amount of $71,480 and $15,552, respectively, in such
materials was purchased from Epic Pharma LLC. All purchases were at Epic Pharma’s acquisition cost, without markup and evidenced
by supporting documents of Epic Pharma LLC’s acquisition cost.
With regards to synergies related to regulatory
and operational resources, the strategic alliance allowed the Company to utilize Epic’s substantial resources and technical
competencies on an “as needed” basis at a cost equal to Epic’s actual cost for only the resources utilized by
the Company. Without such access to Epic’s resources, the Company would have to invest significant amounts in human resources
and fixed assets as well as incur substantial costs with third party providers to provide the same resources provided by Epic and
necessary for the operations of the Company.
During the fiscal years ended March 31,
2013 and March 31, 2012, an aggregate amount of $31,354 and $133,003, respectively, was paid to Epic as reimbursement for costs
associated with facility maintenance, engineering and regulatory resources utilized by the Company.
During the fiscal years ended March 31,
2013 and March 31, 2012, the Company incurred a total of $362,347 and $275,768, respectively in contract manufacturing and/or packaging
costs for the Company’s Phentermine, Hydromorphone, Methadone and Immediate Release Lodrane products.
During the fiscal years ended March 31,
2013 and 2012, equipment purchases from Epic totaled $-0- and $52,000, respectively.
Total purchases from Epic by the Company
during the fiscal years ended March 31, 2013 and 2012 were $465,181 and $476,323, respectively.
On October 2, 2013, we executed a Manufacturing
and License Agreement (“M&L Agreement”) with Epic Pharma LLC. (“Epic”), to manufacture, market and
sell in the United States and Puerto Rico 12 generic products owned by Elite. Of the 12 products, Epic will have the exclusive
right to market six products as listed in Schedule A of the M&L Agreement, and a non-exclusive right to market six products
as listed in Schedule D of the M&L Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related
to the products and for all costs related to the site transfer for all products. Pursuant to the M&L Agreement, Elite will
receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit, as defined
in the M&L Agreement, earned by Epic as a result of sales of the products. The manufacturing cost used for the calculation
of the license fee is a predetermined amount per unit plus the cost of the drug substance (API) and the sales cost for the calculation
is predetermined based on net sales. If Elite manufactures any product for sale by Epic, then Epic shall pay that same predetermined
manufacturing cost per unit plus the cost of the API. The license fee is payable monthly for the term of the M&L Agreement.
Epic shall pay to Elite certain milestone payments as defined by the M&L Agreement. The first milestone payment was due on
or before November 15, 2013 and has been paid. Subsequent milestone payments are due upon the filing of each product’s supplement
with the U.S. Food and Drug Administration (“FDA”) and the FDA approval of site transfer for each product as specifically
itemized in the M&L Agreement. The term of the M&L Agreement is five years and may be extended for an additional five years
upon mutual agreement of the parties. Twelve months following the launch of a product covered by the M&L Agreement, Elite may
terminate the marketing rights for any product if the license fee paid by Epic falls below a designated amount for a six month
period of that product. Elite may also terminate the exclusive marketing rights if Epic is unable to meet the annual unit volume
forecast for a designated Product group for any year, subject to the ability of Epic, during the succeeding six month period, to
achieve at least one-half of the prior year’s minimum annual unit volume forecast. The M&L Agreement may be terminated
by mutual agreement of Elite and Epic, as a result of a breach by either party that is not cured within 60 days notice of the breach
or by Elite as a result of Epic becoming a party to a bankruptcy, reorganization or other insolvency proceeding that continues
for a period of 30 days or more.
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.
ITEM 14 PRINCIPAL ACCOUNTANT FEES
AND SERVICES
The Company’s independent registered
public accounting firm is Demetrius Berkower LLC (“
Demetrius”
).
The following table presents fees, including
reimbursements for expenses, for professional audit services rendered by Demetrius for the audits of our financial statements and
interim reviews of our quarterly financial statements for Fiscal 2014 and Fiscal 2013.
|
|
|
Fiscal 2014
|
|
|
Fiscal 2013
|
|
|
Audit Fees
|
|
|
81,150
|
|
|
|
76,250
|
|
|
Audit-Related Fees
|
|
|
6,400
|
|
|
|
3,000
|
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
|
All Other Fees
|
|
|
1,150
|
|
|
|
475
|
|
Audit Fees
Represents fees for professional services
provided for the audit of our annual financial statements, services that are performed to comply with generally accepted auditing
standards, and review of our financial statements included in our quarterly reports and services in connection with statutory and
regulatory filings.
Audit-Related Fees
Represents the fees for assurance and related
services that were reasonably related to the performance of the audit or review of our financial statements.
The Audit Committee has determined that
Demetrius’ rendering of these audit-related services was compatible with maintaining auditor’s independence. The Board
of Directors considered Demetrius to be well qualified to serve as our independent public accountants. The Committee also pre-approved
the charges for services performed in Fiscal 2014 and 2013.
The Audit Committee pre-approves all auditing
services and the terms thereof (which may include providing comfort letters in connection with securities underwriting) and non-audit
services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules of the SEC
or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval
requirement is waived with respect to the provisions of non-audit services for us if the “de minimus” provisions of
Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services may be delegated to one
or more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the full Audit Committee
at its first meeting following such decision.
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS OF PRESENTATION
The accompanying audited financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements
include the accounts of Elite Pharmaceuticals, Inc. and its consolidated subsidiary, (collectively the “Company”) including
its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”) for the years ended March 31, 2014 (“Fiscal
2014”) and 2013 (“Fiscal 2013”). Our Company consolidates all entities that we control by ownership of a majority
voting interest. As of March 31, 2014, the financial statements of its wholly-owned entity 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. On January 5, 2012, Elite Pharmaceuticals was reincorporated
under the laws of the State of Nevada. 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
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.
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.
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. Uninsured balances at March 31, 2014 are
$6,941,777. 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 collection is established based on historical collection experience. Amounts are written off when
payment is not received after exhaustive collection efforts. During Fiscal 2014 and Fiscal 2013 the Company generated all its revenues
from ten and six companies, respectively. The termination of the contracts with either of such companies will result in the loss
of a significant amount of revenues currently being earned.
USE OF ESTIMATES
The preparation of financial statements
in conformity with GAAP 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, stock-based awards and derivatives.
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.
GAAP 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. GAAP 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 adjustments related to uncertain tax positions were recognized
during Fiscal 2014 and Fiscal 2013.
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, 2014 and March 31, 2013.
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 statutes of
limitation expire. As of March 31, 2014, a summary of the tax years that remain subject to examination in our major tax jurisdictions
are: United States – Federal, 2010 and forward, and State, 2006 and forward. The Company did not record unrecognized tax
positions for the years ended March 31, 2014 and 2013.
EARNINGS PER COMMON SHARE
Basic earnings per common share
is calculated by dividing net earnings by the weighted average number of shares outstanding during each period presented. Diluted
earnings per share are calculated by dividing earnings by the weighted average number of shares and common stock equivalents. The
Company’s common stock equivalents consist of options, warrants and convertible securities.
REVENUE RECOGNITION
Revenues earned under manufacturing
agreements with other pharmaceutical companies are recognized on the date of shipment of the product, when title for the goods
is transferred, and for which the price is agreed to and it has been determined that collectability is reasonably assured.
Revenues derived from royalties
and profit splits are recognized when such are reasonably estimable and collectible. Revenues from royalties and profit splits
which cannot be reasonably estimated are recognized when the payment is received.
Revenues derived from providing
research and development services under contracts with other pharmaceutical companies are recognized when earned. These contracts
provide for non-refundable upfront and milestone payments. Because no discrete earnings event has occurred when the upfront payment
is received, that amount is deferred until the achievement of a defined milestone. Each nonrefundable milestone payment is recognized
as revenue when the performance criteria for that milestone have been met. Under each contract, the milestones are defined, substantive
effort is required to achieve the milestone, the amount of the non-refundable milestone payment is reasonable, commensurate with
the effort expended, and achievement of the milestone is reasonably assured.
Revenues earned in relation to
the licensing of certain pharmaceutical products developed by or ANDA’s owned by the Company are recognized pursuant to the
terms and conditions of the applicable licensing agreements. Such licensing revenues include, without limitation, milestone fees,
for which revenues are recognized when a milestone, as defined in a licensing agreement, is achieved, for which licensing revenues
which are determined by in-market product sales, and for which revenues are recognized when earned as per the terms and conditions
of the applicable licensing agreement.
TREASURY STOCK
The Company records common shares
purchased and held in treasury at cost.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of current
assets and liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of noncurrent
assets are reasonable estimates of their fair values based on management’s evaluation of future cash flows. The long-term
liabilities are carried at amounts that approximate fair value based on borrowing rates available to the Company for obligations
with similar terms, degrees of risk and remaining maturities.
STOCK-BASED COMPENSATION
The Company accounts for all
stock-based payments and awards under the fair value based method. Stock-based payments to non-employees are measured at the fair
value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is
more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty
performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if
the Company had paid cash instead of paying with or using equity based instruments on an accelerated basis. The cost of the stock-based
payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date,
unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
The Company accounts for the
granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at
fair value on the date of the grant. Share based awards granted to employees with a performance condition are measured based on
the probable outcome of that performance condition during the requisite service period. Such an award with a performance condition
is accrued if it is probable that a performance condition will be achieved. Compensation costs for stock-based payments to employees
that do not include performance conditions are recognized on a straight-line basis. The fair value of all share purchase options
is expensed over their vesting period with a corresponding increase to additional capital surplus. Upon exercise of share purchase
options, the consideration paid by the option holder, together with the amount previously recognized in additional capital surplus,
is recorded as an increase to share capital
The Company uses the Black-Scholes
option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require
the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially
affect the fair value estimate.
The compensation expense recognized
for the years ended March 31, 2014 and 2013 was $82,947 and $45,866, respectively.
FAIR VALUE MEASUREMENTS
The Company adopted Accounting
Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for financial and non-financial
assets and liabilities.
ASC 820 discusses valuation techniques,
such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the
cost approach (cost to replace the service capacity of an asset or replacement cost). The Company utilizes the market approach.
The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
|
|
Level 1:
|
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
Level 2:
|
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
Level 3:
|
Unobservable inputs that reflect the reporting entity’s own assumptions.
|
RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
The Company believes that all
recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either
will not have an impact on its accounting or reporting or that such impact will not be material to its financial statements.
NOTE 2
INVENTORIES
Inventories are recorded at the
lower of cost or market. Inventories at March 31, 2014 and 2013 consist of the following:
|
|
|
2014
|
|
|
2013
|
|
|
Finished Goods
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Work-in-Process
|
|
|
409,146
|
|
|
|
676,726
|
|
|
Raw Materials
|
|
|
1,523,341
|
|
|
|
774,758
|
|
|
|
|
|
1,932,487
|
|
|
|
1,451,484
|
|
|
Less: Inventory Valuation Reserve
|
|
|
—
|
|
|
|
(93,338
|
)
|
|
|
|
$
|
1,932,487
|
|
|
$
|
1,358,146
|
|
The Inventory Valuation Reserve as of March 31, 2013, consists
of raw materials with an aggregate cost of $93,338 being expired materials with no commercial value. These materials were destroyed
during Fiscal 2014.
NOTE 3 -
PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2014 and 2013 consists of
the following:
|
|
|
2014
|
|
|
2013
|
|
|
Laboratory manufacturing, and warehouse equipment
|
|
$
|
5,952,084
|
|
|
$
|
5,563,694
|
|
|
Office equipment and Software
|
|
|
95,309
|
|
|
|
67,414
|
|
|
Furniture and fixtures
|
|
|
49,804
|
|
|
|
49,804
|
|
|
Transportation equipment
|
|
|
66,855
|
|
|
|
66,855
|
|
|
Land, building and improvements
|
|
|
3,543,927
|
|
|
|
3,349,696
|
|
|
|
|
|
9,707,979
|
|
|
|
9,097,463
|
|
|
Less: Accumulated depreciation
|
|
|
(5,508,377
|
)
|
|
|
(5,068,522
|
)
|
|
|
|
$
|
4,199,602
|
|
|
$
|
4,028,941
|
|
Depreciation expense amounted to $486,726
and $423,340 for the years ended March 31, 2014 and 2013, respectively.
NOTE 4 -
INTANGIBLE ASSETS
Costs to acquire intangible
assets, such as asset purchases of Abbreviated New Drug Applications (“ANDA’s”) which are approved by the FDA
or costs incurred in the application of patents 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 or site transfers required for commercialization
of an acquired ANDA. Such costs are charged to expense if the patent application or ANDA site transfer is unsuccessful.
As of March 31, 2014 and 2013,
the following costs were recorded as intangible assets on the Company’s balance sheet:
|
|
|
2014
|
|
|
2013
|
|
|
Intangible assets at beginning of fiscal year
|
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
|
244,424
|
|
|
|
192,848
|
|
|
ANDA acquisitions
|
|
|
450,000
|
|
|
|
450,000
|
|
|
Less: Accumulated Amortization
|
|
|
—
|
|
|
|
—
|
|
|
Net Intangible Assets at beginning of fiscal year
|
|
|
694,424
|
|
|
|
642,848
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset costs capitalized during the fiscal year
|
|
|
|
|
|
Patent application costs
|
|
|
58,178
|
|
|
|
51,578
|
|
|
ANDA acquisition costs
|
|
|
5,597,317
|
|
|
|
—
|
|
|
Total cost of intangible assets capitalized
|
|
|
5,655,495
|
|
|
|
51,578
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets during fiscal year
|
|
|
|
|
|
Patent application costs
|
|
|
—
|
|
|
|
—
|
|
|
ANDA acquisition costs
|
|
|
—
|
|
|
|
—
|
|
|
Total amortization of intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets during the fiscal year
|
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
|
—
|
|
|
|
—
|
|
|
ANDA acquisition costs
|
|
|
—
|
|
|
|
—
|
|
|
Accumulated amortization of impaired assets
|
|
|
—
|
|
|
|
—
|
|
|
Net impairment of intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets at end of fiscal year
|
|
|
|
|
|
Patent application costs
|
|
|
302,602
|
|
|
|
244,424
|
|
|
Trademarks
|
|
|
—
|
|
|
|
—
|
|
|
ANDA acquisition costs
|
|
|
6,047,317
|
|
|
|
450,000
|
|
|
Less: Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
Net Intangible Assets
|
|
$
|
6,349,922
|
|
|
$
|
694,424
|
|
The costs incurred in patent
applications totaling $58,178 and $51,578 for Fiscal 2014 and Fiscal 2013, respectively, were all related to our abuse resistant
and extended release opioid product lines. The Company is continuing its efforts to achieve approval of such patents. Additional
costs incurred in relation to such patent applications will be capitalized as intangible assets, with amortization of such costs
to commence upon approval of the patents and commercialization of products utilizing the patented technologies.
On May 22, 2012, the United
States Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 8,182,836, entitled “Abuse-Resistant Oral
Dosage Forms and Method of Use Thereof. A Current Report on Form 8-K was filed with the SEC on May 22, 2012, with such filing being
herein incorporated by reference.
On April 23, 2013, the USPTO
issued Patent No. 8,425,933 entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof”. A Current Report
on Form 8-K was filed with the SEC on April 23, 2013, with such filing being herein incorporated by reference.
On April 22, 2014, the USPTO
issued Patent No. 8,703,186 entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof.
The ANDA acquisition costs of
$450,000 recorded as of the beginning of Fiscal 2014 and included as a part of intangible assets as of March 31, 2014 and March
31, 2013, are related to our acquisition of the ANDA for Phentermine 37.5mg tablets.The ANDA acquisition costs incurred during
Fiscal 2014, totaling approximately $5.6 million consist of 12 approved ANDA’s (the “Mikah Approved ANDAs”) and
one ANDA that is under active review with the FDA (the “Mikah ANDA Application Product”) which were acquired from Mikah
Pharma LLC (“Mikah”) pursuant an asset purchase agreement between the Company and Mikah dated August 1, 2013 (the “Mikah
Asset Purchase Agreement”). A Current Report on Form 8-K was filed with the SEC on August 5, 2013 in relation to the Mikah
Asset Purchase Agreement, with such filing being herein incorporated by reference.
|
|
NOTE 5
|
INVESTMENT IN NOVEL LABORATORIES INC.
|
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 consists of 9,800 shares
of Novel’s Class A Voting Common Stock. As of October 1, 2007, Elite deconsolidated its financial statements from Novel and
the investment in Novel is accounted for under the cost method of accounting.
On June 10, 2014, the Company
received $5 million in exchange for the 9,800 shares of Novel’s Class A Voting Common Stock owned by the Company.
Notice of redemption
On June 20, 2014, subsequent
to the end of Fiscal 2014 and in accordance with the terms and conditions of the bond indenture, the Company provided to the Trustee
of the NJEDA Bonds written notice of its intent to redeem those bonds which were due and payable as of the same date.
The bond indenture requires that
the Company provide the Trustee with 60 days written notice (or such shorter period agreeable to the Trustee), and that the Trustee
would then notify the Depository Trust Company (“DTC”) of the bonds which are to be redeemed. The DTC is then required
to provide to the applicable bondholders notice of no less than 30 days nor more than 45 days notice of the redemption.
Through the written notification,
the Company has advised the Trustee of its ability and intentions to pay all amounts due and owing currently and separately, has
advised the Trustee of its ability and intentions to pay the principal and interest payments which are due and payable on September
1, 2014.
The Company is cooperating with
the Trustee to redeem all bonds currently due and owing, as well as those due on September 1, 2014, with the objective of curing
all monetary defaults and achieving full compliance with the terms and conditions of the bonds as soon as possible.
Management believes that
the successful resolution of the bond defaults will have a significant and positive effect on the Company’s ability
to operate as a going concern.
Classification of Bond Liability
as a Current Liability
Due to the issuance of a Notice
of Default being received from the Trustee, and as the event of default was not waived or rescinded as of March 31, 2014, the Company
has classified the entire principal balance due on the NJEDA Bonds as a current liability.
Summary Description and History
of NJEDA Bonds
On August 31, 2005, the Company
successfully completed a refinancing of a prior 1999 bond issue through the issuance of new tax-exempt bonds (the “Bonds”)
via the issuance of the following:
|
Description
|
|
Principal
Amount
On
Issue Date
|
|
|
Interest
Rate
|
|
|
Maturity
|
|
Series A Note
|
|
$
|
3,660,000
|
|
|
|
6.50
|
%
|
|
September 1, 2030
|
|
Series B Note
|
|
|
495,000
|
|
|
|
9.0
|
%
|
|
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. As of March 31, 2014, all of the proceeds were utilized by the Company for such stated purposes.
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 Debt Service
Reserve Fund as follows:
|
Description
|
|
Amount
|
|
|
Series A Note Proceeds
|
|
$
|
366,000
|
|
|
Series B Note Proceeds
|
|
|
49,500
|
|
|
Total
|
|
$
|
415,500
|
|
The Debt Service Reserve is maintained
in restricted cash accounts that are classified in Other Assets.
Bond issue costs were paid from
the bond proceeds and are being amortized over the life of the bonds. These costs and amortization activity are summarized as follows:
|
Description
|
|
Balances
As of
March 31, 2013
|
|
|
Amortization
Expense
Current YTD
|
|
|
Balances
As of
March 31,
2014
|
|
|
Bond Issue Costs
|
|
$
|
354,453
|
|
|
|
|
|
|
$
|
354,453
|
|
|
Accumulated Amortization
|
|
|
(107,519
|
)
|
|
|
(14,178
|
)
|
|
|
(121,697
|
)
|
|
Unamortized Balance
|
|
$
|
246,934
|
|
|
|
|
|
|
$
|
232,756
|
|
The NJEDA Bonds require the Company
to make an annual principal payment on September 1
st
of varying amounts as specified in the loan documents and semi-annual
interest payments on March 1
st
and September 1
st
, equal to interest due on the outstanding principal at the
applicable rate for the semi-annual period just ended.
Due to the Company not having
sufficient funds, the following withdrawals were made from the debt service reserve, with the funds being used to make interest
payments due to the holders of the NJEDA Bonds:
|
Payment Date
|
|
Amount
|
|
|
March 1, 2009
|
|
$
|
120,775
|
|
|
September 1, 2009
|
|
|
120,775
|
|
|
March 1, 2010
|
|
|
113,075
|
|
|
September 1, 2010
|
|
|
113,075
|
|
|
March 1, 2011
|
|
|
113,075
|
|
|
September 1, 2011
|
|
|
113,075
|
|
|
March 1, 2012
|
|
|
113,075
|
|
|
September 1, 2012
|
|
|
113,075
|
|
|
March 1, 2013
|
|
|
113,075
|
|
|
September 1, 2013
|
|
|
113,075
|
|
|
March 1, 2014
|
|
|
113,075
|
|
Due to the Company not having
sufficient funds, a the following withdrawal was made from the debt service reserve, with the funds being used to make a principal
payment due to the holders of the NJEDA Bonds:
|
Payment Date
|
|
Amount
|
|
|
September 1, 2009
|
|
$
|
210,000
|
|
Pursuant to the terms of the NJEDA
Bonds, the Company is required to replenish any amounts withdrawn from the debt service reserve and used to make principal or interest
payments in six monthly installments, each being equal to one-sixth of the amount withdrawn and with the first installment due
on the 15
th
of the month in which the withdrawal from debt service reserve occurred and the remaining five monthly payments
being due on the 15
th
of the five immediately subsequent months. The Company has, to date, made all payments required
in relation to the withdrawals made from the debt service reserve in relation to the Restricted Cash Interest Payments and the
Restricted Cash Principal Payment.
In addition, the Company did not
have sufficient funds available to make the principal payments due on September 1, 2010, September 1, 2011, September 1, 2012 and
September 1, 2013. These principal payments are summarized as follows:
|
Payment Date
|
|
Amount
|
|
|
September 1, 2010
|
|
$
|
225,000
|
(1)
|
|
September 1, 2011
|
|
|
470,000
|
(2)
|
|
September 1, 2012
|
|
|
730,000
|
(3)
|
|
September 1, 2013
|
|
|
915,000
|
(4)
|
|
|
(1)
|
The Company request to withdraw funds from the debt service reserve to pay the amount due on September 1, 2010 was denied by the Trustee and accordingly, the principal payment due on such date was not made.
|
|
|
(2)
|
The principal payment due on September 1, 2011, included the amount due and September 1, 2010 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment due on September 1, 2011 was not made.
|
|
|
(3)
|
The principal payment due on September 1, 2012, included the amount due and September 1, 2011 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment due on September 1, 2012 was not made.
|
|
|
(4)
|
The principal payment due on September 1, 2013, included the amount due and September 1, 2012 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment due on September 1, 2013 was not made.
|
The Company has received Notices
of Default from the Trustee of the NJEDA Bonds in relation to the withdrawals from the debt service reserve and non-payment of
principal amounts due on September 1, 2010, 2011, 2012 and 2013.
The successful conclusion of our current efforts to resolve
the Company’s default under the NJED Bonds will have a significant positive effect on our ability to operate in the future.
Bond financing consisting
of the following, as of March 31,
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Refinanced NJEDA Bonds
|
|
$
|
3,385,000
|
|
|
$
|
3,385,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(3,385,000
|
)
|
|
|
(3,385,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion, net of current maturities
|
|
$
|
—
|
|
|
$
|
—
|
|
Maturities of Bonds for the next
five years are as follows:
|
YEAR ENDING MARCH 31,
|
|
AMOUNT
|
|
|
2015
|
|
$
|
1,110,000
|
|
|
2016
|
|
|
210,000
|
|
|
2017
|
|
|
220,000
|
|
|
2018
|
|
|
85,000
|
|
|
2019
|
|
|
90,000
|
|
|
Thereafter
|
|
|
1,670,000
|
|
|
|
|
$
|
3,385,000
|
|
NOTE 7 -
LOANS PAYABLE AND LONG
TERM DEBT
Loans payable and long term debt
consisted of the following:
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
Current
|
|
|
Long-
Term
|
|
|
Current
|
|
|
Long-
Term
|
|
|
Capital lease payable to Shimadzu Financial Services; 24 payments of $594; Final payment due in March 2014
|
|
|
—
|
|
|
|
—
|
|
|
|
6,295
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Financing; 60 months at 6.8%; Final payment due February 2019
|
|
|
18,870
|
|
|
|
87,574
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Rent-135 Ludlow Ave Lease (see note 9)
|
|
|
|
|
|
|
18,821
|
|
|
|
|
|
|
|
68,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination costs – 135 Ludlow Ave lease (see note 9)
|
|
|
—
|
|
|
|
24,749
|
|
|
|
—
|
|
|
|
23,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
18,870
|
|
|
$
|
131,144
|
|
|
$
|
6,295
|
|
|
$
|
91,571
|
|
NOTE 8 -
RELATED PARTY LINES
OF CREDIT AND NOTES PAYABLE
Treppel $1 million credit line
and Treppel Note Payable
On June 12, 2012 (the “Treppel
Credit Line Effective Date”), we entered into a bridge loan agreement (the “Treppel Loan Agreement”) with Jerry
Treppel, our Chairman, who was also CEO on the Treppel Credit Line Effective Date. Under the terms of the Treppel Loan Agreement,
we have the right, in our sole discretion, to a line of credit (the “Treppel Credit Line”) in the maximum principal
amount of up to $500,000 at any one time. By amendments, the maximum principal amount was increased to $1,000,000 and the maturity
date was amended and extended Mr. Treppel provided the Treppel Credit Line for the purpose of supporting the acceleration of our
product development activities. The current term of the Treppel Loan Agreement ends on July 31, 2014, at which time the entire
unpaid principal balance plus accrued interest thereon shall be due and payable in full. We may prepay any amounts owed without
penalty. Any such prepayments shall first be attributable to interest due and owing and then to principal. Interest only shall
be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to maturity or the occurrence of an Event
of Default as defined in the Loan Agreement, we may borrow, repay, and reborrow under the Treppel Credit Line through maturity.
Amounts borrowed under the Treppel Credit Line will bear interest at the rate of ten percent (10%) per annum. For more detailed
information, please refer to the Current Reports on Form 8-K filed with the SEC on June 13, 2012 December 10, 2012 and August 6,
2013, with such filings being herein incorporated by reference.
On November 21, 2013, Elite entered
into an unsecured convertible note (the “Treppel Note”) with Mr. Treppel, in the amount of $600,000, with such note
being in full payment of the unpaid principal amount owed pursuant to the Treppel Loan Agreement on such date.
The Treppel Note was amended on
February 7, 2014 to make it convertible into shares of the Company’s Series I Preferred Stock. The Treppel Note, as amended,
was interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount
of the Note was convertible at the option of Treppel on and after the first anniversary of the date of the Note into shares of
the Company’s Common Stock at a rate of $0.099 (approximately 10,101 shares per $1,000 in principal amount), the closing
market price of the Company’s Common Stock on the date that the Note was executed, and/or into shares of the Company’s
Series I Preferred Stock at a rate of 1 share of Series I Preferred Stock for each $141,442.72 of principal owed on the Treppel
Note. The conversion rate was adjustable for customary corporate actions such as stock splits and, subject to certain exclusions,
includes weighted average anti-dilution for common stock transactions at prices below the then applicable conversion rate.
On February 7, 2014, Treppel converted
the principal amount of $600,000, representing the entire principal balance due under the Treppel Note into 4.242 shares of the
Company’s Series I Preferred Stock.
As of March 31, 2014, the principal
balance owed under both the Treppel Credit Line and the Treppel Note was zero. There was also no accrued interest due and owing
on the Treppel Credit Line as of March 31, 2014.
Hakim $1,000,000 Bridge Revolving
Credit Line
On October 15, 2013 (the “Hakim
Credit Line Effective Date”), we entered into a bridge loan agreement (the “Hakim Loan Agreement”) with Mr. Nasrat
Hakim, our President and CEO. Under the terms of the Hakim Loan Agreement, we have the right, in our sole discretion, to a line
of credit (“Hakim Credit Line”) in the maximum principal amount of up to $1,000,000 at any one time. Mr. Hakim provided
the Credit Line for the purpose of supporting the acceleration of our product development activities. The outstanding amount will
be evidenced by a promissory note which shall mature on June 30, 2015, at which time the entire unpaid principal balance plus accrued
interest thereon shall be due and payable in full. We may prepay any amounts owed without penalty. Any such prepayments shall first
be attributable to interest due and owing and then to principal. Interest only shall be payable quarterly on January 1, April 1,
July 1 and October 1 of each year. Prior to maturity or the occurrence of an Event of Default as defined in the Hakim Loan Agreement,
we may borrow, repay, and reborrow under the Hakim Credit Line through maturity. Amounts borrowed under the Hakim Credit Line will
bear interest at the rate of ten percent (10%) per annum. As of March 31, 2014, the principal balance owed under the Credit Line
was $528,750 with an additional $9,810 in accrued interest being also owed, in accordance with the terms and conditions of the
Credit Line.
Convertible Note Payable to
Mikah Pharma LLC
On August 1, 2013, Elite Laboratories
Inc. (“Elite Labs”), a wholly owned subsidiary of the Company, executed an asset purchase agreement (the “Mikah
Purchase Agreement”) with Mikah Pharma LLC (“Mikah”), an entity that is wholly owned by Mr. Nasrat Hakim, who,
in conjunction with this transaction, was appointed as Elite’s CEO, President and a Director on August 2, 2012, and acquired
from Mikah a total of 13 Abbreviated New Drug Applications (“ANDAs”) consisting of 12 ANDAs approved by the FDA and
one ANDA under active review with the FDA, and all amendments thereto (the “Acquisition”) for aggregate consideration
of $10,000,000, inclusive of imputed interest payable pursuant to a non-interest bearing, secured convertible note due in August
2016 (the “Mikah Note”). The Mikah Note was amended on February 7, 2014 to make it convertible into shares of the Company’s
Series I Convertible Preferred Stock.
The Mikah Note, as amended, was
interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount
of the Mikah Note was convertible at the option of Mikah into shares of Common Stock at a rate of $0.07 (approximately 14,286 shares
per $1,000 in principal amount), the closing market price of the Company’s Common Stock on the date that the asset purchase
agreement and Note were executed and/or into shares of the Company’s Series I Convertible Preferred Stock at the rate of
1 share of Series I Preferred Stock for each $100,000 of principal owed on the Mikah Note. The conversion rate was adjustable for
customary corporate actions such as stock splits and, subject to certain exclusions, includes weighted average anti-dilution for
common stock transactions at prices below the then applicable conversion rate. Pursuant to a security agreement (the “Security
Agreement”), repayment of the Mikah Note was secured by the ANDAs acquired in the Acquisition.
On February 7, 2014, Mikah converted
the principal amount of $10,000,000, representing the entire principal balance due under the Mikah Note, into 100 shares of the
Company’s Series I Preferred Stock, with the Mikah Note being retired.
The above described activity on
related party lines of credit and notes payable during Fiscal 2014 and Fiscal 2013 is summarized as follows:
|
|
|
Fiscal 2014
|
|
|
Fiscal 2013
|
|
|
Balance at beginning of Fiscal Year
|
|
|
|
|
|
|
|
|
|
Treppel Credit Line
|
|
$
|
600,000
|
|
|
$
|
—
|
|
|
Treppel Note Payable
|
|
|
—
|
|
|
|
—
|
|
|
Hakim Credit Line
|
|
|
—
|
|
|
|
—
|
|
|
Mikah Note Payable
|
|
|
—
|
|
|
|
—
|
|
|
Total at beginning of Fiscal Year
|
|
|
600,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Draws on Credit Line and Issuance of Notes
|
|
|
|
|
|
|
|
|
|
Treppel Credit Line
|
|
|
|
|
|
|
600,000
|
|
|
Treppel Note Payable
|
|
|
600,000
|
|
|
|
—
|
|
|
Hakim Credit Line
|
|
|
528,750
|
|
|
|
—
|
|
|
Mikah Note Payable
|
|
|
10,000,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Line Repayments and Retirement of Notes
|
|
|
|
|
|
|
|
|
|
Treppel Credit Line
|
|
|
(600,000
|
)
|
|
|
—
|
|
|
Treppel Note Payable
|
|
|
(600,000
|
)
|
|
|
—
|
|
|
Hakim Credit Line
|
|
|
—
|
|
|
|
—
|
|
|
Mikah Note Payable
|
|
|
(10,000,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the Fiscal Year
|
|
|
|
|
|
|
|
|
|
Treppel Credit Line
|
|
|
—
|
|
|
|
600,000
|
|
|
Treppel Note Payable
|
|
|
—
|
|
|
|
—
|
|
|
Hakim Credit Line
|
|
|
528,750
|
|
|
|
—
|
|
|
Mikah Note Payable
|
|
|
—
|
|
|
|
—
|
|
|
Total at end of Fiscal Year
|
|
$
|
528,750
|
|
|
$
|
600,000
|
|
NOTE 9 -
LEASES OF RENTAL PROPERTIES
The following leases for rental
properties were operative during the year ended March 31, 2013:
|
|
|
135 Ludlow Ave
(see note 11)
|
|
Effective Date
|
|
July 1, 2010
|
|
|
|
|
|
Termination Date
|
|
December 31, 2015
|
|
|
|
|
|
Lease term
|
|
5 years with 2 tenant renewal options for 5 years each
|
|
|
|
|
|
Rent expense for the 2013 Fiscal Year
|
|
$90,338
|
|
Rent expense for the 2014 Fiscal Year
|
|
$33,820
|
|
|
|
|
|
Minimum 5 Year Lease Payments
(a)
|
|
|
|
Fiscal year ended March 31, 2015
|
|
85,344
|
|
Fiscal year ended March 31, 2016
(b)
|
|
65,196
|
|
|
|
$150,540
|
|
|
(a)
|
Minimum lease payments are exclusive of additional expenses related to certain expenses incurred
in the operation and maintenance of the premises, including, without limitation, real estate taxes and common area charges which
may be due under the terms and conditions of the lease, but which are not quantifiable at the time of filing of this annual report
on Form 10-K
|
|
|
(b)
|
Minimum lease payments
calculated for the initial term of the lease only, with such initial term expiring on December 31, 2015.
|
Rent expense related to the operating lease at 135 Ludlow was
recorded using the straight line method and summarized as follows:
|
Summary of Rent Expense – 135 Ludlow Avenue
|
|
|
|
Fiscal Year
Ended
March 31, 2014
|
|
|
Fiscal Year
Ended
March 31, 2013
|
|
|
Rent Expense
|
|
$
|
33,820
|
|
|
$
|
90,338
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual lease payments
|
|
|
83,259
|
|
|
|
81,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred rent liability
|
|
|
7,079
|
|
|
|
9,110
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to deferred rent liability
|
|
|
(56,518
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of deferred rent liability
|
|
|
18,824
|
|
|
|
68,263
|
|
NOTE 10 -
LEASE OF 135 LUDLOW
AVENUE
The Company entered into a lease
for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey, consisting of approximately 15,000
square feet of floor space. The lease term began on July 1, 2010 and is classified as an operating lease.
The lease includes an initial
term of 5 years and 6 months and the Company has the option to renew the lease for two additional 5 year terms. The property related
to this lease will be used for the storage of pharmaceutical finished goods, raw materials, equipment and documents as well as
pharmaceutical manufacturing, packaging and distribution activities.
This property required significant
leasehold improvements and qualification as a prerequisite to achieving suitability for such intended future use and in January
2013, the Company began shipping commercial product that was manufactured and packaged at the 135 Ludlow Avenue facility.
Please refer to Note 10 of these
financial statements for details on minimum lease payments, rent expense and deferred rent liabilities.
NOTE 11 -
LEASE TERMINATION
COSTS - 135 LUDLOW AVENUE
The lease for the property located
at 135 Ludlow Avenue, Northvale NJ, includes a requirement that, at termination, the Company return the property to its condition
at the inception of the lease, with normal wear and tear excepted. Such requirement accordingly represents an unconditional obligation
associated with the retirement of a long-lived asset and subject to ASC 410 of the Codification. The Company estimates such costs
would amount to $50,000, at lease termination, and pursuant to ASC 410 has recorded a liability and offsetting asset equal to the
present value, at lease inception, of such obligation. This liability is accreted over the term of the lease (including extensions),
using the interest method.
NOTE 12 -
DEFERRED REVENUES
Deferred revenues in the aggregate
amount of $152,223, consisting of a current component of $13,333 and a long term component of $138,890 represents the unamortized
amount of a $200,000 advance payment received for a licensing agreement with a fifteen year term beginning in September 2010 and
ending in August 2025. The advance payment was recorded as deferred revenue when received and is earned, on a straight line basis
over the fifteen year life of the license. The current component is equal to the amount of revenue to be earned during the 12 month
period immediately subsequent to the balance date and the long term component is equal to the amount of revenue to be earned thereafter.
NOTE 13 -
PREFERRED SHARE
DERIVATIVE INTEREST PAYABLE
Preferred share derivative interest payable as of March 31, 2014
was zero.
Preferred share derivative interest
payable as of March 31, 2013 consisted of $27,500 in derivative interest accrued as of March 31, 2013. The full amount of derivative
interest payable as of March 31, 2013 was paid via the issuance of 358,663 shares of Common Stock, in lieu of cash, in April 2013.
NOTE 14 -
DERIVATIVE LIABILITIES
– PREFERRED SHARES
Accounting Standard Codification
“ASC” 815 –
Derivatives and Hedging
, which provides guidance on determining what types of instruments
or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can
affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features within,
and the detachable warrants issued with the Company’s Series B, Series C, Series E and Series I Preferred Stock, do not have
fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower
prices in the future, we have concluded that the instruments are not indexed to the Company’s stock and are to be treated
as derivative liabilities.
The Preferred Stock Derivative
Liabilities are measured at fair market value, using the market approach and a level 1 fair value hierarchy, on a recurring basis
as of March 31, 2014 and March 31, 2013, in accordance with the valuation techniques discussed in ASC 820.
Preferred Stock Derivative
Liabilities – Fiscal 2014
|
|
|
Series C
|
|
|
Series E
|
|
|
Series I
|
|
|
Total
|
|
|
Preferred Shares Authorized
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares Outstanding as of March 31, 2014
|
|
|
—
|
|
|
|
—
|
|
|
|
104.242
|
|
|
|
104.242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying common shares into which Preferred may convert
|
|
|
—
|
|
|
|
—
|
|
|
|
148,917,143
|
|
|
|
148,917,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price on valuation date
|
|
|
|
|
|
|
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock derivative liability at March 31, 2014
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
60,981,570
|
|
|
$
|
60,981,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in preferred stock derivative liability for Fiscal 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,518,425
|
|
The change of $56,518,425 in
value of the preferred stock derivative liability occurring during Fiscal 2014 is included in the amount reported in the “Other
Income/(Expense)” section of the statement of operations. Increases in value are reported as other expenses and decreases
in value are reported as other income. During Fiscal 2014 there was a net increase in the value of the preferred stock derivative
liability, so therefore the amount shown above represents another expense item on the income statement.
Preferred Stock Derivative Liabilities
– Fiscal 2013
|
|
|
Series C
|
|
|
Series E
|
|
|
Total
|
|
|
Preferred Shares Authorized
|
|
|
3,200
|
|
|
|
4,000
|
|
|
|
7,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares Outstanding as of March 31, 2013
|
|
|
1,375
|
|
|
|
1,800
|
|
|
|
3,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying common shares into which Preferred may convert
|
|
|
9,166,669
|
|
|
|
74,074,075
|
|
|
|
83,240,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price on valuation date
|
|
$
|
0.0761
|
|
|
$
|
0.0761
|
|
|
$
|
0.0761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock derivative liability at March 31, 2013
|
|
$
|
697,584
|
|
|
$
|
5,637,037
|
|
|
$
|
6,334,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in preferred stock derivative liability for Fiscal 2013
|
|
|
|
|
|
|
|
|
|
$
|
561,684
|
|
The change of $561,684 in value
of the preferred stock derivative liability occurring during Fiscal 2013 is included in the amount reported in the “Other
Income/(Expense)” section of the statement of operations. Increases in value are reported as other expenses and decreases
in value are reported as other income. During Fiscal 2013 there was a net increase in the value of the preferred stock derivative
liability, so therefore the amount shown above represents another expense item on the income statement.
NOTE 15 -
DERIVATIVE LIABILITIES
- WARRANTS
To date, the Company has authorized
the issuance of Common Stock Purchase Warrants, with terms of five to seven years, to various corporations and individuals, in
connection with the sale of securities, loan agreements and consulting agreements. Exercise prices range from $0.0625 to $0.25
per warrant. The warrants expire at various times through April 25, 2018.
A summary of warrant activity
for the fiscal years indicated below is as follows:
|
|
|
Fiscal Year 2014
|
|
|
Fiscal Year 2013
|
|
|
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Balance at beginning of year
|
|
|
139,344,939
|
|
|
$
|
0.08
|
|
|
|
161,478,979
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercises, forfeited or expired
|
|
|
37,201,848
|
|
|
$
|
0.09
|
|
|
|
22,134,040
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
102,143,091
|
|
|
$
|
0.06
|
|
|
|
139,344,939
|
|
|
$
|
0.08
|
|
Accounting Standard Codification
“ASC” 815 –
Derivatives and Hedging
, which provides guidance on determining what types of instruments
or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can
affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features within,
and the detachable warrants issued with the Company’s Series B, Series C, and Series E Preferred Stock, do not have fixed
settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower prices
in the future, we have concluded that the instruments are not indexed to the Company’s stock and are to be treated as derivative
liabilities.
The Warrant Derivative Liabilities
are measured at fair market value, using the market approach and a level 3 fair value hierarchy, on a recurring basis as of March
31, 2014 and March 31, 2013, in accordance with the valuation techniques discussed in ASC 820.
The portion of derivative liabilities
related to outstanding warrants was valued using the Black-Scholes option valuation model, a level 3 fair value hierarchy using
the following assumptions
:
|
|
|
March 31
2014
|
|
|
March 31
2013
|
|
|
Risk-Free interest rate
|
|
|
.05% - 1.32%
|
|
|
|
.04% - .77%
|
|
|
Expected volatility
|
|
|
111% - 207%
|
|
|
|
106% - 168%
|
|
|
Expected life (in years)
|
|
|
0.3 – 4.1
|
|
|
|
0.5 – 5.1
|
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
Number of warrants
|
|
|
102,143,091
|
|
|
|
139,344,939
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value – Warrant Derivative Liability
|
|
$
|
38,103,446
|
|
|
$
|
7,862,848
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in warrant derivative liability for the twelve months ended
|
|
$
|
32,997,869
|
|
|
$
|
(4,089,491
|
)
|
The risk free interest rate was
based on rates established by the US Treasury Department. The expected volatility was based on the historical volatility of the
Company’s share price for periods equal to the expected life of the outstanding warrants at each valuation date. The expected
dividend rate was based on the fact that the Company has not historically paid dividends on common stock and does not expect to
pay dividends on common stock in the future.
The changes of 32,997,869 and
$(4,089,491) in value of the warrant derivative liability occurring during the years ended March 31, 2014 and 2013, respectively,
are included in the amounts reported in the “Other Income/(Expense)” section of the statement of operations. Increases
in value are reported as other expenses and decreases in value are reported as other income.
The following table summarizes,
as of March 31, 2014, the warrant activity subject to Level 3 inputs which are measured on a recurring basis:
Fair value measurements of warrants using significant
unobservable inputs
(Level 3)
|
|
|
Fiscal 2014
|
|
|
Fiscal 2013
|
|
|
Balance at Beginning of Fiscal Year
|
|
$
|
7,862,848
|
|
|
$
|
11,987,222
|
|
|
Warrants Issued
|
|
|
—
|
|
|
|
—
|
|
|
Warrants Exercised
|
|
|
(8,392,452
|
)
|
|
|
(707,216
|
)
|
|
Change in fair value of warrant liability
|
|
|
33,527,473
|
|
|
|
(3,417,158
|
)
|
|
Balance at End of Fiscal Year
|
|
$
|
32,997,869
|
|
|
$
|
7,862,848
|
|
NOTE 16 -
BENEFICIAL CONVERSION
FEATURES OF SERIES E PREFERRED SHARES
The Series E Preferred shares
include an option, exercisable from the issuance date, to convert to common shares at prices which were less than the market price
of the Company’s Common Stock on the date such Series E Preferred shares were issued. The difference between the share price
and option price represents a beneficial conversion feature existing on the issue date.
In accordance with GAAP, the beneficial
conversion feature was valued separately and allocated to additional paid in capital. The valuations were calculated using the
relative fair value method allocating the proceeds from each issuance of the Series E Preferred shares to the conversion option
and detachable warrants, if such warrants were included with an issuance.
The beneficial conversion option
is then required to be recognized as a discount and amortized over a period that begins on the date of issuance and ends on the
earliest conversion date. As the conversion options were exercisable on their issue date, the full value assigned to the conversion
option was immediately amortized and charged to interest expense.
The Company did not issue any
shares of Series E Preferred Stock during Fiscal 2014.
During Fiscal 2013, the Company
issued a total of 437.5 shares of Series E Preferred Stock which included a conversion option at a price that was less than the
market price of the Company’s Common Stock on the date of issuance of the Series E Preferred Stock.
The valuation of the beneficial
conversion feature, and detachable warrants, where applicable, for Series E Preferred Share issuances during Fiscal 2014 and Fiscal
2013 is summarized as follows:
|
|
|
Fiscal 2014
|
|
|
Fiscal 2013
|
|
|
Series E Shares Issued
|
|
|
—
|
|
|
|
437.5
|
|
|
Detachable Warrants Issued
|
|
|
—
|
|
|
|
—
|
|
|
Gross Proceeds Received
|
|
|
—
|
|
|
$
|
437,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Valuation of Warrants Issued
|
|
|
—
|
|
|
|
—
|
|
|
Gross Valuation of Beneficial Conversion
|
|
|
—
|
|
|
$
|
437,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds Allocated to Warrants
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds Allocated to Beneficial Conversion Feature
|
|
|
—
|
|
|
$
|
437,500
|
|
|
Total Allocation of Proceeds
|
|
$
|
-0-
|
|
|
$
|
437,500
|
|
During Fiscal Years 2014 and 2013,
the Company issued a total of 185,748,471 shares and 42,844,221 shares of Common Stock, respectively, with such issuances of Common
Stock being summarized as follows:
|
Description
|
|
Fiscal Year
2014
|
|
|
Fiscal Year
2013
|
|
|
|
|
|
|
|
|
|
|
Common shares sold pursuant to the Lincoln Park Capital Purchase Agreement, with net proceeds of such shares totaling $10,000,000 and zero in Fiscal 2014 and Fiscal 2013, respectively.
|
|
|
65,143,216
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued as commitment shares pursuant to the Lincoln Park Capital Purchase Agreement
|
|
|
5,858,230
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued in lieu of cash payment in payment of preferred share derivative interest expenses totaling $68,089 and $182,684 for Fiscal 2014 and Fiscal 2013, respectively
|
|
|
878,543
|
|
|
|
1,860,943
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued pursuant to the conversion of Series B, Series C, and Series E Convertible Preferred Share derivatives, with such derivative liabilities totaling $9,825,066 and $3,170,670, for Fiscal 2014 and Fiscal 2013, respectively, at the time of their conversion.
|
|
|
91,796,043
|
|
|
|
29,863,563
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued in payment of Director’s fees totaling $110,000 and $96,047 for Fiscal 2014 and Fiscal 2013, respectively
|
|
|
1,210,583
|
|
|
|
1,200,588
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of employee salaries totaling $368,233 and $50,072 for Fiscal 2014 and Fiscal 2013, respectively.
|
|
|
3,439,467
|
|
|
|
625,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of consulting expenses totaling $18,472 and zero for Fiscal 2014 and Fiscal 2013, respectively
|
|
|
210,018
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to warrants exercised
|
|
|
16,904,038
|
|
|
|
9,293,227
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to options exercised
|
|
|
308,333
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Shares issued during Fiscal 2014 and 2013
|
|
|
185,748,471
|
|
|
|
42,844,221
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued at March 31,
|
|
|
560,242,430
|
|
|
|
374,493,959
|
|
|
|
NOTE 18 -
|
PER SHARE INFORMATION
|
Basic earnings per share of common
stock (“Basic EPS”) is computed by dividing the net income(loss) by the weighted-average number of shares of common
stock outstanding. Diluted earnings per share of common stock (“Diluted EPS”) is computed by dividing the net income(loss)
by the weighted-average number of shares of common stock and dilutive common stock equivalents and convertible securities then
outstanding. GAAP requires the presentation of both Basic EPS and Diluted EPS, if such Diluted EPS is not anti-dilutive, on the
face of the Company’s Consolidated Statements of Operations. As the Company had a net loss for Fiscal Year 2014, Diluted
EPS is not presented as the effect of the Company’s common stock equivalents and convertible securities is anti-dilutive.
Basic EPS is calculated
as follows:
|
|
|
Fiscal Year
2014
|
|
|
Fiscal Year
2013
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to common shareholders
|
|
$
|
(96,575,271
|
)
|
|
$
|
1,487,928
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
463,021,991
|
|
|
|
349,075,642
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) per Share – Basic
|
|
$
|
(0.21
|
)
|
|
$
|
0.00
|
|
Potentially dilutive securities
excluded from the calculation of diluted loss per share for Fiscal 2014 ( in accordance with GAAP)
|
Stock Options
|
|
|
174,359
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
|
148,917,143
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
15,782,718
|
|
Diluted EPS (for Fiscal
2013) is calculated as follows:
|
|
|
Fiscal Year
2013
|
|
|
Numerator
|
|
|
|
|
|
Net Income attributable to common shareholders
|
|
$
|
1,487,928
|
|
|
Adjustments to Net Income
|
|
|
|
|
|
Reversal of Change in Value of Preferred Share Derivatives
|
|
|
561.684
|
|
|
Reversal of Change in Value of Warrant Derivatives
|
|
|
(4,089,491
|
)
|
|
Reversal of Derivative Interest Expense
|
|
|
139,219
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders on a diluted basis
|
|
$
|
(1,900,660
|
)
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
349,075,642
|
|
|
Dilutive effects of convertible preferred stock, warrants and options
|
|
|
|
|
|
Convertible preferred Stock
|
|
|
83,240,744
|
|
|
Warrants
|
|
|
94,421,813
|
|
|
Stock Options
|
|
|
141,919
|
|
|
Weighted average shares outstanding – diluted
|
|
|
526,880,118
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(0.00
|
)
|
|
|
NOTE 19 -
|
STOCK-BASED COMPENSATION
|
Part or all of the compensation
paid by the Company to its Directors and employees consists of the issuance of Common Stock or via the granting of options to purchase
Common Stock
Stock-based Director Compensation
The Company’s Director
compensation policy instituted in October 2009 includes provisions that Director’s fees are to be paid via the issuance of
shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on a quarterly
basis and equal to the average closing price of the Company’s common stock for the quarter just ended.
During Fiscal 2014, the Company
issued 1,210,583 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate amount of $110,000
and related to the calendar year ending on December 31, 2013. Please note that the shares issued during Fiscal 2014, include those
shares owed and not yet issued at the end of Fiscal Year 2013.
During Fiscal 2013, the Company
issued 1,200,588 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate amount of $130,000
and related to the calendar year ending on December 31, 2012. Please note that the shares issued during Fiscal 2013, include those
shares owed and not yet issued at the end of Fiscal Year 2012.
As of March 31, 2014, the Company
owes its Directors a total of 69,679 shares of Common Stock in payment of Directors Fees totaling $27,500 for the three months
ended March 31, 2014. The Company anticipates that these shares of Common Stock will be issued during the fiscal year ended March
31, 2015.
Stock-based Employee Compensation
Employment contracts with the
Company’s President and Chief Executive Officer, Chief Financial Officer and certain other employees includes provisions
for a portion of each employees salaries to be paid via the issuance of shares of the Company’s Common, in lieu of cash,
with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s
common stock for the quarter just ended.
During Fiscal Year 2014, the
Company issued a total of 3,439,467 shares of Common Stock to its President and Chief Executive Officer, Chief Financial Officer
and certain other employees in payment of salaries in the aggregate amount of $368,233 and related to the period calendar year
ended December 31, 2013. Please note that the shares issued during Fiscal 2014, include those shares owed and not yet issued at
the end of Fiscal 2013.
During Fiscal Year 2013, the
Company issued a total of 625,900 shares of Common Stock to its President, Chief Financial Officer and certain other employees
in payment of salaries in the aggregate amount of $67,917 and related to the period calendar year ended December 31, 2012. On the
date of their issuance, the Common Shares had a value of $50,072, based upon the closing price of the Company’s Common Stock
on such date. Please note that the shares issued during Fiscal 2013, include those shares owed and not yet issued at the end of
Fiscal 2012.
As of March 31, 2014, the Company
owes its President and Chief Executive Officer, Chief Financial Officer and certain other employees a total of 502,883 shares of
Common Stock in payment of salaries totaling $198,481 for the three months ended March 31, 2014, with such amount being recorded
in accrued expenses. The Company anticipates that these shares of Common Stock will be issued during the fiscal year ended March
31, 2015.
Stock option based Employee
Compensation
During Fiscal 2014, the Company
issued, to various employees, options to purchase a total of 3,000,000 shares Common Stock, in aggregate (the “2014 Options”).
The 2014 Options have an exercise price of $0.07 per share, vest equally over a three year period which commences one year from
the date of grant and expire ten years from the date of grant. The fair value of the 2014 Options was $202,497, computed using
the Black-Scholes options pricing model on the grant date. Such fair value is being amortized by the Company, on a straight line
basis, over the vesting period and recorded on the Company’s Statement of Income as “Non-cash compensation through
the issuance of stock options”.
During Fiscal 2013, the Company
issued, to various employees, options to purchase a total of 985,000 shares Common Stock, in aggregate (the “2013 Options”).
The 2013 Options have an exercise price of $0.12 per share, vest equally over a three year period which commences one year from
the date of grant and expire ten years from the date of grant. The fair value of the 2013 Options was $113,842, computed using
the Black-Scholes options pricing model on the grant date. Such fair value is being amortized by the Company, on a straight line
basis, over the vesting period and recorded on the Company’s Statement of Income as “Non-cash compensation through
the issuance of stock options”.
During the year ended March
31, 2010 (“Fiscal 2010”) the Company issued, to various employees, options to purchase a total of 1,000,000 shares
of Common Stock, in aggregate (the “2010 Options”). The 2010 Options have an exercise price of $0.10, vest over a three
year period which commences one year from the date of grant and expire ten years from the date of grant. The fair value of the
2010 Options was $93,452, computed using the Black-Scholes options pricing model on the grant date. Such fair value is being amortized
by the Company, on a straight line basis, over the vesting period, and recorded on the Company’s Statement of Income as “Non-cash
compensation through the issuance of stock options”.
Stock option based employee
compensation is summarized as follows:
|
|
|
Fiscal Year
2014
|
|
|
Fiscal Year
2013
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense related to the 2010 Options
|
|
$
|
-0-
|
|
|
$
|
17,405
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense related to the 2013 Options
|
|
|
37,947
|
|
|
|
28,461
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense related to the 2013 Options
|
|
|
45,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-cash compensation through the issuance of stock options
|
|
$
|
82,947
|
|
|
$
|
45,866
|
|
|
|
NOTE 20 -
|
STOCK OPTION PLANS
|
Under its 2014 Stock Option
Plan and prior options 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 the 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:
|
|
|
Fiscal Year 2014
|
|
|
Fiscal Year 2013
|
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding at beginning of year
|
|
|
3,939,000
|
|
|
$
|
1.18
|
|
|
|
2,999,000
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
3,000,000
|
|
|
$
|
0.07
|
|
|
|
985,000
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
308,333
|
|
|
$
|
0.08
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expired/Forfeited
|
|
|
1,195,000
|
|
|
$
|
1.60
|
|
|
|
(45,000
|
)
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
5,435,667
|
|
|
$
|
0.54
|
|
|
|
3,939,000
|
|
|
$
|
1.18
|
|
The following table summarizes information about
stock options outstanding at March 31, 2014:
|
Range
|
|
|
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
$ 0.01 – 1.00
|
|
|
|
4,206,667
|
|
|
|
8.8
|
|
|
$
|
0.08
|
|
|
|
666,666
|
|
|
$
|
0.11
|
|
|
|
1.01 – 2.00
|
|
|
|
99,000
|
|
|
|
3.8
|
|
|
$
|
1.08
|
|
|
|
99,000
|
|
|
$
|
1.08
|
|
|
|
2.01 – 3.00
|
|
|
|
1,130,000
|
|
|
|
2.7
|
|
|
$
|
2.18
|
|
|
|
1,130,000
|
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01 – 3.00
|
|
|
|
5,435,667
|
|
|
|
7.4
|
|
|
$
|
0.54
|
|
|
|
1,895,666
|
|
|
$
|
1.39
|
|
As of March 31, 2014, there
were 9,389,684 options available for future grant under our Stock Option Plans.
The components of the
credit for income taxes are as follows:
|
|
|
Year Ended March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(3,099
|
)
|
|
$
|
(6,099
|
)
|
|
Deferred
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of New Jersey Net Operating Losses
|
|
|
295,710
|
|
|
|
359,817
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Credit for Income Taxes
|
|
$
|
292,611
|
|
|
$
|
353,718
|
|
The Major components of deferred
tax assets and liabilities at March 31, 2014 and 2013 are as follows (amounts in thousands of dollars):
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carry forward
|
|
$
|
19,886
|
|
|
$
|
17,968
|
|
|
Valuation Allowance
|
|
$
|
(19,886
|
)
|
|
|
(17,968
|
)
|
|
|
|
|
$ —
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
$
|
2,599
|
|
|
$
|
2,420
|
|
|
Valuation Allowance
|
|
$
|
(2,599
|
)
|
|
|
(2,420
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At March 31, 2014 and 2013,
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.
Revenue Concentrations
Ten customers accounted for
substantially all of the Company’s revenues for Fiscal 2014. Included in these ten customers are three customers that accounted
for approximately 88 percent of revenues for Fiscal 2014.
Six customers accounted for
substantially all of the Company’s revenues for Fiscal 2013. Included in these six customers are three customers that accounted
for approximately 90 percent of revenues for Fiscal 2013.
Accounts Receivable Concentrations
Five customers accounted for
substantially all of the Company’s accounts receivable as of March 31, 2014. Included in these five customers are three customers
that accounted for approximately 83% of accounts receivable as of March 31, 2014.
Four customers accounted for
substantially all of the Company’s accounts receivable as of March 31, 2013. Included in these four customers are two customers
that accounted for approximately 92% of accounts receivable as of March 31, 2013.
Purchasing Concentrations
Seven suppliers accounted for
more than 80% of the Company’s purchases of raw materials for Fiscal 2014. Included in these seven suppliers are two suppliers
that accounted for approximately 52% of raw material purchases for Fiscal 2014.
Four suppliers accounted for
more than 80% of the Company’s purchases of raw materials for Fiscal 2013. Included in these seven suppliers are two suppliers
that accounted for approximately 70% of raw material purchases for Fiscal 2014.
|
|
NOTE 23 -
|
RELATED PARTY TRANSACTION–STRATEGIC ALLIANCE
WITH EPIC PHARMA LLC and EPIC INVESTMENTS LLC
|
On March 18, 2009, the Company
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 Form 10-K under Item 7 of Part II of this Annual Report on Form 10-K, 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. Mr. Potti resigned from his position as Director of the
Company on December 31, 2012. Messrs. Nigalaye, Narine and Potti are also officers of Epic Pharma, LLC, in the following capacities:
|
|
·
|
Mr. Nigalaye, Chairman and Chief Executive Officer of Epic Pharma,
LLC;
|
|
|
·
|
Mr. Narine, President and Chief Operating Officer of Epic Pharma,
LLC;
|
|
|
·
|
Mr. Potti, Vice President of Epic Pharma, LLC
.
|
As part of the operation of the
strategic alliance, the Company and Epic identified areas of synergy, including, without limitation, raw materials used by both
entities, equipment purchases, contract manufacturing/packaging and various regulatory and operational resources existing at Epic
that could be utilized by the Company.
With regards to synergies related
to raw materials usage, the strategic alliance allowed the Company to purchase such raw materials from Epic, at the Epic acquisition
cost, without markup. In all cases, the acquisition cost of Epic was lower than those costs available to the Company, mainly as
a result of efficiencies of scale generated by significantly larger volumes purchased by Epic during the course of their normal
operations. During Fiscal 2014 and Fiscal 2013, an aggregate amount of $9,009 and $71,480, respectively, in such materials was
purchased from Epic Pharma LLC. All purchases were at Epic Pharma’s acquisition cost, without markup and evidenced by supporting
documents of Epic Pharma LLC’s acquisition cost.
With regards to synergies related
to regulatory and operational resources, the strategic alliance allowed the Company to utilize Epic’s substantial resources
and technical competencies on an “as needed” basis at a cost equal to Epic’s actual cost for only the resources
utilized by the Company. Without such access to Epic’s resources, the Company would have to invest significant amounts in
human resources and fixed assets as well as incur substantial costs with third party providers to provide the same resources provided
by Epic and necessary for the operations of the Company.
During Fiscal 2014, an aggregate
amount of $30,835 was paid to Epic as reimbursement for costs associated with facility maintenance, engineering and regulatory
resources utilized by the Company. During Fiscal 2013, an aggregate amount of $31,354 was paid to Epic as reimbursement for costs
associated with facility maintenance, engineering and regulatory resources utilized by the Company.
During Fiscal 2014, the Company
incurred a total of $29,668 in contract manufacturing and/or packaging costs to Epic Pharma for the Company’s Phentermine,
Hydromorphone, Methadone and Immediate Release Lodrane products. During Fiscal 2013, the Company incurred a total of $362,347 in
these costs.
Total purchases from Epic by the
Company during the fiscal years ended March 31, 2014 and 2013 were $69,512 and $465,181, respectively.
The Epic Strategic Alliance Agreement
expired on June 4, 2012.
|
|
NOTE 24 -
|
RELATED PARTY TRANSACTION–MANUFACTURING
and LICENSE AGREEMENT WITH EPIC PHARMA LLC
|
On October 2, 2013, Elite executed
the Epic Pharma Manufacturing and License Agreement. This agreement granted Epic Pharma certain rights to manufacture, market and
sell in the United States and Puerto Rico the 12 approved ANDAs acquired by Elite pursuant to the Mikah Purchase Agreement. Of
the 12 approved ANDAs, Epic Pharma will have the exclusive right to market six products as listed in Schedule A of the Epic Pharma
Manufacturing and License Agreement, and a non-exclusive right to market six products as listed in Schedule D of the Epic Pharma
Manufacturing and License Agreement. Epic Pharma is responsible for all regulatory and pharmacovigilance matters related to the
products and for all costs related to the site transfer for all products. Pursuant to the Epic Pharma Manufacturing and License
Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross
profit, as defined in the Epic Pharma Manufacturing and License Agreement, earned by Epic Pharma a result of sales of the products.
The manufacturing cost used for the calculation of the license fee is a predetermined amount per unit plus the cost of the drug
substance (API) and the sales cost for the calculation is predetermined based on net sales. If Elite manufactures any product for
sale by Epic Pharma, then Epic Pharma shall pay to Elite that same predetermined manufacturing cost per unit plus the cost of the
API. The license fee is payable monthly for the term of the Epic Pharma Manufacturing and License Agreement. Epic Pharma shall
pay to Elite certain milestone payments as defined by the Epic Pharma Manufacturing and License Agreement. The first milestone
payment of $600,000 has been paid. Subsequent milestone payments are due upon the filing of each product’s supplement with
the FDA, and the FDA approval of site transfer for each product as specifically itemized in the Epic Pharma Manufacturing and License
Agreement. The filing of the supplement with the FDA for Isradipine 2.5mg and Isradipine 5mg was made on March 24, 2014 and accordingly
a milestone of $200,000 has been earned and is due and owing from Epic Pharma to Elite. The term of the Epic Pharma Manufacturing
and License Agreement is five years and may be extended for an additional five years upon mutual agreement of the parties. Twelve
months following the launch of a product covered by the Epic Pharma Manufacturing and License Agreement, Elite may terminate the
marketing rights for any product if the license fee paid by Epic Pharma falls below a designated amount for a six month period
of that product. Elite may also terminate the exclusive marketing rights if Epic Pharma is unable to meet the annual unit volume
forecast for a designated product group for any year, subject to the ability of Epic Pharma, during the succeeding six month period,
to achieve at least one-half of the prior year’s minimum annual unit forecast. The Epic Pharma Manufacturing and License
Agreement may be terminated by mutual agreement of Elite and Epic Pharma, as a result of a breach by either party that is not cured
within 60 days notice of the breach, or by Elite as a result of Epic Pharma becoming a party to a bankruptcy, reorganization or
other insolvency proceeding that continues for a period of 30 days or more.
|
|
NOTE
|
25 -
TRANSACTIONS
WITH RELATED PARTIES – NASRAT HAKIM AND MIKAH PHARMA LLC
|
On August 1, 2013, Elite Laboratories
Inc. (“Elite Labs”), our wholly owned subsidiary, executed an asset purchase agreement (the “Mikah Purchase Agreement”)
with Mikah Pharma LLC (“Mikah”), an entity that is wholly owned by Mr. Nasrat Hakim, who, in conjunction with this
transaction, was appointed as our Chief Executive Officer, President and a Director on August 2, 2012, and acquired from Mikah
a total of 13 Abbreviated New Drug Applications (“ANDAs”) consisting of 12 ANDAs approved by the FDA and one ANDA under
active review with the FDA, and all amendments thereto (the “Acquisition”) for aggregate consideration of $10,000,000,
inclusive of imputed interest payable pursuant to a non-interest bearing, secured convertible note due in August 2016 (the “Mikah
Note”). The Mikah Note was amended on February 7, 2014 to make it convertible into shares of the Company’s Series I
Convertible Preferred Stock.
The Mikah Note, as amended, was
interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount
of the Mikah Note was convertible at the option of Mikah into shares of Common Stock at a rate of $0.07 (approximately 14,286 shares
per $1,000 in principal amount), the closing market price of the Company’s Common Stock on the date that the asset purchase
agreement and Note were executed and/or into shares of the Company’s Series I Convertible Preferred Stock at the rate of
1 share of Series I Preferred Stock for each $100,000 of principal owed on the Mikah Note. The conversion rate was adjustable for
customary corporate actions such as stock splits and, subject to certain exclusions, includes weighted average anti-dilution for
common stock transactions at prices below the then applicable conversion rate. Pursuant to a security agreement (the “Security
Agreement”), repayment of the Mikah Note was secured by the ANDAs acquired in the Acquisition.
On February 7, 2014, Mikah converted
the principal amount of $10,000,000, representing the entire principal balance due under the Mikah Note, into 100 shares of the
Company’s Series I Preferred Stock.
On August 27, 2010, Elite executed
an asset purchase with Mikah (the “Naltrexone Agreement”). Pursuant to the Naltrexone Agreement, Elite acquired from
Mikah the Abbreviated New Drug Application number 75-274 (Naltrexone Hydrochloride Tablets USP, 50 mg), and all amendments thereto
(the “ANDA”), that have to date been filed with the FDA seeking authorization and approval to manufacture, package,
ship and sell the products described in the ANDA within the United States and its territories (including Puerto Rico) for aggregate
consideration of $200,000. In lieu of cash, Mikah agreed to accept from Elite product development services to be performed by Elite.
A current report on form 8-K was filed on August 27, 2010 in relation to this announcement, such filing being incorporated herein
by this reference. Please also refer to exhibit 10.5 of the Quarterly Report on Form 10-Q filed with SEC on November 15, 2010,
such filing being incorporated herein by this reference.
The manufacturing of Naltrexone
50mg was successfully transferred to the Company’s Northvale facility, and the first commercial shipment of this product
was made in September 2013.
As of March 31, 2014, the product
development services referenced in the Naltrexone Agreement have not been completed and the $200,000 owed to Mikah was accrued
as a liability as of March 31, 2014.
During Fiscal 2014, the Company
purchased from Mikah Pharma, active pharmaceutical ingredients used by the Company in its current commercial manufacturing operations,
at Mikah’s cost, without markup. Such purchases totaled $75,600, with the funds being provided by Nasrat Hakim and included
as draws against the Hakim Credit Line.
During Fiscal 2014, the Company
purchased from Mikah Pharma, manufacturing equipment used by the Company in its current commercial manufacturing operations and
product development activities at Mikah’s cost, without markup. Such equipment purchases totaled $110,00, with the funds
being provided by Nasrat Hakim and included as draws against the Hakim Credit Line.
|
|
NOTE
|
26 - CONVERSIONS
OF PREFERRED STOCK DERIVATIVES TO COMMON STOCK
|
The Amended Certificate of Designations
of the Series B 8% Convertible Preferred Stock of Elite Pharmaceuticals (the “Series B Preferred Derivatives”), the
Series C 8% Convertible Preferred Stock of Elite Pharmaceuticals (the “Series C Preferred Derivatives”), the Series
E Convertible Preferred Stock Derivatives (the “Series E Preferred Derivatives”), the Series G 8% Convertible Preferred
Stock of Elite Pharmaceuticals (the “Series G Preferred Derivatives”), and the Series I Convertible Preferred Stock
Derivatives (the “Series I Preferred Derivatives”, and together with the Series B Preferred Derivatives, the Series
C Preferred Derivatives, the Series E Preferred Derivatives, and the Series G Preferred Derivatives, the “Preferred Derivatives”)
include provisions entitling the holders of these Preferred Derivatives to convert shares of the Preferred Derivatives into shares
of Common Stock. The Preferred Derivatives are classified as a liability to the Company, and the liability represented by those
shares of Preferred Derivatives being converted must be valued at the time of such conversion, with increases/(decreases) in the
value of preferred share derivative liabilities being appropriately recorded and reflected in the Other Income section of the Company’s
Statement of Operations. The amount of equity recorded as a result of the conversion of Preferred Derivatives is equal to the value
of such Preferred Derivatives being converted, at the time of the conversion, with such amount also representing the decrease in
the Preferred Share Derivative Liability on the Company’s Balance Sheet.
Conversions of Preferred Derivatives
during Fiscal 2014 and Fiscal 2013, are summarized as follows:
|
|
|
Fiscal 2014
|
|
|
Fiscal 2013
|
|
|
Series B Derivatives
|
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
—
|
|
|
|
797
|
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
—
|
|
|
|
5,310,387
|
|
|
Value of Preferred Derivative shares at time of conversion (represents decrease in derivative liability resulting from conversions)
|
|
|
—
|
|
|
|
690,350
|
|
|
Change in value of preferred share derivative liability recorded at time of conversion
|
|
|
—
|
|
|
|
212,415
|
|
|
Par value of Common Shares issued
|
|
|
—
|
|
|
|
5,310
|
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
—
|
|
|
|
685,040
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Preferred Derivatives
|
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
24
|
|
|
|
1,291
|
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
167,106
|
|
|
|
8,606,667
|
|
|
Value of Preferred Derivative shares at time of conversion (represents decrease in derivative liability resulting from conversions)
|
|
|
47,452
|
|
|
|
1,204,600
|
|
|
Change in value of preferred share derivative liability recorded at time of conversion
|
|
|
27,489
|
|
|
|
414,280
|
|
|
Par value of Common Shares issued
|
|
|
167
|
|
|
|
8,607
|
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
47,375
|
|
|
|
1,195,993
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Please also note that during Fiscal 2014, a total of 1,351 shares of Series C Preferred Derivatives were exchanged for 1,351 shares
of Series G Preferred Derivatives, with such Series G shares having the same value as the Series C shares being exchanged.
|
|
|
|
|
|
|
|
|
|
Series E Preferred Derivatives
|
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
1,800
|
|
|
|
388
|
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
74,074,074
|
|
|
|
15,946,502
|
|
|
Value of Preferred Derivative shares at time of conversion (represents decrease in derivative liability resulting from conversions)
|
|
|
7,888,066
|
|
|
|
1,275,720
|
|
|
Change in value of preferred share derivative liability recorded at time of conversion
|
|
|
2,652,675
|
|
|
|
—
|
|
|
Par value of Common Shares issued
|
|
|
74,074
|
|
|
|
15,947
|
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
7,813,991
|
|
|
|
1,259,774
|
|
|
|
|
|
|
|
|
|
|
|
|
Series G Preferred Derivatives
|
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
1,351
|
|
|
|
—
|
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
17,554,863
|
|
|
|
—
|
|
|
Value of Preferred Derivative shares at time of conversion (represents decrease in derivative liability resulting from conversions)
|
|
|
1,889,458
|
|
|
|
—
|
|
|
Change in value of preferred share derivative liability recorded at time of conversion
|
|
|
557,773
|
|
|
|
—
|
|
|
Par value of Common Shares issued
|
|
|
17,555
|
|
|
|
—
|
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
1,871,903
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Derivatives
|
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
3,175
|
|
|
|
2,475
|
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
91,796,043
|
|
|
|
29,863,556
|
|
|
Value of Preferred Derivative shares at time of conversion (represents decrease in derivative liability resulting from conversions)
|
|
|
9,825,066
|
|
|
|
3,170,671
|
|
|
Change in value of preferred share derivative liability recorded at time of conversion
|
|
|
3,237,937
|
|
|
|
626,696
|
|
|
Par value of Common Shares issued
|
|
|
91,796
|
|
|
|
29,864
|
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
9,733,270
|
|
|
|
3,140,807
|
|
NOTE 27 CONTINGENCIES
On March 1, 2013, the Company
did not renew its Directors and Officers insurance policy and the Company did not have a Directors and Officers insurance policy
since that date. As of the date of filing this Annual Report on Form 10-K, management has not been notified any claims against
the Company.
During Fiscal 2014, as part of
the Company’s efforts to ensure the retention and continuity of key employees, officers and directors in the event of a change
of control of the ownership of the Company, the Board of Directors passed a resolution whereby, in the event of a change in control
of the ownership of the Company, key executives would receive an amount equal to twelve months of such executive’s salary,
and certain Directors and managers would receive an amount equal to six months of such Director’s or managers fees or salaries,
as applicable. In addition, the resolution passed provided for the immediate vesting of outstanding options, in the event of a
change of control.
NOTE 28 -
RIGHTS
PLAN
On November 15, 2013, our board
of directors declared a dividend distribution of one right for each outstanding share of our common stock and one right for each
share of Common Stock into which any of our outstanding Preferred Stock is convertible, to stockholders of record at the close
of business on that date. Each Right entitles the registered holder to purchase from us one “Unit” consisting of one
one-millionth (1/1,000,000) of a share of Series H Junior Participating preferred stock, par value $0.01 per share (the “H
Preferred Stock”), at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November 15,
2023, the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable
apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer,
the Rights Plan's the 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable to
him pursuant to his employment agreement and the Mikah Note. The description and terms of the Rights are set forth in a Rights
Agreement (“Rights Agreement”) between the Company and American Stock Transfer & Trust Company, LLC, as Rights
Agent. For more detailed information, please refer to the Registration Statement on Form 8-A filed with the SEC on November 15,
2013, and exhibits 1 (Rights Agreement) and 2 (Series H Junior Participating Preferred Stock Certificate of Designations) filed
therewith, with such filings being herein incorporated by reference.
NOTE 29 - SUBSEQUENT EVENTS
The Company has evaluated subsequent
events from the balance sheet date through June 30, 2014, the date the accompanying financial statements were issued. The following
are material subsequent events:
Lincoln Park Transaction
On April 10, 2014, we entered
into a purchase agreement (the “Purchase Agreement”), together with a registration rights agreement (the “Registration
Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Under the terms and subject to
the conditions of the Purchase Agreement, the Company has the right to sell to and Lincoln Park is obligated to purchase up to
$40 million in shares of the Company’s common stock (“Common Stock”), subject to certain limitations, from time
to time, over the 36-month period commencing on the date that a registration statement, which the Company agreed to file with the
Securities and Exchange Commission (the “SEC”) pursuant to the Registration Rights Agreement, is declared effective
by the SEC and a final prospectus in connection therewith is filed. The Company may direct Lincoln Park, at its sole discretion
and subject to certain conditions, to purchase up to 500,000 shares of Common Stock on any business day, provided that at least
one business day has passed since the most recent purchase, increasing to up to 800,000 shares, depending upon the closing sale
price of the Common Stock (such purchases, “Regular Purchases”). However, in no event shall a Regular Purchase be more
than $760,000. The purchase price of shares of Common Stock related to the future funding will be based on the prevailing market
prices of such shares at the time of sales, but in no event will shares be sold to Lincoln Park on a day the Common Stock closing
price is less than the floor price as set forth in the Purchase Agreement. In addition, the Company may direct Lincoln Park to
purchase additional amounts as accelerated purchases if on the date of a Regular Purchase the closing sale price of the Common
Stock is not below the threshold price as set forth in the Purchase Agreement. The Company’s sales of shares of Common Stock
to Lincoln Park under the Purchase Agreement are limited to no more than the number of shares that would result in the beneficial
ownership by Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of
the Common Stock.
In connection with the Purchase
Agreement, the Company issued to Lincoln Park 1,928,641 shares of Common Stock and is required to issue up to 1,928,641 additional
shares of Common Stock pro rata as the Company requires Lincoln Park to purchase the Company’s shares under the Purchase
Agreement over the term of the agreement. Lincoln Park represented to the Company, among other things, that it was an “accredited
investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities
Act”)), and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(2) under
the Securities Act. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption
from registration requirements.
The Purchase Agreement and the
Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale
transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement
at any time, at no cost or penalty. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend
on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading
price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations.
There are no trading volume requirements or restrictions under the Purchase Agreement. Lincoln Park has no right to require any
sales by the Company, but is obligated to make purchases from the Company as it directs in accordance with the Purchase Agreement.
Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of
our shares.
The net proceeds under the Purchase
Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park.
The Company expects that any proceeds received by the Company from such sales to Lincoln Park under the Purchase Agreement will
be used for general corporate purposes and working capital requirements.
The foregoing descriptions of
the Purchase Agreements and the Registration Rights Agreement are qualified in their entirety by reference to the full text of
the Purchase Agreement and the Registration Rights Agreement, copies of which are attached to the Current Report on Form 8-K filed
with the SEC on April 14, 2014 as Exhibit 10.1 and 10.2, respectively, and each of which is incorporated herein in its entirety
by reference. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements
and as of specific dates, were solely for the benefit of the parties to such agreements, and may be subject to limitations agreed
upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection
with execution of the agreements.
A Registration Statement on Form
S-1 was filed with the SEC in relation to this transaction with Lincoln Park and it was declared effective by the SEC as of May
1, 2014.
During the period beginning on
April 1, 2014 through June 20, 2014, a total of 2,407,014 shares of Common Stock were sold to Lincoln Park pursuant to the Purchase
Agreement, with the proceeds of such sales of Common Stock totaling $896,613. An additional 43,232 shares of Common Stock were
issued to Lincoln Park during this same period with such shares constituting additional commitment shares issued pursuant to the
Purchase Agreement.
2014 Annual Meeting of Shareholders
The Company’s 2014 Annual
Meeting of Shareholders was held on May 21, 2014. The requisite quorum for the meeting of 50% was present. At the meeting, Shareholders
voted to the amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock
from 690,000,000 shares to 995,000,000 shares. At the meeting, the Shareholders also voted to approve the Company’s 2014
Equity Incentive Plan.
A Current Report on Form 8-K was
filed with the SEC on May 23, 2014 regarding the 2014 Annual Meeting of Shareholders, with such filing being herein incorporated
by reference.
Arbitration with Precision
Dose, Inc.
An arbitration proceeding was
commenced on May 9, 2014 by Precision Dose Inc., the parent company of TAGI Pharmaceuticals, Inc., alleging that the Company failed
to properly supply, price and satisfy gross profit minimums regarding Phentermine 37.5mg tablets, as required by the parties’
agreements. Elite denies Precision Dose’s allegations and has counterclaimed that Precision Dose is no longer entitled to
exclusivity rights with respect to Phentermine 37.5mg tablets, and is responsible for certain costs, expenses, price increases
and lost profits relating to Phentermine 37.5mg tablets and the parties’ agreements.
As of the date of filing of the
Company’s annual report on Form 10-K for Fiscal 2014, this arbitration proceeding was ongoing.